Published on February 27, 2014
Thanks to all that participated today in the online Webinar. My contact info is on p.20. Insider’s Guide to Raising Seed Capital: An Introduction Cheers, -TW Insights on successful fundraising from an active venture investor and fellow entrepreneur NY Educational Meetup Webinar Tom Wisniewski RosePaul Investments Thursday, February 27, 2014
Agenda I. Kick-off and Introduction II. Seed Fundraising III. Additional Q&A 1 confidential
I. Kick-Off and Introduction Seminar Rationale: Why are we here? 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) 2 confidential
So….what questions do you have about Seed fundraising? Please use the JoinMe Chat feature to voice your questions to me and the group! 3 confidential
What would I like you to walk away with? 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 startup/fundraising ecosystem: fellow entrepreneurs, investors, etc. ] Answers to specific questions about fundraising that you might have. 4 confidential
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 5 confidential
So….what questions do you have about Seed fundraising? ….[Let’s review some of the questions asked] 6 confidential
II. Seed Fundraising Sources of Investment: Seed Fundraising, Angels and VC’s Earlier Stage “You” aka Bootstrapped Later Stage “Seed” Friends and Family Angel Investment Venture Capital “Seed” VC “Traditional Series A” VC Round Size $: • $10’s of K to $100K • $100’s of K to $1M+ • $500K to $1.5M • $5M-$15M Investment Size $: $5K – $10’s of K • $25K – $75K • $250K-$750K • $3M – $5M Valuation (PreMon): Stage (Pre-Round): • Expected to have: • < $1 M • $1 – 5 M • $5-10 M • $10 – 25 M • 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, RRE, Union Square confidential 7
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? 8 confidential
Tom Wisniewski: Investor Profile 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) 9 confidential
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 10 confidential
Active, NYC Early-Stage Tech Investors Some Active VCs in NYC • Lerer Ventures (Seed) • Quotidien Ventures (Seed) • RRE Ventures (Seed) • First Round (Seed) • Brooklyn Bridge Ventures (Seed) • ff Ventures (Seed) • BoldStart (Seed) • Union Square Ventures (Series A & B) • Greycroft (Series A & B) • DFJ Gotham (Series A & B) • FirstMark Capital • Village Ventures Investment Size by Investor Type • Series A VC: Definitely >$1M, $3-5 M sweet spot • Seed VC: <$1M , $250K750K frequently • Super Angels / Micro: up to $250K? , lots of $25’s – 100K’s ? • Angels: <$100K, typically $10-50K Angels, Super Angels, Angel Groups and Micro VCs: [see links below] Angel/VC List: https://docs.google.com/spreadsheet/ccc?key=0Ap5XbqUM9nICdG40LXVVamRyN19zZHlTU3E2SmdDTkE#gid=0 NYC VC: http://under30ceo.com/top-new-york-based-venture-capitalists-you-should-know/ Angel Groups: https://gust.com/find-investors?keywords=&sort=distance&grouptype=ANGEL_GROUP®ion=STATE . 11 confidential
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 12 confidential
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: http://www.quora.com/David-S-Rose-1/How-does-someone-get-a-meeting-with-angel-investor-David-S-Rose 13 confidential
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’t tell me your smart confidential 14
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. 15 confidential
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. 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? 16 confidential
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. 17 confidential
Other TW Classes What: Show Me the Money – Series Session 5: “What VCs are investing in and why? When: Thursday, March 20th 6-9PM Where: General Assembly in NYC (generalassemb.ly) Speakers: Link: Ellie Wheller, Greycroft Ventures John Frankel, ff Venture Capital http://bit.ly/1fUU0gN Next NYA EDU Webinar What: All You Ever Wanted to Know About Term Sheets When: Tuesday, March 11th, 9-10AM Where: General Assembly in NYC (generalassemb.ly) Speaker: Link: David Rose, RoseTech Ventures, Founder of NYA http://bit.ly/TermSheets 18 confidential
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 ? 19 confidential
Thanks! Thomas Wisniewski Contact Info Email: email@example.com LinkedIn: http://www.linkedin.com/in/thomaswis Twitter: @thomaswis This presentation: http://www.slideshare.net/Thomaswis/ New York Angels www.newyorkangels.com New York Angels Educational Meetup: http://www.meetup.com/NY-Angels/ 20 confidential
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