Seed Funding Your Startup

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Are you ready to make that leap from bootstrapping to investment capital? If you're ready to accelerate the growth of your startup, check out this presentation from Kristine Di Bacco, Associate with Fenwick and West, LLP ( and Sirk Roh, COO for Early Growth Financial Services (, which covers how to take your startup to the next level of financing -- including an in-depth look at convertible promissory notes and term sheets.

Transcript of Seed Funding Your Startup

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

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 Series Seed 9. Convertible Notes or Series Seed Preferred? 9Seed 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 10. Convertible Promissory Notes 10 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 11. Sample Convertible Note Term Sheet: Official Terms 11 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 12. vs. Series Seed Preferred Stock: Valuation and Purchase terms 12 Pre-money valuation is negotiated: How market factors in If youre 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 13. Series Seed Preferred Stock: Conversion and Distribution Rights 13 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 14. Series Seed Preferred Stock: Contractual Stockholder Rights 14 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 15. Sample Term Sheet and Investment Documents 15Seed Funding Your Startup Go to Also, check out the Fenwick & West VC Survey (done quarterly): 16. Questions? 16Seed Funding Your Startup Kristine M. Di Bacco 650.988.8500 @fenwickwest Check out Kristines bio! We look forward to hearing from you! Sirk Roh 415.234.3437 @EarlyGrowthFS