US Investors: From Early Stage to Series A
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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.
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US Investors: From Early Stage to Series A
- 1. US Investors: From Early Stage to Series A David Shen Launch Capital October 2014
- 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
- 8. ANGELS
- 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.
- 14. CROWDFUNDING AND NORMAL NOT SO RICH PEOPLE
- 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.
- 16. Crowdfunding Part II: Kickstarter/Indiegogo/Medstartr
- 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.
- 23. SEED/MICRO VC (OR SEED+) FUNDS
- 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
- 30. LARGE VC DOING SEED
- 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
- 39. SERIES A FUNDS
- 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
- 48. HOW TO MEET INVESTORS?
- 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
- 51. HOW TO SELECT 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.
Editor's Notes
- Neither updated