Are you ready to make the leap from bootstrapping to investment capital? If so browse through this static deck to find the following topics: - Preparing your company for investment capital - Current deal flow - Convertible notes vs series seed preferred - Valuation and purchase terms - Term sheet negotiation - And more!

1. Startup Seed Funding
Kristine M. Di Bacco
Associate
Fenwick & West, LLP
Sirk Roh
COO
EGFS
From Bootstrapping
to Convertible Debt
and
Series Seed Financing
 #seedfunding

2. Who We Are
2Seed Funding Your Startup

3. Presentation Overview
3
 Bootstrapping
 The leap from bootstrapping to
investment
 Preparing for investment capital
 Different ways to structure your
first investment round:
•Convertible debt
•Series seed preferred stock
 Current deal flow
 Sample term sheets
Seed Funding Your Startup

4. Bootstrapping
4
 Better focus on execution
 No dilution
 Independence
 Caveats: Keep personal
finances separate from
business!
Seed Funding Your Startup

5. Moving On Up…
5
 How do you go from that bootstrap stage to the next level?
First step…
Seed Funding Your Startup
First step… How do you go
from that
bootstrap stage
to the next level?

6. Friends and Family
6
 Smaller investment
 Formalize process
 Be transparent about
risks
 What happens when
you start bringing in
professional investor?
Seed Funding Your Startup

7. Preparing for Professional Investors
7
 Angels vs VCs
 Tailor money raising issues, going from bootstrap to next level
 What does it mean to talk to professional investors
 How to build a financial model that appeals to investors
 Top-down vs bottom up projections
 Finances need to tell a story
Seed Funding Your Startup

8. Two Ways to Do Seed Financings
8Seed Funding Your Startup
Convertible Debt
(generally when
raising < $2M)
Series Seed
Preferred Stock
(generally when
raising >$2M)

9. Convertible Promissory Notes
9
 Simple Terms
•Amount of money raise, interest, maturity/default
 More Negotiated Terms
What is a qualified financing?
Optional conversion on non-qualified financing?
Kicker payment on change of control (sale of company)
Seed Funding Your Startup

10. Sample Convertible Note Term Sheet: Official Terms
10
 Convertibility on Qualified
Financing
 Convertibility on Non-
Qualified Financing
 Sale of the Company
 Term: Prepayment
 Closing(s)
 Subordination
 Note Purchase Agreement
Seed Funding Your Startup

11. vs. Series Seed Preferred Stock:
Valuation and Purchase terms
11
• Pre-money valuation is negotiated:
• How market factors in
• If you’re pre-revenue, need
milestones
• Deal flow
• Examples of pre-money valuation
for different types of companies
• Size of option pool
• Reps and warranties from
Company slimmed down from
Series A
• Minimal closing conditions
Seed Funding Your Startup

12. Series Seed Preferred Stock:
Conversion and Distribution Rights
12
• No price-based anti-dilution
protections
• Non-participating liquidation
preference
• No preferential dividend rights
• No redemption rights
• Series Seed board seat
• Limited protective provisions
and voting rights
Seed Funding Your Startup

13. Series Seed Preferred Stock:
Contractual Stockholder Rights
13
• Better rights given to future investors guaranteed to Series Seed
investors
• Right of first offer on future financings (optional)
• Limited information rights
• Drag-along for smaller investors and common stock (optional)
• No registration rights
• No Company covenants
• No co-sale rights
Seed Funding Your Startup

14. Sample Term Sheet and Investment Documents
14Seed Funding Your Startup
Go to www.seriesseed.com
Also, check out the Fenwick & West VC Survey (done quarterly):
http://www.fenwick.com/publications/Pages/silicon-valley-venture-survey-first-qu

15. Convertible Notes or Series Seed Preferred?
15Seed Funding Your Startup
Convertible Notes Series Seed
Pros • Doesn't require
company valuation
(but may need to
negotiate a
"valuation cap")
• Quick/cheap
• More prevalent for
smaller $ rounds
• Clearer definition
around investor rights
• Starts long-term capital
gains clock (important
if early exit)
• Relatively quick
(cheaper than Series A)
Cons • Valuation
uncertainty for
investors (unless
there is a cap)
• Requires negotiations
around valuation
• Higher legal fees
• More expensive than
convertible note

16. Questions?
16Seed Funding Your Startup
Kristine M. Di Bacco
650.988.8500
www.fenwick.com
@fenwickwest
Check out Kristine’s bio!
We look forward to hearing from you!
Sirk Roh
415.234.3437
www.earlygrowthfinancialservices.com
@EarlyGrowthFS