Show Me the Money: What are VC's investing in and why?

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Presentation from a Seminar at General Assembly in NYC discussing trends in VC investing in the last 12 months.

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Show Me the Money: What are VC's investing in and why?

  1. 1. “Show Me the $$$$!”…Session 5: VC’s: What are they investing in? Why? Thursday, March 20, 2014 General Assembly Seminar Series An insider perspective on fundraising from active venture investors and fellow entrepreneurs Thanks to all who attended the session at GA last night. My contact info is on page 19, and additional resources and presentations are now available on www.RosePaul.com
  2. 2. confidential 1 Agenda I. Kick-off and Introductions II. Intro: Start-Up Fundraising III. VC Presentations / Q&A • BREAK: Networking and Beverages IV. More on VCs and Fundraising: Best Practices. • WRAP-UP: Networking and Beverages
  3. 3. confidential 2 I. Kick-Off and Introduction  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 • Improve / adapt your venture and approach. • …..Become a “student” of the art and science of fundraising Seminar Rationale: Why are we here?  Tonight: Get some insider perspective from VC investors about •How they operate? •What they invest in? •Why? ……………… With some specific examples.
  4. 4. confidential 3  Better understanding of fundraising and VCs in particular  A set of specific insights that will *change* your approach.  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 / VCs that you might have. What would I like you to walk away with?
  5. 5. confidential 4  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 • RosePaul Ventures is my proprietary fund • Member and director at New York Angels More on me and RosePaul Ventures: www.RosePaul.com 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
  6. 6. confidential So….what questions do you have about VC’s and Fundraising? 5  ????
  7. 7. confidential NYC Venture Activity: Significant Increase 6 Source: CB Insights: http://www.cbinsights.com/new-york-venture-capital#vc-and-angel-financing-trends-in-ny II. Intro Start-Up Fundraising
  8. 8. confidential NYC Venture Activity: Changing Mix – More Seed 7 Source: CB Insights: http://www.cbinsights.com/new-york-venture-capital#vc-and-angel-financing-trends-in-ny
  9. 9. confidential 8 Sources of Investment: Seed Fundraising, Angels and VC’s Stage (Pre-Round): • Expected to have: • An idea, initial/rough b-plan • Initial founders, key advisors • Path to ??? • Detailed b-plan, • Key founders (bus & tech) full-time • Prototype/alpha done and tested, • Some piloting (paying?) customers, some revenues?, • All legal documentation in place, board of directors • Path to break-even or next funding • Significant variation among firms but…. Angel req. +: - Anchor clients on board, revenue growth (B2B), - Growing base of users, with strong usage trends (B2C) - …..Growth potential! Credible path to $100M Rev • Don’t Expect: • $ Rev, Customers, Minimum Viable Product (MVP); full legal documentation • Income (e.g. cash flow positive); all key management ; completely developed business model (e.g. understand it will change) • Income (e.g. cash flow positive) Who/what are they? • People you already know, that trust you, and (maybe) understand your venture • Experienced early stage investors (individuals or a group) • Accredited Investors. • Angel investing is not their “job”; may not be F/T endeavor • E.g.: NY Angels, GoldenSeeds • Firm with multiple professionals that raises, invests and manages individual funds (other people’s $) • Working F/T (this is their job…) • E.g.: Greycroft, ffVC, Union Square Angel Investment Friends and Family Venture Capital “You” aka Bootstrapped Earlier Stage Later Stage Round Size $: • $10’s of K to $100K • $100’s of K to $1M+ • $500K to $1.5M Investment Size $: $5K – $10’s of K • $25K – $75K • $250K-$750K Valuation (Pre- Mon): • < $1 M • $1 – 5 M • $5-10 M “Seed” VC “Traditional Series A” VC • $5M-$15M • $3M – $5M • $10 – 25 M “Seed”
  10. 10. confidential III. VC Presentations / Q&A 9  John Frankel, ff Venture Capital  Ellie Wheeler, Greycroft Partners
  11. 11. confidential IV. More on VCs and Fundraising: Best Practices 10
  12. 12. confidential 11 Sources of Investment: Seed Fundraising, Angels and VC’s Stage (Pre-Round): • Expected to have: • An idea, initial/rough b-plan • Initial founders, key advisors • Path to ??? • Detailed b-plan, • Key founders (bus & tech) full-time • Prototype/alpha done and tested, • Some piloting (paying?) customers, some revenues?, • All legal documentation in place, board of directors • Path to break-even or next funding • Significant variation among firms but…. Angel req. +: - Anchor clients on board, revenue growth (B2B), - Growing base of users, with strong usage trends (B2C) - …..Growth potential! Credible path to $100M Rev • Don’t Expect: • $ Rev, Customers, Minimum Viable Product (MVP); full legal documentation • Income (e.g. cash flow positive); all key management ; completely developed business model (e.g. understand it will change) • Income (e.g. cash flow positive) Who/what are they? • People you already know, that trust you, and (maybe) understand your venture • Experienced early stage investors (individuals or a group) • Accredited Investors. • Angel investing is not their “job”; may not be F/T endeavor • E.g.: NY Angels, GoldenSeeds • Firm with multiple professionals that raises, invests and manages individual funds (other people’s $) • Working F/T (this is their job…) • E.g.: Greycroft, ffVC, Union Square Angel Investment Friends and Family Venture Capital “You” aka Bootstrapped Earlier Stage Later Stage Round Size $: • $10’s of K to $100K • $100’s of K to $1M+ • $500K to $1.5M Investment Size $: $5K – $10’s of K • $25K – $75K • $250K-$750K Valuation (Pre- Mon): • < $1 M • $1 – 5 M • $5-10 M “Seed” VC “Traditional Series A” VC • $5M-$15M • $3M – $5M • $10 – 25 M “Seed”
  13. 13. confidential EarlyLate Venture Capital Mostly later stage 3,400 deals $0.5-1.0B per Year Angel Capital 49,000 deals Mostly early-stage $20B per Year Deal Volume and Stage: VC’s vs. Angels 12
  14. 14. confidential Investor Profile: RosePaul Ventures, Tom Wisniewski www.rosepaul.com  Direct “Angel” Investor in Companies • $25K-250K investments; Typical valuations: $1-5 Million, • Typical Stage: at least some “product” done, some customer/sales traction • Sector focus: Opportunistic generally within internet/software space; - fair amount of Saas B2B, and consumer “marketplace” models, ecommerce enablers. - NOT (or not much?): hardware, heathcare/ pharma, cleantech • NYC based: 50% investments in NYC area companies; total of ~80% NE overall (e.g Boston, DC), 20% West Coast. • Examples: - Sociocast (social/behavioral big data analytics) - LiveLook (Saas, live collaboration sales/service platform) - Anvato (Ad insertion to live video streaming via proprietary machine vision) - Moveline (Uber for the moving industry) - Bizodo (Saas, paperwork automation; “Adobe 2.0” internet document sharing) - Movio (Digital “RedBox”; content delivery via “last 100 ft” of wifi internet) - HeTexted (Relationship advice forum generating content, media opportunities) - Wanderu (Kayak for ground transportation) - DealFlicks (a “Priceline” or “Hotel.com” for movie theater tickets) - iCharts (tool that enables engaging, sharable, embedible chart content)  Investor in Funds • In addition to direct investments in start-ups, invest in VC and PE funds. • Examples: - Social Starts (Seed fund for start-ups leveraging the Social Web) - Brooklyn Bridge Ventures (Charlie O’Donnell’s fund) - Entrepreneurs Roundtable Accelerator (ERA Fund) - Greycroft Partners (Venture Fund) 13
  15. 15. confidential 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? 14
  16. 16. confidential 15 NY Angels Profile www.newyorkangels.com  Member Profile: ~100 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 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 ecosystem
  17. 17. confidential 16 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 referrals
  18. 18. confidential How to “get” a pitch meeting?  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’t tell me your smart 17 How do I build a relationship first? Wrong Question… Right Question:
  19. 19. confidential 18 III. Additional Q&A, Feedback Welcome 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 ?
  20. 20. confidential 19 Thanks! Thomas Wisniewski Contact Info Email: thomas@rosepaul.com RosePaul Ventures: www.rosepaul.com This presentation and previous ones are accessible on www.rosepaul.com New York Angels www.newyorkangels.com New York Angels Educational Meetup: http://www.meetup.com/NY-Angels/

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