I gave this presentation in Oct 2014 at the Silicon Valley Innovation Center to a group of visiting Kazakh entrepreneurs. They wanted to know about US based investors and what they look for, and how to get investment from them.
3. Startups are Raising a LOT More Before
Series A
Source: https://www.cbinsights.com/blog/series-a-seed-funding-companies/
4. Startups are Raising a LOT More Before
Series A
Source: https://www.cbinsights.com/blog/series-a-seed-funding-companies/
5. Funding round $ vs. Runway
• Too many raising not enough
– Seed rounds going $1+M, upwards of $2-3M+
• Acquiring customers take too long
– Consumers deluged by apps; B2B sales cycles
taking longer – 12+ months
• Takes 24-30 months to develop an idea.
– Get to breakeven or metrics worthy of the next
round.
6. Early Stage Bubble
Source: https://twitter.com/DanielleMorrill/status/493255099846647808/photo/1
7. Early Stage Bubble
• Bubble exists in early stage
only
• Risk vs. reward does not
match
– Estimate 1 in 20-40+ for
hit, most die
• Early stage VC doesn’t have
great incentives with this
kind of data
• Angels can still make some
money if valuation is good
enough but VERY hard to
pick
• Acquihires are a great way
to lose money –
Entrepreneurs reap most of
the winnings
Source: http://berkerynoyes.com/publication/trends/online/2014H.aspx
9. What Do Angels Invest In?
• Internet still dominates % of deals
and dollars invested.
• Healthcare has less than half of deals
of Internet but nearly same amount
of money invested!
Source: http://www.svb.com/halo-report-q2-2014-infographic/
10. Where Do Angels Live and Invest?
Source: http://www.svb.com/halo-report-q2-2014-infographic/
11. About Angels
• High net worth individuals
– Can be family offices
• Except in CA, NYC, Boston, angels:
– Can be very conservative.
– May require revenue and traction
– Are not used to investing in startups with less
defined business models
• Angels can invest in all amounts, ranging from
25K to millions.
12. Reasons for Investing
• Make money!
• Fame
• Supporting something they are passionate
about
• Relationship
– Friends and family?
– Worked together before?
• Building a portfolio to raise a fund with
13. What They Like
• You!
• “Show me the product”
• Normal investor requirements like traction,
business model, revenue.
15. Rise of Crowdfunding
Allows more access to startups
which were previously only seen
by those in the right networks
Mostly you must be accredited to
participate. Some are allowing
non-accredited investors under the
not-entirely-implemented JOBS
Act.
17. JOBS Act
• July 2013 Title II General Solicitation came into effect
– You can solicit funds publicly.
– Many rules to follow. If you break them, you could be banned from
fund raising for a year.
– Only accredited investors can invest
– http://www.forbes.com/sites/chancebarnett/2013/09/23/the-crowdfunders-
guide-to-general-solicitation-title-ii-of-the-jobs-act/
• Title III Crowdfunding – get investment from non-accredited
investors
– Limits to what non-accredited investors can invest each year.
– Many information disclosure rules for companies
– http://www.forbes.com/sites/chancebarnett/2013/10/23/sec-jobs-act-
title-iii-investment-being-democratized-moving-online/
– However Title III is still being discussed:
– http://www.crowdfundinsider.com/2014/05/40308-crowdfunding-bell-
tolls-title-iii/
19. Accelerators vs. Incubators
• Accelerators
– Join up for small investment, often at low valuation
– Get lots of help: mentorship, advice
– Demo Day for investor intros
• Incubator
– Similar to accelerator
– Often ideas are generated internally
– Ownership/investment vary from accelerators
• Generally startups will all sit together in a single
space.
20. Rise of the Accelerator
422 Accelerators in
the US
Souce:
http://www.f6s.com/programs/un
ited-states?type=accelerator
21. Accelerator/Incubator Pros and Cons
• Pros
– Get lots of help
– Meet/interact with other startups
– Exposure to investors at Demo Day
– Valuation may jump simply because you graduated
from a certain accelerator/incubator
• Cons
– Giving up that much ownership may not be acceptable
to you
– You may be forced to move to the accelerator’s
location
22. Accelerator Trend
• Seeing more startups go through more than
one accelerator program
– Ex. 500startups and Ycombinator
• Giving up ownership in exchange for brand
association and exposure to more investors
• Valuations typically get raised when going
through 2 programs, especially if the final one
is YCombinator.
24. 135+ Micro VCs (aka Seed Funds)
212 Capital Partners
500 Startups
Accelerator Ventures
Advancit Capital
A-Grade
AIB Seed Capital Fund
Amplify Partners
Arcus Ventures
Baroda Ventures
Base Ventures
Baseline Ventures
Bee Partners
Blume Ventures
BOLDstart Ventures
Boston Seed Capital
Bullpen Capital
Caixa Capital Risc
Chicago Ventures
CincyTech
Collaborative Fund
CommonAngels
Connect Ventures
Contour Venture Partners
Costanoa Venture Capital
Cowboy Ventures
CrossCut Ventures
CrunchFund
Cue Ball Capital
Cultivation Capital
Dace Ventures
Data Point Capital
Deep Fork Capital
Detroit Venture Partners
Dorm Room Fund
Double M Partners
Draper Associates
Dundee Venture Capital
Earlybird Venture Capital
Elaia Partners
ENIAC Ventures
Expansion VC
Felicis Ventures
Fenox Venture Capital
ff Venture Capital
FireStarter Fund
First Step Fund
Floodgate
Flywheel Ventures
Forerunner Ventures
Fortify.vc
Founder Collective
Founders Co-op
Freestyle Capital
Golden Gate Ventures
Golden Venture Partners
Great Oaks Venture Capital
Harrison Metal
High Line Venture Partners
High Peaks Venture Partners
Hyde Park Venture Partners
IA Ventures
IllinoisVENTURES
Illuminate Ventures
Initial Capital
Initialized Capital
Inventus Capital Partners
Inveready
K9 Ventures
Kae Capital
Kapor Capital
Kaszek Ventures
Kepha Partners
Kibo Ventures
LaunchCapital
Learn Capital
Lerer Ventures
Lifeline Ventures
Lool Ventures
Lowercase Capital
Ludlow Ventures
MentorTech Ventures
Merus Capital
MESA+
Metamorphic Ventures
MHS Capital
Midven
Morado Venture Partners
Moscow Seed Fund
Mucker Capital
Neu Venture Capital
NewSchools Venture Fund
NextView Ventures
OCA Ventures
Okapi Venture Capital
O’Reilly AlphaTech Ventures
Passion Capital
PivotNorth Capital
Plug and Play Ventures
Point Judith Capital
Point Nine Capital
PROfounders Capital
Promus Ventures
Quest Venture Partners
Raptor Ventures
Real Ventures
Red Dot Ventures
Red Swan Ventures
Resolute.vc
Rincon Venture Partners
Romulus Capital
Rothenberg Ventures
S3 Ventures
Sarsia Seed
Scout Ventures
SEED Capital
Sherpa Ventures
Siemer Ventures
Signia Venture Partners
Silverton Partners
SK Ventures
Social Leverage
SoftTech VC
SOSventures
Subtraction Capital
SV Angel
TEEC Angel Fund
Tribeca Venture Partners
Tugboat Ventures
Unitus Seed Fund
Valar Ventures
Vast Ventures
VegasTech Fund
Venture51
Version One Ventures
XG Ventures
Source: https://www.cbinsights.com/blog/top-micro-venture-capital-firms/
25. Top Seed/Micro VC 2011-2014
Source: https://www.cbinsights.com/blog/top-micro-venture-capital-firms/
26. Which Micro VCs Yield the Biggest
Series A Rounds?
Source: https://www.cbinsights.com/blog/micro-vcs-seed-series-a/
27. Which Get to Series A the Fastest?
Source: https://www.cbinsights.com/blog/micro-vcs-seed-series-a/
28. Seed/Micro VC
• The range of funds raised varies from $5M to $100M.
• Usually are first or second money in.
• New funds are OK with notes. Older funds only do equity
rounds.
• Older, larger funds almost always demand traction metrics,
ie. At least $25K-50K/month
• Have ownership strategies, ie. Must capture 10% at seed
round.
• Larger funds tend to be less sensitive to valuation as long as
their ownership rule is met.
• Larger Seed/Micro VC will have raised follow-on funds
• Looking for multi-billions in market size.
29. Seed/Micro VC Pros and Cons
• Pros
– Often have huge portfolios to network and do
business with
– Can help you find money for the next round
– Can support you if you need bridging
– Less signaling issues if they do not follow on
– Have a lot of experience to help you
• Cons
– Your metrics for success can change once a
professional VC is involved, even at seed
– Huge portfolios can mean no time to help
31. Top 20 Most Active Seed 2013
If you look at everyone who is
doing seed, it includes many big
VCs
32. Most Active Seed Investors 2013
(includes Seed + VC doing seed)
Source: https://www.cbinsights.com/blog/2013-seed-venture-capital-investors/
33. Big VC Doing Seed
• Started when a ton of innovation began during
this technology cycle.
• Didn’t want to miss out on early look at big
opportunities.
• Started allocating funds to do seed.
• Many pulled back because they are not staffed to
manage so many investments.
– LPs expect management of their bigger investments
• Amount of funding can vary from 50K, to 250K, to
leading the whole seed round.
34. Pros and Cons of Seed Funds from VCs
• Pros
– Provides potential for future funding
– Often is a large sum of money
– Access to VC’s personnel for help
• Cons
– Signalling issue if VC does not participate in next
round or leads next round
– Actual help may vary greatly, often is zero
36. Corp VC Sees 38% Growth Between
2010 and 2013
Source: https://www.cbinsights.com/blog/strategic-intent-corporate-venture-capital/
37. Corporate VC Goals
• Extend/Enhance Corporate capability
– Sysco Ventures – invests in food related startups
• ROI
– Hearst Ventures – as long as they are making
money, parent doesn’t care what they invest in
• Strategic learning
• Foster innovation in their industry
– Intel Capital – leads to more sales in computers
and their chips
38. Corporate VC Pros/Cons
• Pros
– access to information, help, and partnerships
– Provides potential future exit
• Cons
– May limit your exit options
– Could limit who invests in you later
• Ex. Competitive corporate VC may not invest
• Signaling issues if previous corporate VC doesn’t re-invest
40. Series A
• First round after the seed round.
• Typically can be $4M-$10M
– Recent years Series A funds struggled with funding
lower than $4M
– Want/need to put more money to work
• Try for 20%-33% of the company at this
funding.
41. There are a LOT of Series A Options
.406 Ventures
2B Angels
500 Startups
ABS Capital Partners
Accel Partners
Access Industries
Access Venture Partners
Aeris Capital
Alsop Louie Partners
Andreessen Horowitz
ARC Angel Fund
Atlantic Bridge
Atlas Venture
August Capital
Auriga Partners
Austin Ventures
Avalon Ventures
Bain Capital Ventures
Balderton Capital
Banexi Ventures
Barwell Plc
Baseline Ventures
Battery Ventures
Bayern Kapital
Ben Franklin Technology Partners of
Northeast Pennsylvania
Benchmark
Bertelsmann Digital Media Investments
Bessemer Venture Partners
Blumberg Capital
Borealis Ventures
Boston Seed Capital
Bright Capital
Bullpen Capital
Business Development Bank of Canada
Cambridge Capital Group
Canaan Partners
Cardinal Partners
Carmel Ventures
Catamount Ventures
Cayuga Venture Fund
Cedar Fund
Charles River Ventures
Contour Venture Partners
Crosscut Ventures
Crosslink Capital
Crown Venture Fund
CrunchFund
Cultivation Capital
Data Collective
DCM
Deep Fork Capital
Dell Ventures
Delta Partners
Detroit Venture Partners
Digital Garage
DN Capital
Draper Associates
Draper Fisher Jurvetson (DFJ)
DreamIt Ventures
Earlybird Venture Capital
Easton Capital
Edison Ventures
Elaia Partners
Emergence Capital
Energy Technology Ventures
eVenture Capital Partners
Export Development Canada
Fairhaven Capital Partners
Felicis Ventures
FF Angels
ff Venture Capital
Fidelity Biosciences
First Round Capital
FirstMark Capital
FLOODGATE
Flybridge Capital Partners
FM Management
Founder Collective
Founder's Co-op
Foundry Group
Freestyle Capital
General Catalyst Partners
Genesis Partners
Glengary Ventures
Globespan Capital Partners
Google Ventures
GrandBanks Capital
Great Oaks Venture Capital
Greycroft Partners
Greylock Partners
Greylock Partners Israel
Grotech Ventures
GRP Partners
Hallett Capital
High-Tech Gruenderfonds
Highland Capital Partners
I2A Fund
IA Ventures
IDEA Fund Partners
IDG Capital Partners
IDG Ventures
IDG Ventures India
Imperial Innovations
Indian Angel Network
Infocomm Investments
Ingenious Ventures
Innovation Ventures
iNovia Capital
Insight Venture Partners
Intel Capital
InterWest Partners
Invesco Perpetual
Iris Capital
JAFCO
Jafco Ventures
Javelin Venture Partners
Kapor Capital
Khosla Ventures
Kima Ventures
Kinetic Ventures
Kite Ventures
Kleiner Perkins Caufield & Byers
Launch Capital
Learn Capital Venture Partners
Lerer Ventures
Life Sciences Greenhouse of
Pennsylvania
Lightspeed Venture Partners
Longworth Venture Partners
lool ventures
Ludlow Ventures
Lumira Capital
Lux Capital
Madrona Venture Group
Magma Venture Partners
Mangrove Capital Partners
Matrix Partners
Mayfield Fund
MentorTech Ventures
Mercury Fund
Meritech Capital Partners
MHS Capital
Mitsubishi UFJ Capital
Mizuho Venture Capital
Monashees Capital
NEW Capital Fund
New Enterprise Associates
New Markets Venture
Partners
NewSchools Venture Fund
Nextstage Capital
NextView Ventures
Nexus Venture Partners
North Coast Angel Fund
North Coast Technology
Investors
Northgate Capital
Northwater Capital
Northwest Energy Angels
Norwest Venture Partners
Octopus Investments
Ohio Tech Angel Fund III
OMERS Ventures
ONSET Ventures
Open Prairie Ventures
ORIX Ventures
Osage Ventures
Pangaea Ventures
Parkwalk Advisors Ltd
Partners Innovation Fund
Passion Capital
Pelion Venture Partners
Piton Capital
Point Judith Capital
Point Nine Capital
Polaris Partners
Principia SGR
PROfounders Capital
QED Investors
Qualcomm Ventures
Rand Capital
Redpoint Ventures
Relay Ventures
Rembrandt Venture Partners
Rho Canada
Ribbit Capital
Robin Hood Ventures
Roche Venture Fund
RockPort Capital Partners
Rothenberg Ventures
RRE Ventures
Runa Capital
SAP Ventures
SBD Global Fund
Schooner Capital
Scottish Enterprise, Investment Arm
Sequoia Capital
Shasta Ventures
Siemer Ventures
Sierra Ventures
Silicon Valley Bank
SJF Ventures
Sofinnova Ventures
SoftBank
Softbank Ventures Korea
SoftTech VC
Southern Cross Venture Partners
Spark Capital
Spectrum Equity
Stage 1 Ventures
Storm Ventures
Summit Partners
Sunstone Capital
SV Angel
T-Venture
Tech Coast Angels
Tekton Ventures
The Social+Capital Partnership
Source: http://www.daniellemorrill.com/2013/04/119-investors-actively-doing-series-a-deals-since-
march-1st/
42. Seed is the new Series A?
• As mentioned before, seed rounds are
approaching normal series A levels.
43. Series A Crunch is Real:
Explosion of Seed Startups…
2009: 472
2010: 770
2011: 1065
2012: 1749
Source: https://www.cbinsights.com/blog/seed-investing-report
44. …Leads to Not Enough Series As
2009: 418
2010: 515
2011: 703
2012: 692
…leading to more bridge rounds or death of startups who can’t land
their A… Number of Series A VCs has not increased; if anything it has
decreased.
Source: https://www.cbinsights.com/blog/seed-investing-report
45. 2013 Estimated “Series A Crunch”
Notes:
• Entire venture industry is now shifting due
45
to this crunch.
• Companies raising much larger seed
investment rounds to extend runway
• Seed investors forced to support
companies longer
• Seed investors forced to proactively
shut down underperforming cos.
Pending Series A Funding Gap
799 821
3000
2500
2000
1500
1000
500
Funding
Gap 177 113 336 635 1681
Source: CrunchBase
1205
1558
2510
622 708
869 923
829
0
2009 2010 2011 2012 2013 YTD
Seed + Angel Series A
46. Series A Funds
• Want startups ready to scale.
– Proven product/market fit
– Must have your metrics prepared well
– Marketing channels researched, discovered, costs
known. Must be scalable channels.
• Search for 10X return potential
• Market size in the multi-billions
47. Some Current Series A Requirements
• Ecommerce - $1M/month
• Consumer – 50K/DAUs
• B2B SaaS – $1-1.5M Annual Run Rate
• The “bars” are rising – minimal requirements
are getting harder
– Too many startups coming up for series A, filters
keep getting more difficult to pass
49. How to Meet Investors?
• Network with entrepreneurs
– Ask for intros to their investors
– Referrals are best
• Attend conferences
– Premoney, Post-Seed, TC Disrupt
• Angellist
– Send messages
– Look for similar startups and generate target list of
investors
50. How to Meet Investors?
• Reaching out through website email addresses
can work
– Associates are often tasked with looking at emails
– Don’t be surprised if no one answers your email
• Join an accelerator
– Demo days are some of the best ways to meet
investors
52. How to Select Investors?
• Research them
– What investments have they done in the past?
Anything competitive to you?
– How are they helpful?
• Call references
– Ask for references in entrepreneurs who have
worked with them before
– Are they *really* helpful?
53. How to Select Investors?
• What are their investment criteria?
– Do you fit their criteria? If not it may be a waste of a
meeting
• Are they investing actively now?
• For more traditional venture funds:
– How young is the current fund? Younger the better.
– Have they made an investment in the last 6 months?
– Are they busy fund raising?
– Are they only re-investing in their current portfolio?
54. How to Select Investors?
• Alignment in vision
– Do you and he agree on the direction/vision for
the company?
• Alignment in personality
– Would you be OK spending a lot of time with this
person (because you will be)?
• Alignment in style
– Would you be OK working with this person?
56. Raising Money for
International Startups
• If you are based internationally, it can be very
hard to raise money from US investors
– US investors like to be close to their startups
– Fund charters may limit/prevent investment
outside US
– Tax laws discourage US investors
– Fear of bad things outside their normal areas of
influence
57. Move to the US?
• First try: move the parent corporation to a DE
corporation
– International company owned by US DE parent
corporation
– Investment from US goes into DE corporation
– This is better than being fully international, but if
you don’t move here physically, it still may limit
investment
58. Move to the US?
• Second: Move some of your team to the US
– This is better from an investor standpoint.
– But if your business is still overseas, can you
effectively do business while over here?
• Third: Move some/all team to US, do business in
the US
– This is the best case, even if initially most of your
business is back overseas
– Investors see that you are serious about being in the
US and staying here.
59. Accelerators
• 500startups is well known in its international
strategy.
– Consider applying to 500startups where you will
meet investors who have invested in international
startups in the past.