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Startup Seed Funding
Kristine M. Di Bacco
Associate
Fenwick & West, LLP
Sirk Roh
COO
EGFS
From Bootstrapping
to Convertibl...
Who We Are
2Seed Funding Your Startup
Presentation Overview
3
 Bootstrapping
 The leap from bootstrapping to
investment
 Preparing for investment capital
 D...
Bootstrapping
4
 Better focus on execution
 No dilution
 Independence
 Caveats: Keep personal
finances separate from
b...
Moving On Up…
5
 How do you go from that bootstrap stage to the next level?
First step…
Seed Funding Your Startup
First s...
Friends and Family
6
 Smaller investment
 Formalize process
 Be transparent about
risks
 What happens when
you start b...
Preparing for Professional Investors
7
 Angels vs VCs
 Tailor money raising issues, going from bootstrap to next level
...
Two Ways to Do Seed Financings
8Seed Funding Your Startup
Convertible Debt
(generally when
raising < $2M)
Series Seed
Pref...
Convertible Promissory Notes
9
 Simple Terms
•Amount of money raise, interest, maturity/default
 More Negotiated Terms
...
Sample Convertible Note Term Sheet: Official Terms
10
 Convertibility on Qualified
Financing
 Convertibility on Non-
Qua...
vs. Series Seed Preferred Stock:
Valuation and Purchase terms
11
• Pre-money valuation is negotiated:
• How market factors...
Series Seed Preferred Stock:
Conversion and Distribution Rights
12
• No price-based anti-dilution
protections
• Non-partic...
Series Seed Preferred Stock:
Contractual Stockholder Rights
13
• Better rights given to future investors guaranteed to Ser...
Sample Term Sheet and Investment Documents
14Seed Funding Your Startup
Go to www.seriesseed.com
Also, check out the Fenwic...
Convertible Notes or Series Seed Preferred?
15Seed Funding Your Startup
Convertible Notes Series Seed
Pros • Doesn't requi...
Questions?
16Seed Funding Your Startup
Kristine M. Di Bacco
650.988.8500
www.fenwick.com
@fenwickwest
Check out Kristine’s...
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Startup Seed Funding: From Bootstrapping to Equity Financing

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!

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Startup Seed Funding: From Bootstrapping to Equity Financing

  1. 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. 2. Who We Are 2Seed Funding Your Startup
  3. 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. 4. Bootstrapping 4  Better focus on execution  No dilution  Independence  Caveats: Keep personal finances separate from business! Seed Funding Your Startup
  5. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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

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