Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

From Bootstrapping to Venture Rounds: A Startup Case Study


Published on

From Bootstrapping to Venture Rounds, and a real-life case study of seed stage financing.

Published in: Technology
  • Great Job!.... STARTUPS get funding...Send your pitchdeck to over 5700 of VC's and Angel's with just 1 click. Visit:
    Are you sure you want to  Yes  No
    Your message goes here

From Bootstrapping to Venture Rounds: A Startup Case Study

  1. 1. From Bootstrapping to Venture Rounds: a Startup Case Study Enterpreneurship Leadership Program 02.25.2016 Confidential and Proprietary - Not for Distribution
  2. 2. Confidential and Proprietary - Not for Distribution 2 Today • Managing Partner of IA Ventures, a 6-year old, $315M seed stage venture firm based in NYC but with a significant portfolio across the Bay Area and ROW • Fortunate to work with two partners from whom I learn every day and who make me better • Top decile performance across our first two funds, Fund I ($50M, 2010) and Fund II ($105M, 2012): recently began investing out of Fund III ($160M, 2016) • Led the Seed round in high-growth companies including Digital Ocean, MemSQL, Simple, Transferwise, Vectra Networks and • 6 years into a 20+ year effort to be the best seed stage firm on the planet
  3. 3. • Devoted 5 years to becoming a successful angel investor • Early investor in Buddy Media (Salesforce), Invite Media (Google), Ticketfly (Pandora), TubeMogul (IPO) and TweetDeck (Twitter) • Seeded 40 companies over a 5 year period, personally led 6 rounds and sat on 6 Boards • Went all-in on seed stage technology investing in 2005 by committing to 5 meetings a day, 5 days a week for 5 years, and devoting significant personal capital to the effort • Post-Michigan spent my first 18 years on Wall Street (Citi, Deutsche) in Capital Structuring, Derivatives and Quantitative Trading Confidential and Proprietary - Not for Distribution 3 Yesterday
  4. 4. • “Standard” engagement is an initial investment of $1-$2M, with ~$3M of total capital reserved per company before consideration of additional reserves • 24-27 companies per portfolio, with ~1/3 being classified as “Best of fund” or “Best of firm” • Almost always invest pre- product/market fit, where the goal is to help our companies determine the key hypotheses to be proven before raising a great Series A round • Ultra low-friction Seed investment: simplest docs in the business, IA pays, no Board seat; treat the initial investment as an “experiment” • No notion of “control”; it’s all about aligning on what’s important for the company and building trust Confidential and Proprietary - Not for Distribution 4 IA Model
  5. 5. • Bootstrapping • Angel round • Seed round • Venture round Confidential and Proprietary - Not for Distribution 5 Funding the startup
  6. 6. • Bootstrapping generally refers to raising no external capital; funding off of personal balance sheet plus customer receipts • Great for maximizing ownership and control • Forces intense customer focus and “colliding with the market” early and often, as well as rapid determination of what customers will actually pay for • Can work against building a scalable software business as near-term services revenue can delay “productization” • However, if a bootstrapped company can build a scalable service, it can control its destiny and choose to raise venture finance to accelerate growth in the future Confidential and Proprietary - Not for Distribution 6 Bootstrapping
  7. 7. • Angel rounds, which can include “Friends & Family”, have historically meant raising <$1M but today sometimes morph into “party rounds” of $4M+ • Great for providing the resources to recruit a small, high- performance team and to build and ship early product • Often provides 12 months of runway to demonstrate the founders’ vision, execution ability and market opportunity • Rarely enables founders’ to jump straight to a Series A, introducing the requirement to raise additional funds to achieve product/market fit and hit key performance metrics • If additional funds can’t be raised, a company is forced to either shut down or sell itself as an “acqui-hire” Confidential and Proprietary - Not for Distribution 7 Angel round
  8. 8. • Seed rounds are often in the $1-$3M range, are designed to prepare a company to raise a Series A and can sometimes preclude Angel rounds • Great for providing the financing necessary to hit critical Series A metrics, by hiring key staff as well as shipping and selling a more polished product; often serves as a bridge between an Angel round and a traditional Venture round • Unlike Angel rounds, which are generally made up of a group of small investors without a institutional lead, Seed rounds can offer institutional leadership and support well before hitting the metrics required for Venture investment • As with Angel rounds, Seed rounds either lead to a successful Series A or shut down/fire sale Confidential and Proprietary - Not for Distribution 8 Seed round
  9. 9. • Generally refers to Series A and Series B rounds, with round sizes of $7-$10M to $15-$25M • Often led by firms with fund sizes of $200M+, and sometimes upwards of $1BN • Venture financings almost always contain material governance and control provisions, presenting founders with the pros and cons that accompany “partnership” as well as larger capital commitments • Securing a great partner is more important than the brand of Venture firm; the partner will sit on your Board and be your greatest advocate, and sharpest critic, when it matters • Reporting and metrics tracking are increasingly critical as are understanding margins, payback periods and customer LTV Confidential and Proprietary - Not for Distribution 9 Venture round
  10. 10. • There is no one-size-fits-all approach to financing a technology startup • It is critical to understand your goals before taking dollar one of third-party capital • There is no glamor in raising Venture capital; only opportunity, responsibility, pressure and (sometimes) pain • Founders can build great businesses that don’t subject themselves well to Venture financing, e.g., addressing smaller markets, inherently cash-flow positive businesses that can’t (or shouldn’t) grow faster with additional funding • Perform diligence on potential investors the same way you would vet potential employees – or partners Confidential and Proprietary - Not for Distribution 10 Key take-aways
  11. 11. • The date: Q4 2009 • The Industry: Ad tech • Industry perception: Crowded and “done” • Venture appetite for new startups in the space: Scant • Location: Southern California (not many venture dollars back then) • The Public Market: Recovering from the thralls of 2008/09 but still jittery • The Venture Scene: Bruised and battered, with emerging managers/Micro VCs yet to exist and with Sequoia’s “RIP Good Times” still fresh in investors’ minds Confidential and Proprietary - Not for Distribution 11 Case study: The Trade Desk
  12. 12. • You have 30 minutes to review the presentation, discuss with your group and report back on this question: Would you invest and why? • Be prepared to provide clear, concise reasons based on the material in the presentation and the environment as I’ve depicted it • And remember – no cheating by pulling in current knowledge. Put yourself in my shoes 6.5 years ago with the information at my disposal Confidential and Proprietary - Not for Distribution 12 Case study: The Trade Desk
  13. 13. • Questions for discussion: – Market: The ad tech market, today and future trends – Product: What’s been built, positioning, differentiation, complexity to build and ship – Team: Founder structure, cap table, startup experience, domain knowledge, reputation, and diligence – Hypotheses: What must be true in order to this to be an attractive candidate for Venture financing? What are their “secrets”? – Chemistry: Are these founders I’m excited to partner with for the next 10 years? Confidential and Proprietary - Not for Distribution 13 Case study: The Trade Desk
  14. 14. • Post-mortem: – The founders did indeed have “secrets” • Explosive rise of programmatic • Aligned with, rather than competing against, agencies • Laser focus on technology, product and scalability resulting in a SaaS-like user experience • The largest buyers wanted an independent alternative to the “walled gardens” of GOOG and FB – Management built the most capital-efficient, profitable, fastest growing ad tech company on the planet – Even after demonstrating the power of the business they couldn’t raise growth capital from the “brand name” VCs Confidential and Proprietary - Not for Distribution 14 Case study: The Trade Desk
  15. 15. • Key take-aways: – Visionary founders may define a market very differently than the mainstream – Great founders have deeply-held secrets/perspectives on current offerings that may conflict with lots of smart people, including other founders and respected VCs – Startups are seldom “up and to the right” – there are lots of hiccups, mistakes and near-death experiences, even with the best companies – Dogged determination together with empathy for and understanding of your customers generally wins the day – Seeking external validation from anyone other than your customers is generally a waste of time Confidential and Proprietary - Not for Distribution 15 Case study: The Trade Desk