General Assembly Class: Insiders Guide to Seed Fundraising


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A deck I presented at General Assembly in NYC seminar on best practices in fundraising for seed-stage tech start-ups. Target Audience: Tech-Startup Entrepreneurs

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  • Thanks for the feedback Zeev. Let's definitely chat about crowd funding. Cheers.
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  • Tom thank you for last nights workshop. It was excellent. Id like to email you about the jobs act as it may change towards crowdsourcing seed funding. This is my interest and im looking for people to work with/for ( paid or with my free time after work). Gust is one candidate and i was hoping to talk to you about them and others....
    Please let me know how to contact you if you have the chance.
    Thanks for your time
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General Assembly Class: Insiders Guide to Seed Fundraising

  1. 1. To all who attended Wed night at GA: Thanks! Hope you enjoyed it and gained something.Feedback welcome.FYI .The next class I will teach at GA is: The Seed Stage Pitch: the Art and Science ofGood Communication Monday 4/15 at 7PM. Link/follow me on LinkedIn and/or Twitter forupdates, etc. (Page 31 of this deck has my details) .Cheers, -TW Seed Fundraising for Tech Entrepreneurs: Mastering the Art and the Science Insights on successful fundraising from an active angel investor and fellow entrepreneur General Assembly Seminar Tom Wisniewski RosePaul Investments Wednesday March 13, 2013
  2. 2. Agenda I. Kick-off and Introduction II. Seed Fundraising III. Additional Q&A, Feedback and BeveragesSeptember 2011 1 confidential
  3. 3. I. Kick-Off and Introduction Seminar Rationale: Why are we hear? Based on my experiences and feedback from other investors and entrepreneurs . Raising money is difficult .especially for early stage ventures. Why? At least part of the answer is: • The “market” for early stage investment is complex, nuanced and can be “bewildering” .especially for 1st timers. • Finding investors is difficult getting investors to write a check (can seem) nearly impossible: “1% of start-ups get funded” • Lots of “noise” no shortage of advice What will help? • Understand the marketplace, people and processes that are at work • Leverage existing expertise and network (thoughtfully). • Interpret and utilize the wealth of resources that already exist. • Improve / adapt your venture and approach. • ..Become a “student” of the art and science of fundraising (and entrepreneurship generally)September 2011 2 confidential
  4. 4. What would I like you to walk away with? Well, this will obviously be different depending on your past experiences and the stage of your venture but . Better understanding of the marketplace: fundraising process, sources of capital, do’s and don’ts, etc. A set of specific insights that will *change* what you are doing in fundraising. A “to-do” list: starting point(s), actions, things to try. A set of recommended resources to consult and learn more from. A few new relationships with others in the NYC start- up/fundraising ecosystem: fellow entrepreneurs, investors, etc. Answers to specific questions about fundraising that you might have.September 2011 3 confidential
  5. 5. Tom Wisniewski: My background Born in NYC; grew-up in Montclair, NJ Physics and Philosophy major undergrad (Clark University); MBA at Tuck School (Dartmouth) 1st Job: Programmer at Morgan Stanley then moved to Investment Banking After B-school: joined a start-up management consulting firm Mitchell Madison Group; focus on Strategy/Operations/IT for financial services, tech, outsourcing, private equity/VC clients (1993 to 2000) Walker Digital: helped set-up and run an early “internet incubator” (2000) Independent Advisor / Turn-arounds: Advised VC and PE Firms on portfolio company strategy and new investments; joined the management team of two companies Currently: • Early stage investor and advisor to start-ups • Investor and advisor to VC and PE funds • Member and director at New York Angels Recent Investments: Sociocast (social/behavioral analytics), LiveLook (Saas, live collaboration, co-browsing); Movio (Digital “RedBox” ); Bizodo (Saas, paperwork automation); Social Starts (seed fund for start-ups); Brooklyn Bridge Ventures (Charlie O’Donnell); Entrepreneurs Roundtable Accelerator (ERA)September 2011 4 confidential
  6. 6. Additional Introductions Ellie Wheller (Greycroft) Charlie O’Donnell (Brooklyn Bridge Ventures) Heather Miles (Venture Lawyer Extraordinaire) Other GuestsSeptember 2011 5 confidential
  7. 7. So .what questions do you have about Seed fundraising? Demitri Source of capital, MVP, stage need to be Preyas What do I have for a investor discussion Ranjan level of detail e.g numbers Shashi .Friend and Family, timeline Wendy .Best way meet/into to investors John .how much to Discolose, NDAs Paul .Persistance and annoying .where to get details/research, full business case Darrel .Patents and IP John .prof/services to product/venture Pierre .valuation .See market for Med tech Shefali .legal structure: angel vs. VC Lannie Non-tech, how different? .Accedicated Bryan .Debt vs. EquitySeptember 2011 6 confidential
  8. 8. II. Seed Fundraising Sources of Investment: Seed Fundraising, Angels and VC’s Earlier Stage “Seed” Later Stage “You” Friends and aka Bootstrapped Angel Investment Venture Capital Family “Seed” VC “Traditional Series A” VCRound Size $: • $10’s of K • $100’s of K • $500K to • $5M-$15M to $100K to $1M+ $1.5MInvestment Size $: $5K – $10’s of K • $25K – $75K • $250K-$750K • $3M – $5MValuation (Pre- • < $1 M • $1 – 5 M • $5-10 M • $10 – 25 MMon):Stage (Pre-Round): • An idea, initial/rough • Detailed b-plan, • Significant variation among firms• Expected to b-plan • Key founders (bus & tech) full-time but . Angel req. +: have: • Initial founders, key • Prototype/alpha done and tested, - Anchor clients on board, revenue advisors • Some piloting (paying?) growth (B2B), • Path to ??? customers, some revenues?, - Growing base of users, with strong • All legal documentation in place, usage trends (B2C) board of directors - ..Growth potential! Credible • Path to break-even or next funding path to $100M Rev• Don’t Expect: • $ Rev, Customers, • Income (e.g. cash flow positive); • Income (e.g. cash flow positive) Minimum Viable all key management ; completely Product (MVP); full developed business model (e.g. legal documentation understand it will change)Who/what are • People you already • Experienced early stage • Firm with multiple professionals thatthey? know, that trust investors (individuals or a group) raises, invests and manages you, and (maybe) • Accredited Investors. individual funds (other people’s $) understand your • Angel investing is not their “job”; • Working F/T (this is their job ) venture may not be F/T endeavor • E.g.: Greycroft, RRE, Union SquareSeptember 2011 • E.g.: NY Angels, GoldenSeeds 7 confidential
  9. 9. Who are these “Angels”? What do they look like? Experienced, successful entrepreneurs: frequently multiple exits • Some from “tech-start-ups” some from other businesses • Usually some link to Successful “corporate” business people: CEO or CxO-types Older: most are in the 40-60 age group. But there are also notable angels in their 20’s and 30’s e.g. newly minted start-up millionaires 3 – 10+ Angel Investments ~10% of investible capital in Angel Investments Differ *widely* in: Industry/Functional Experience, Investment Expience, Interests, Target Sectors/Stage, Investment $, Risk Tolerance, personal do’s/don’ts and hot buttons. Lists? Not many. All are partial. AngelList? Gust? Other?September 2011 8 confidential
  10. 10. Active, NYC Early-Stage Tech Investors Active VCs in NYC (TW list and opinions) Investment Size by Investor Type • Lerer Ventures (Seed) • Series A VC: Definitely • Quotidien Ventures (Seed) >$1M, $3-5 M sweet spot • RRE Ventures (Seed) • Seed VC: <$1M , $250K- • First Round (Seed) 750K frequently • Brooklyn Bridge Ventures (Seed) • Super Angels / Micro: up • iNovia Capital (Seed) to $250K? , lots of $25’s – • Union Square Ventures (Series A & B) 100K’s ? • Greycroft (Series A & B) • DFJ Gotham (Series A & B) • Angles: <$100K, typically $10-50K • FirstMark Capital • Village Ventures Angels, Super Angels, Angel Groups and Micro VCs: [see links below] Angel/VC List: . NYC VC: Angel Groups: 2011 9 confidential
  11. 11. Who are the “right” investors? Where is there a “fit”? Just do it? Just go pitch some investors? ..Nope. Fit is critical. • Wrong question: How do I pitch “investors”? • Right question: Who are the “right” investors? .*then* . How do I pitch this specific, individual investor? Reality Check. As a general rule, “people invest in things that they understand and have experience with” • Find investors that come from industries, sectors, business models etc. that are same/similar to your venture and the customer markets it serves. • If I have never invested in Caribbean real estate, oil wells .or communication hardware, it is very unlikely that I will do it with you. • For Angels/Angel Groups: use online bio’s / LinkedIn / AngelList to identify likely “good fit” Angels • For VCs: Find the right person at the fund; Individuals at the fund focus on different sectors. The web site often spells it out. Thought Exercise: • “What would the “perfect” investor look like?” • he/she probably doesn’t exist but this will help you : - target, prioritize, know one when you see them” - To be specific (and effective!) when asking for referralsSeptember 2011 10 confidential
  12. 12. How to “get” a pitch meeting? Find .Fit? Does this investor have “fit”? Do they invest in ventures like mine? ......if not, then move on. (or at least prioritize accordingly) Prep! • Know your audience. What have they invested in? Recently? What can you find out about their background? Interests? Hot buttons? - How? Duh .Google: Blogs, Quora, YouTube, CrunchBase; talk to people they know, better talk to those they have invested in. • Create a good pitch: - What would they want to know? - How can I say what’s unique/ compelling - Make it easy. Think “executive summary” and KISS (Keep It Simple Stupid) - adapt pitch to fit the situation. • Don’t be lazy; invest some time. Connect. The hard part. • Avoid “cold-calls”; look for “warm introductions” • Networking. Who do you know that knows them? • Find them at an event. (Email sucks!) Tips on getting a meeting: 2011 11 confidential
  13. 13. How to “get” a pitch meeting? Wrong Question Right Question: How do I build a relationship first? Why? • Pitching by its very nature can be awkward. “This guy wants something from me.” • Having a pitch be the first thing someone hears from you can be off-putting. “Do I know you?” • Most investors mean-well, and would like to help but - they are real busy - its very challenging to understand new ventures quickly - Its tough to say “no” (easy to avoid, or say maybe) Solution: Build a relationship before you need to pitch. OK, How? • Give, don’t Ask: what can you do for them? • “Ask for advice, not money” . Turn people into advisors ..then investors. • Debate / Discuss a topic, Ask opinion about X. • Find ways to “show” rather than “tell”: show me your smart, don’tSeptember 2011 tell me your smart confidential 12
  14. 14. What do I say? How do I say it? Communication is critical. Why? Potential investors (or potential employees, customers, etc.) usually start out knowing nothing about you or your venture. • Getting someone “from 0 to 60 mph” is very challenging: too much to say, don’t know where to start. • If you loose someone’s interest in the “first minute” , you usually loose them. • If you don’t understand someones “perspective” e.g. expertise (they have 6 Saas investments vs. they can’t spell Saas) you will be ineffective - People generally understand things by association (to things they know). - That’s why so many start-up taglines are “XYZ corp is the Uber for the ABC industry” Principles. Principles of good communication are the same. Much of the content will be the same; the format (e.g. pitch deck vs. elevator pitch) and level of detail will vary by Situation. • A few principles of effective communication: Audience, Messages, Storyline, Goals. • Messages and Storyline will tend to be similar across formats (e.g. deck vs. 1- pager). However good communication is tailored to the Situation. • Situation. It’s the Audience, Time Allowed, Relationship, Past Communication, Goals • Mostly, level of detail varies.September 2011 13 confidential
  15. 15. Common “Forms” of Pitch Communication. What are they? Which should I use? “Document” Simplistic Description Common Situation/ Use 1-pager “1 pager Exec Summary, Word • Email attachment or handout doc” • Online platforms e.g. Gust, AngelList Email Brief “Teaser paragraph of text / bullets” • “In the intro email” (w/ attachments) Business Plan “10-40 page Word doc” • Detailed discussions (similar use) • Stand-alone, due diligence Pitch Deck “10 page PowerPoint • “15 minute stand-up presentation” presentation” • Email attachement Long-Form Pitch “20-40 page version of 10 pager; • “60-90 minute follow-up meeting with Deck PowerPoint presentation” smaller group” Elevator Pitch “No document, just you talking for • Your quick intro after you meet 60 seconds” someone in person “Video” Pitch “10 minute video of your deck/ • Email attachment demo w/ you voice” • Online platforms e.g. Gust, AngelList Due Diligence Docs “All the detailed spreadsheets, • For detailed discussions with data, etc. that back-up your pitch” interested investors, usually post- e.g. Financial Projections, Sales term-sheet Funnel, Legal Docs • Online platforms e.g. Gust, AngelList The Good News: • you don’t need to have all of them (maybe ever, certainly 1 or 2 to start is fine) • much of the content, messages, storylines can be shared and reusedSeptember 2011 Preparing thoughtful docs • refines your thinking and your venture. 14 confidential
  16. 16. Good Pitch Deck From “Triple Play” of VC Presentations by Adapted from “10 Slides to an Awesome Mark Suster (former entrepreneur, now VC) Pitch” by Dave McClure, 500 Start-Ups Slide 1 – Team Bio 1. Elevator Pitch Slide 2 – 50k foot view of your company 2. The Problem Slide 3 – Problem Definition 3. Your Solution (Demo Here!) Slide 4 – How do you solve the problem? 4. Market Size Demo Web Version and 5. Business Model ($) a Demo Video Example 6. Proprietary Tech Slide 5 – Market Sizing 7. Competition Slide 5 warning: (Market Sizing Pitfalls) 8. Marketing Plan Slide 6 – Competition 9. Team / Hires Slide 7 – Customer Adoption / Traction 10. Money / Milestones Slide 8 – Team Slide 9 – Financial projections Slide 10 – Use of Proceeds Slide 11 – Fund raising process / Next steps Appendix – Back-up slides How to deal with the dreaded question of valuation? ats/how-to-pitch-a-vc-sept-2010 2011 15 confidential
  17. 17. What does a successful investor pitch meeting look like? From “Triple Play” of VC Presentations by Mark Suster Act I: Discussion. The warm-up. Share. Listen. Build rapport. Act II: Pitch Act III: Demo This one opinion. One order of things. Everything varies by Situation (e.g. Audience). You will adapt based on your presentation “style” and comfort level. 2011 16 confidential
  18. 18. What do investors care about? What do the want to see? My (TW) List for What do VC’s want? By Many, many others Evaluation Sheetal Shah • Elements of the B- 1) Market • Big Opportunities / Big Plan Opportunity Visions • Lots of personal 2) Product • Idea/Founder preference 3) Traction Authenticity 4) Team • Founder Profile: Missionary Passion, Balanced Ego, Trust • Objectivity • A-Teams 2011 17 confidential
  19. 19. Angel Groups: How do they differ? Member Profile: What does the “typical” member look like? What industries, sectors, companies do they come from? Sector Focus. What types of companies are they investing in? • Internet, software (vs. Hardware vs. Pharma / Bio-tech vs. Clean/Green-tech) • B2C vs. B2B, Saas, Cloud-based, Content-based • How does their Portfolio compare to their stated strategy? • What is their “sweet spot”? Vs. their “also do”? Stage. What is the target “stage” for prospective investments? What completed milestones and characteristics are they looking to see? • Revenues vs. Pre-Revenue? Product/Tech development? MVP complete? • Customer/market validation? Anchor accounts? User levels? Valuations/ Investment Size: Pre-Money valuation range and size initial investment • “We typically invest $200 – 500K at valuations in the $1-3 Million level.” Group Structure / Investment Decisions. How is the Angel Group structured? Most importantly, how are investment decisions made? Who makes them? • Network: Angel Group runs the process, individuals make independent “opt in” decisions to invest on a deal-by-deal basis. • Democratic: Angels commit $ to the group, $ decisions are made based on voting • Fund structure: Angels commit $ to the group, and an “investment committee” makes all/most funding decisions. Additional Opt-in co-investments available.September 2011 18 confidential
  20. 20. NY Angels Profile Member Profile: ~80 investor/members; several early-stage funds; Member backgrounds are generally representative of the tech / entrepreneurs / industries in NYC: software, e-commerce, ad-tech, finance, media Sector Focus: Internet, e-commerce, new-media, software; B2C and B2B. Mostly NYC Area. Stage. Mostly early stage (with some customers/revs), some seed stage (pre-revenue) Valuations/ Investment Size: NYA pre-money valuations tend to range from $1M – 4M; investments tend to range from $250K to $1M+; • For larger rounds, NYA often leads the deal and helps find the rest of the capital by sharing/syndicating the deal with other Angel Groups Group Structure / Investment Decisions. NYA core structure is as a group of individual investors. Individual investors “opt in” to deals and make their own investment decisions. • Typical member invests $25-50K in a deal. • In addition to the core “opt-in” model, NYA has just closed a small seed fund that will operate in parallel (using a “democratic model” for investment decisions) History/Background. NYA has invested $45M+ in 70+ companies. • We are very active in the NYC entrepreneurial / early-stage ecosystemSeptember 2011 19 confidential
  21. 21. A “Typical” Angel Group Process for Entrepreneurs 1. Find the right group(s) to pitch What is typical success rate for funding? 2. Apply online • Industry data for angel groups and VCs: 3. Get invited to screening 0.5% - 2% of companies submitting 4. Meet with screening panel b-plans get funded What can increase the 5. Get invited to present speed and success rate? 6. Present to full group(s) • Member referral • Investor referral 7. Get invited to due diligence session • Lead Investor /Term Sheet 8. Deep dive w/ interested investors • Have good pitch and due diligence docs 9. Get presented a draft term sheet • Well practiced, thoughtful pitch 10. Negotiate the term sheetSeptember 2011 20 confidential
  22. 22. Variations on the Theme: Other Players “Super Angel” (vs. Angels, Angel Groups). Sophisticated angel investor with a large portfolio of early stage investments (30? 50?) and that is investing frequently (10 + per year). E.g. David Rose, Fabrice Grinda Microfund or Micro VC Fund. Small VC fund ($1-10 M) often run by a single person typically making “angel” size investments in early stage companies. Seed Fund. VC fund focused on “seed” (aka Angel) stage investments: often pre-revenue, pre-product. Some VC’s that typically invest in “Series A” rounds will reserve a portion of their fund for seed investments: e.g. $250 – 750K investments at $1-5 Million valuations Incubator/Accelerator. Entity that provides non-monetary support/services (in addition to $’s) to early stage ventures. Typical support/services can include: space, IT infrastructure, shared admin service, advice/feedback, introductions/networking. Public vs. private, independent vs. captive. Examples: TechStars, ER Accelerator, DreamIT, Y-Combinator Strategic Partner/Investor. Some operating companies will invest in ventures. Typically it is in an industry/ sector / product-space similar to theirs (sometime with an eye toward potential acquisition in the future) Crowd Funding Platforms. Currently this is financing via donation or “pre-sale” of products. Equity financing under JOBS Act is TBD. Not obvious this will be a good match for most Tech AngelList. Similar to an angel group, but without centralized control. More of a open “marketplace” of individual investors and ventures to facilitate funding. Gust. Software platform that most angel groups utilize (and many small VC’s) to run their investment process and connect angel groups together to share deals.September 2011 21 confidential
  23. 23. Legal Primer for Start-ups: What’s Important? The 5 Ws + 1H of Formation - When to form (timing/tax issues? What to form (choice of entity)? Where to form (choice if jurisdiction?) Why to form (tax and legal issues)? Who to form with (co-founder equity and vesting)? How to Form (DIY v. lawyer) IP 101 - Overview of intellectual property law: • Government filings and timing (Trademark, Patents) • Contractual IP law (PIIAs, licensing agreements) Advisory board 101s - How important, what is appropriate compensation - I find most companies think the advisory board is more important than it is. I also have found an increase in charlatan "advisors" who ask for a lot of equity and have NO connection to the VC world or have any value to add. Deal terms - Debt v. Equity. • Debt - How notes work and what terms matter (valuation and cap)? • Equity - Common v. Preferred Stock features. Board structure. Source: Heather Miles heather@hmileslaw.comSeptember 2011 22 confidential
  24. 24. Investor Perspective: Notes vs. Preferred Equity This is really the subject of a separate dedicated class. That said . History. Preferred Equity is standard for both Angel/Seed and VC (Series A, B, etc.). Convertible Notes were used as a “bridge” to a [reasonably well defined, high probability] upcoming financing. • Now: Convertible Debt much more popular at Angel/Seed round Preferred Equity. Equity (stock) that has defined “preferences” over common stock. • Establishes a value for the company e.g. [$3.5M] pre-money valuation • Liquidation Preferences. Most commonly used is “non-participating preferred” aka “straight preferred”. E.g. a [1x] liquidation preference. Means investors get their invested money back plus [1x] before common equity holders. In the event of success, everyone converts to common and shares pari passu. Liquidation preference is really downside protection for investors • Investor rights. E.g. approval of key company decisions Convertible Note. Debt that converts to equity when a next financing round occurs. As Debt, typically: carries interest rate (e.g. 8%); has preference to all equity: gets paid back 1st; secured by assets of company • Converts to equity at “same terms” as next round ..except the Note usually has - Discount [10-30%] to the valuation (in the next round) - Cap on valuation (in the next round); means “valuation not to exceed $__”. • Terms of conversion - Upon “qualified financing”, e.g. financing of a least [$2M] - End of the Note’s term [18 months] - At the option of investors Other Key Terms. Employee option pool, board composition, dividends, anti-dilution provisions, pro-rata investment rights, capped legal expenses. Source: NY Angels Educational MeetupSeptember 2011 23 confidential
  25. 25. Key Success Factors and Take-Away’s for attracting Seed Investment Pitch, Get Feedback, Revise. Repeat. No venture idea was built in a vacuum. The ONLY way to develop business ideas is to share them, solicit feedback, make adjustments, develop/refine/add and ..DO IT AGAIN! • Many ventures fail to gain investor attention because there are too many gaps (perceived and real). Find Good Advisors. To get good, detailed feedback and input you need to be talking to right people, with the right experiences: Experienced entrepreneurs and investors, prospective clients and partners. • Networking, networking, networking . Communication is Paramount. Potential investors (or potential employees, customers, etc.) usually start out knowing nothing about you or you venture. Getting someone up to speed: a challenge. Getting someone to write a check: a big challenge. At the core is effective communication.September 2011 24 confidential
  26. 26. Key Success Factors and Advice .continued Find Investors that Fit. People invest in things that they know, understand, have experience with. Find ones that match. [see previous pages] Find “Lead” Investor(s). Its critical to get one or more investors on board who can take the lead in driving the investment process: due diligence, term sheet, investor commitments, closing documents/process • Investors trust ..other investors. Their interests are aligned. Lead investors help attract additional “followers”. With Angel Groups: use available bios / LinkedIn to Understand (and Manage) the Process. You are more likely to succeed if you really understand what’s happening (or should be happening) For each step (e.g. investor search, screening, presentation, due diligence, term sheets, etc.): • What is happening or needs to? • Why? What’s the rationale? • Who is doing what? How do perspectives and motivations differ? • now, what can I do to make it work for me?September 2011 25 confidential
  27. 27. Key Success Factors and Advice .continued Valuation (and Key Terms). Be realistic. Be Flexible. Realize this is a professional (not personal) discussion ; there will be back and forth. Ultimately the “market” sets the price/terms. • There is more to investment terms than valuation .Important to understand. Timing. Am I ready for Angel Investment?......A few probing questions: • Have you covered the key success factors mentioned here? Do you have a compiling business opportunity with huge growth potential? • Do you really need the money? Now? The more that you can accomplish on your own, the more compelling your case (and valuation) will be .. • Are you ready to work for a someone else? e.g. the investors, the board of directors • Fund raising is “brain damage”. It wastes valuable time that could be spent growing the business. Avoid it, minimize it, delay it if you can.September 2011 26 confidential
  28. 28. What would I like you to walk away with? Well, this will obviously be different depending on your past experiences and the stage of your venture but . Better understanding of the marketplace: fundraising process, sources of capital, do’s and don’ts, etc. A set of specific insights that will *change* what you are doing in fundraising. A “to-do” list: starting point(s), actions, things to try. A set of recommended resources to consult and learn more from. A few new relationships with others in the NYC start- up/fundraising ecosystem: fellow entrepreneurs, investors, etc. Answers to specific questions about fundraising that you might have.September 2011 27 confidential
  29. 29. Other Classes • TW Follow-on classes: • The Seed Stage Pitch: the Art and Science of Communication Monday 4/15 at 7PM • Introduction to VCs: A Primer for Entrepreneurs [Timing TBD] • Start-up Strategy: Marrying Effective Strategic Thinking to the Real World of Early-Stage Tech [Timing TBD] • Other GA Classes • Essentials of Start-up Law (Course by WSGR) ??September 2011 28 confidential
  30. 30. III. Additional Q&A, Feedback and Beverages Feedback on this class: What did you like most about this seminar? What could be added and improved to make it better? What other topics would you like to see a seminar conducted on ?September 2011 29 confidential
  31. 31. Thanks! Thomas Wisniewski Contact Info Email: LinkedIn: Twitter: @thomaswis This presentation: New York Angels New York Angels Educational Meetup: Heather Miles (start-up lawyer) heather@hmileslaw.comSeptember 2011 30 confidential
  32. 32. Additional SlidesSeptember 2011 31 confidential
  33. 33. Another view of the funding “marketplace” . $100M IPO Strategic Partners $10M Venture Capital $1M Banks Angel Groups SBIR/STTRGrants Gov /State Grants $100K Friends, Family & Fools Angel InvestorsSource: Idea Plan Prototype Beta Sales ProfitabilityTom Stephenson, VergeSeptember 2011 32 confidential
  34. 34. Deal Volume and Stage: VC’s vs. Angels Late VC Mostly later stage 3,400 deals $0.5-1.0B per Year Angels 49,000 deals Mostly early-stage Early $20B per YearSeptember 2011 33 confidential
  35. 35. Other Definitions for . VC’s vs. Angels Venture Capitalists “Professional fund managers who invest large pools of other people’s money for an economic return.” Angel Investors “Rich(-ish) people who invest their own money for economic and other reasons.” Non-$ Value added: “Many entrepreneurs have expressed to me that the value of the time that angels invest .exceeds the value Source: of their money” David Rose, Bill PayneSeptember 2011 34 confidential
  36. 36. Average Profile of an Angel Age 57 9 years investing Masters degree 10 investments 15 year entrepreneur 2 exits/closures so far 2.7 ventures founded 10% of wealth in angel investments Also worth noting ..within the “average” there are “newly minted” angels: entrepreneurs post sale of their company/ IPO. “Accredited Investor” (SEC definition) $1 million in assets (not including home) or $200,000 annual income in past two yearsSeptember 2011 35 confidential
  37. 37. Annual Sources of Start-up Funding $22 Venture Capital ~$.3 billion $20 $18 State Funds ~$.5 billion $16 Angel Investors ~$20 billion $14 $12 $10 $8 Angels: 90% of outside $6 equity for start-ups? $4 $2 $0 1 Friends & Family ~$60 billion Sources: MoneyTree, NASVF, multiple studies on informal capitalSeptember 2011 36 confidential
  38. 38. New Company Formation Source of Equity Funds – Typical Year 500 Classic VCs 1000-2000 Seed Funds >50,000 Angels >200,000 Friends & Family 500,000 Startup Companies 0 100,000 200,000 300,000 400,000 500,000September 2011 37 confidential
  39. 39. Companies Backed by American AngelsSeptember 2011 38 confidential
  40. 40. Average = 43.6 Investors Per Group Median = 32.5 30 25 20 15 10 5 0 2 to 10 11 to 25 26 to 50 51 to 75 76 to 100 101+ Percent of Groups Source: 2009 ACA Confidence Survey and 2008 Member DirectorySeptember 2011 39 confidential
  41. 41. Average Preferred Investment Per Round - 2008 < $150,000 $150,000 - $250,000 $250,000 - $500,000 $500,000 - $750,000 > $750,000 0 10 20 30 40 50 Percent of Source: 2009 ACA Angel Group Confidence Survey and 2008 Member Directory GroupsSeptember 2011 40 confidential
  42. 42. Growth in Number of American Angel Groups Likely Drivers (the 300 Benefits of Angel Groups) 250 • Shared expertise in: 200 • Angel investing • Companies / 150 sectors • Bus. functions 100 (IT, Sales, Fin) • Scale (more 50 investment $) • Deal flow (quality 0 and quantity) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Sources: Center for Venture Research (pre 03 data) and Kauffman Foundation/ACEF (04-09 data)September 2011 41 confidential
  43. 43. Additional Thoughts .. Lots of start-up advice out there. Lots about the art of fundraising. • Huge volume of blogs, articles, Quora-posts, etc. • Well .that’s good, right? Yes. • But why doesn’t it help? - Overwhelming - Conflicting - Not specific - Not enough context - It’s just advice, ideas, ..not interactive, not experience. • Need to understand the “why” behind it all and adapt it to your venture, your situation. Beware of simple answers, absolutes. As you are reading and listening to all these opinions, data sources • For any “fact” “rule” “truth” if you don’t understand how it is both true/false, you don’t really understand the point. - Under what circumstances is this “rule for fundraising” “true”? Where does it apply well With whom? - How and when is it not true (Or less true)?September 2011 42 confidential