The document provides an overview of the different stages of startup funding: bootstrapping, angel rounds, seed rounds, and venture rounds. It discusses the characteristics of each stage, when they typically occur, the typical amount of funding, and the tradeoffs involved. It emphasizes the importance of understanding the company's goals before taking external capital and performing diligence on potential investors. The case study describes funding the ad tech company The Trade Desk in 2009 when the industry was considered crowded and venture appetite was low. It prompts evaluating whether one would invest in the company based on the presented information and environment.

1. From Bootstrapping to Venture Rounds: a Startup Case Study
Enterpreneurship Leadership Program 02.25.2016
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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 x.ai
• 6 years into a 20+ year effort to be the best seed stage firm
on the planet

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
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Yesterday

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
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IA Model

5. • Bootstrapping
• Angel round
• Seed round
• Venture round
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Funding the startup

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
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Bootstrapping

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”
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Angel round

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
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Seed round

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
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Venture round

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
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Key take-aways

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
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Case study: The Trade Desk

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
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Case study: The Trade Desk

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?
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Case study: The Trade Desk

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
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Case study: The Trade Desk

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
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Case study: The Trade Desk