Anatomy of Seed An inside
look into a $1M seed round. Brendan Baker @brendanbaker

Ringleader Collaborator Support Daily Schooling
AngelList 8000 startups reviewed with Daniel Odio AngelList, hundreds of Co-­‐founder of Appmakr. conversaCons with founders www.danielodio.com Official Support about their fundraising, daily schooling from Nivi and Naval, engineering and business at Cambridge and Oxford. Appmakr lets anyone launch e: brendan@ox1.co their own iPhone app with no t: @brendanbaker Marc Ventresca, Oxford Economic w: www.brendanbaker.co coding. Over 5,000 apps have sociologist, expert in new market q: www.quora.com/Brendan-­‐Baker been built, with 55M total user formaCon: hLp://bit.ly/htkT3l sessions. Anatomy of Seed Brendan Baker

We wanted to see what
a fundraising process looks like for a startup and get an inside look at how the industry is changing. Anatomy of Seed Brendan Baker

So we analyzed 500+ emails
from Appmakr’s first raise to map the path they took through investor networks to raise $1M. The result? ! Thoughts for startups and investors. Anatomy of Seed Brendan Baker

We tracked all kinds of
stuff: The key actors: RejecCon Funding Seed Funds Angels VCs Intros InsCtuConal Actor

This is what it a
seed round looks like. See for yourself: http://brendanbaker.co/anatomy.pdf! Anatomy of Seed Brendan Baker

It wasn’t easy. 173 Actors
55 VCs 55 Angels 28 Seed Funds Results 27 Middlemen 5 Corporate 130 Rejections 2 Institutions 14 Commitments 1 Angel Group Anatomy of Seed Brendan Baker

How do they all stack
up? Anatomy of Seed Brendan Baker

Angels v Seed Funds v
VCs Anatomy of Seed Brendan Baker

Seed funds give big. Appmakr
raised an average of $6.9K per potential investor, but not all were equal*: 15 Dollars per contact (‘000 USD) 12.3K 10 5 6.4K 5.5K 0 Seed Funds Angels VCs * Ridiculously small sample size. Will this hold with more cases? Anatomy of Seed Brendan Baker

But seed funds also took
forever to decide. VCs and angels were quicker to respond. VCs 20.4 days Angels 22.4 days Seed Funds 29.8 days 0 10 20 30 Response Time (days) Anatomy of Seed Brendan Baker

Old Style v New Style
v Time Wasters Anatomy of Seed Brendan Baker

There were three clear paths
in the data: Old Style New Style Time Wasters Anatomy of Seed Brendan Baker

Old Style The process was
driven by an influential first actor, whose weight carried to help Appmakr get downstream intros and investments. ( It propagated through interpersonal networks, and was driven by dynamics within these networks. ) Anatomy of Seed Brendan Baker

How the Old Stylers invested
1 Started with a supernode, in 3 There were more commitments from this case a well-connected downstream intros. angel. 2 Several commitments emerged from the first intros. Anatomy of Seed Brendan Baker

New Style The process was
facilitated by a credible market intermediary. Investors made decisions efficiently, without making new intros. ( It played out more like an efficient market, where investors evaluated the good (i.e. startup) and bought or not. ) Anatomy of Seed Brendan Baker

How the New Stylers invested
3 There were few downstream intros and no downstream 1 Started with an ecosystem intermediary. In this case it’s 2 Investors efficiently declined or committed. commitments. AngelList. Anatomy of Seed Brendan Baker

Time Wasters These intros just
wasted Daniel’s time and energy. None of them amounted to anything. ( The trick is to identify the time wasters early. More on that later. ) Anatomy of Seed Brendan Baker

How the Time Wasters invested
(or didn’t) 3 There’s one late commitment, but Daniel 1 There are many new introductions, but at already knew him. most 3 at a time. 2 None of them led anywhere Anatomy of Seed Brendan Baker

Q What if you can’t
tell the Time Wasters from the Old Style? Should you use tools to try the new style? Anatomy of Seed Brendan Baker

i.e. New Style v [Old
Style + Time Wasters] 13.8K 10 Dollars per contact (‘000 USD) 10.4K 5 3.4K 0 New Style Old Style (incl Time Wasters) A Try the New Style (i.e. use tools). Appmakr found AngelList to be 3X more efficient than non-AngelList. Anatomy of Seed Brendan Baker

Thoughts for Startups and Investors
( From the analysis and Daniel’s experience. ) Anatomy of Seed Brendan Baker

Startups 1 Fundraising takes longer
than you think. Be ready for the grind. Anatomy of Seed Brendan Baker

Startups 2 There are periods
of low investor activity. Avoid late summer and winter holidays. Anatomy of Seed Brendan Baker

Startups 3 A large amount
of your funds may come from a few people. These are your super nodes. Find them and support them. Anatomy of Seed Brendan Baker

Startups (however,) 4 A large
number of intros will lead nowhere and will waste your time. Don’t invest much in these interactions. ( Daniel’s Rule of 10: ‘If I don’t get >10 intros from someone, I’m not going to invest a lot of time.’ Use at your own peril! ) Anatomy of Seed Brendan Baker

Startups (Let’s take a quick
pause…) How do you tell a super node from a time waster? Or a productive investor from an unproductive one? 1 They’re willing and able to make a bunch of intros. 2 Their eyes light up and they excitedly push a crumpled check into your hands 3 You have a pre-existing relationship with them 4 You see phonein$3K and email less than $2K.) averaged $11.5K, them person. (In-person meetings Anatomy of Seed Brendan Baker

Startups It’s probably not about
identifying them immediately, so much as amplifying support for your super nodes and reducing the time and energy drain from your time wasters. (OK, back to the list…) Anatomy of Seed Brendan Baker

Startups 5 With investors, there
are leaders and followers. You’ll have higher conversion after getting a committed investor or two. Anatomy of Seed Brendan Baker

Startups 6 There are tools
that can help. Use them when it makes sense. ( ) AngelList, Techcrunch Disrupt, Venture Hacks, Founders’ Institute, Y Combinator, Launch.is, University competitions, Angel Groups General Assembly, AngelPad, Bootup, i/o Ventures, Hackers and Founders, NYCSeed, Founder’s Den, Seedcamp, General Assembly, Founder’s Roundtable, VC open house days, 160 Vark, Sunfire, Meetup groups, AVC.com, TheFunded.com, 500 Startups, Bothsidesofthetable.com, LinkedIn groups, chrisdixon.org, Techstars, steveblank.com and many more. Anatomy of Seed Brendan Baker

Startups 7 Information is becoming
more public Startups can now build more with less Get used to being open about your traction and raise details. Anatomy of Seed Brendan Baker

Investors 1 The market for
early stage capital is becoming more efficient. How does that affect your own approach? Anatomy of Seed Brendan Baker

Investors 2 Proprietary dealflow quantity
and quality will decline as a driver of returns. Anatomy of Seed Brendan Baker

Investors 3 Market intermediaries (i.e.
new startup tools) are gaining importance. More will come. How can you exploit these? (e.g. Start Fund) Anatomy of Seed Brendan Baker

Investors 4 Advisory will become
more important than connective. ( Old school: “we can make introductions for you.” New school: “we can help you understand how to scale to 3M users on X platform.” ) Anatomy of Seed Brendan Baker

Investors 5 Reputation is gold.
It will continue to gain importance in the near term as information becomes more public. Anatomy of Seed Brendan Baker

Thanks Startups: for building kickass
companies. Investors: for helping them get there. Daniel Odio: for access to his email and story. Marc Ventresca: for guidance and a deep understanding of market formation. @mingyeow, @naval, @michaelaiello, @cjwake for feedback on ideas and first drafts. * Anatomy of Seed Brendan Baker

* Anatomy of Seed
Brendan Baker

* 1 This is only
one data point. The next 10 startups we map will confirm or refute the first findings. Anatomy of Seed Brendan Baker

* 2 Is post-hoc email
tracking accurate enough? I think so. Even if the meeting is by phone or in person, there is rarely a meeting that isn’t set up or followed up by email these days. Anatomy of Seed Brendan Baker

* 3 Definitions are imperfect.
So is the mapping. Judgments had to be made about what is VC v seed fund, what were really intros, engagement start and end, etc. Anatomy of Seed Brendan Baker

* 4 What about existing
networks? It would be fascinating to overlay this onto a map of existing relationships (ex: ‘investor X made 5 of 30 potential intros’). If anyone wants to do this, get in touch. Anatomy of Seed Brendan Baker