Post on 21-Feb-2017
05/01/2023 @NewCo #MasterClass - Jan 2017 - SF
Seed Funding Strategies
Jeff Clavier, Managing PartnerSoftTech VC
@NewCo #MasterClass - Jan 2017 - SF
Brief Bio Jeff Clavier (@jeff)
French born C/C++ & Distributed Computing CTO at Financial Services startup
in 1989 Acquired by Reuters in 1993 “Traditional” VC in the Valley
since 2000 Angel/Seed Investing since 2004 Launched one of the first micro-
VC funds in 2007 Board Member of the NVCA
SoftTech VC (@softtechvc) 12 years old 188 investments $300M AUM 45+ exits, 1 IPO $2.5B in follow-ons $10B in exits HQ: San Francisco 3 Partners
05/01/2023
05/01/2023 @NewCo #MasterClass - Jan 2017 - SF
Foreword The numbers I am mentioning are averages I
have seen in our my day to day work Every startup is different, as such you may,
and probably will, end up with lower or higher numbers – and that will be OK
05/01/2023 @NewCo #MasterClass - Jan 2017 - SF
Agenda Understanding The VC Side Funding Ecosystem Raising
How much? At which valuation? From whom? What do you need to raise?
Top 10 list of “Don’t do this”
05/01/2023 @NewCo #MasterClass - Jan 2017 - SF
Understanding the VC Side VCs have to raise
capital from Limited Partners (LPs)
They have a portfolio construction strategy
They are expected to return 4X their fund size
“Homerun” deals return 50% to 100% of a fund (or more)
The VC Deal Funnel Get thousands to tens of
thousands of pitches Meet hundreds to
thousands Investigate less than 5% Invest in less than 1%
Only 15/20% of the companies impact returns
VC Scale
05/01/2023
Funding Ecosystem
@NewCo #MasterClass - Jan 2017 - SF
Pre-Seed
< $1M
•Bootstrapping/Friends and family•Pre-Seed Funds and pre-order/crowdfunded campaigns• Incubators and Accelerators (YC, Techstars, AngelPad, 500 Startups, SeedCamp)
Seed$1.5 to $3 M
•350+ Micro-VC Firms having raised $4B+•Syndicates of micro-VC firms, angels and (potentially) traditional VCs•AngelList and Crowdfunding services as alternative or “fill up” opportunity
Seed Prime $2M to
$3M
•Companies that can not raise a Series A will raise a bridge from existing investors
•Some funds like have positioned themselves as goto leads for Seed Prime rounds
Series A
$5M tp $15M
•One traditional VC, with micro VCs investing pro-rata and adding strategic angels•Syndicates of micro-VCs leading smaller series A rounds•Family Offices, Strategics, Micro-VCs + Crowdfunding pools as alternative
Series B
$10M to
$30M+
•Another traditional VC (or two), with insiders coming in for pro-rata. Corporate VCs start showing up.
•Same mix as Series A for alternatives plus the YC Continuity Fund and Strategics•Family offices and growth investors coming into Series B rounds of top performing companies
Growth$20M
to $100M
+
•Mix of traditional/growth VCs, PE firms, hedge funds. In parallel, secondary transactions.•Alternative: direct co-investments from LPs, hedge/mutual funds, cash rich corporates•SPVs (Special Purpose Vehicles) coming in all over the place
05/01/2023 @NewCo #MasterClass - Jan 2017 - SF
Raising: How much? At which valuation?
It depends: Team: experience, track record, unique insights,
founding story Product: how unique, stage of development,
intellectual property Market: revenue potential, TAM
The higher the risk, the lower the valuation, the smaller the raise
05/01/2023 @NewCo #MasterClass - Jan 2017 - SF
Raising: How much? At which valuation?
The valuation is a measure of all the risks that have not been eliminated (team, tech, production, goto market, etc.)
It increases with traction and the number of investors who are willing to commit to fund the opportunity
Market will decide on the valuation The only thing you need to worry about is a
reasonable dilution
05/01/2023 @NewCo #MasterClass - Jan 2017 - SF
Raising: How much? At which valuation?Pre-Seed: < $1M
To build the product Sources: Angels,
AngelList, pre-seed firms, accelerators
Runway: 9/12 months Team: handful Valuation: $3 to $6M
pre Dilution: 5% to 15%
Seed: $1M to $3M To launch the product Sources: Seed funds,
angels, AngelList, other funds
Runway: 18/24 months Team: < dozen Valuation: $6M to $10M Dilution: 20/25%
05/01/2023 @NewCo #MasterClass - Jan 2017 - SF
Raising: From whom? You need to end up in someone’s “1% of
deals” First you need to develop your list of target
investors filtered by your stage, industry, geography Search CrunchBase, AngelList or CB Insights for
firms, partners interested in your sector Make sure they have not invested in competitors
Focus on identifying leads first – who will set terms and write larger checks
05/01/2023 @NewCo #MasterClass - Jan 2017 - SF
Raising: From whom? You need to identify a strong connection (the
“trusted referral”) who will introduce you to these investors.
Cold emailing will dramatically reduce your chances.
Create a shared spreadsheet listing firm, partner, relevant investments and share it with advisors, early investors, other entrepreneurs for input
Figure out priorities (P1, P2, P3), reach out to 6/8 firms, meet, get feedback, update, reach out to more
05/01/2023 @NewCo #MasterClass - Jan 2017 - SF
Raising: From whom? What if you have zero connections to
investors? Bootstrapping on your dime is always an option An incubator or accelerator program will be your
“right of passage”. Understand not all accelerators are created equal, and only the best ones are worth it
Early revenues, and upfront cash, are a great way to fund your company (Qualtrics, Atlassian,…)
05/01/2023 @NewCo #MasterClass - Jan 2017 - SF
Raising: What do you need to raise? Pitch deck: opportunity, founders background
and unique insights , product, enablers, milestones met, market size, competition, goto market, funding
Demo of product or prototypes Basic financial model showing the use of
funds References: founders, customers/users,
experts
05/01/2023 @NewCo #MasterClass - Jan 2017 - SF
Raising: Misc Steps to a financing:
initial meeting, follow-up meetings, due diligence calls and meetings, full partners presentation, termsheet negotiation, legal due diligence, closing
Types of instruments: Equity financing SAFE Convertible notes
05/01/2023 @NewCo #MasterClass - Jan 2017 - SF
Top 10 things that will lower your chances
1. Send a “To whom it may concern” mass email
2. Saying I am either selling to Google or raising a round
3. Not having a good grasp of your ecosystem or competition
4. Investors feeling founders “don’t know what they don’t know”
5. Using too many buzzwords
05/01/2023 @NewCo #MasterClass - Jan 2017 - SF
Top 10 things that will lower your chances
6. Having a massive advisory board that is not engaged
7. Trying to hide things8. Raising too little, or too much at a valuation
that is disconnected from your stage9. Acting weird, not following up promptly, not
showing interest10.Not having your tech ready, or backup
solutions when pitching
05/01/2023 @NewCo #MasterClass - Jan 2017 - SF
Questions?