Seed Fundraising for Tech Entrepreneurs:Mastering the Art and the Science

Wednesday March 13, 2013

General Assembly Seminar

Insights on successful fundraising from an active angel investor

and fellow entrepreneur

Tom WisniewskiRosePaul Investments

To all who attended Wed night at GA: Thanks! Hope you enjoyed it and gained something. Feedback welcome.

FYI(.The next class I will teach at GA is: The Seed Stage Pitch: the Art and Science of Good Communication Monday 4/15 at 7PM. Link/follow me on LinkedIn and/or Twitter for updates, etc. (Page 31 of this deck has my details)(.Cheers, -TW

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Agenda

I. Kick-off and Introduction

II. Seed Fundraising

III. Additional Q&A, Feedback and Beverages///

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I. Kick-Off and Introduction

� Raising money is difficult((.especially for early stage ventures.

� Why? At least part of the answer is:• The “market” for early stage investment is complex, nuanced

and can be “bewildering”(.especially for 1st timers.• Finding investors is difficult((getting investors to write a check

(can seem) nearly impossible: “1% of start-ups get funded”• Lots of “noise” no shortage of advice

� What will help?• Understand the marketplace, people and processes that are at

work• Leverage existing expertise and network (thoughtfully). • Interpret and utilize the wealth of resources that already exist.• Improve / adapt your venture and approach.

• (..Become a “student” of the art and science of fundraising (and entrepreneurship generally)

Seminar Rationale: Why are we hear?

Based on my experiences and feedback from other investors and entrepreneurs (.

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� Better understanding of the marketplace: fundraising process,

sources of capital, do’s and don’ts, etc.

� A set of specific insights that will *change* what you are doing in

fundraising.

� A “to-do” list: starting point(s), actions, things to try.

� A set of recommended resources to consult and learn more

from.

� A few new relationships with others in the NYC start-

up/fundraising ecosystem: fellow entrepreneurs, investors, etc.

� Answers to specific questions about fundraising that you might

have.

What would I like you to walk away with?

Well, this will obviously be different depending on your past experiences and the stage of your venture but(.

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� After B-school: joined a start-up management consulting firm Mitchell Madison Group; focus on Strategy/Operations/IT for financial services, tech, outsourcing, private equity/VC clients (1993 to 2000)

� Walker Digital: helped set-up and run an early “internet incubator” (2000)

� Independent Advisor / Turn-arounds: Advised VC and PE Firms on portfolio company strategy and new investments; joined the management team of two companies

� Currently: • Early stage investor and advisor to start-ups • Investor and advisor to VC and PE funds• Member and director at New York Angels

� Recent Investments: Sociocast (social/behavioral analytics), LiveLook (Saas, live collaboration, co-browsing); Movio (Digital “RedBox” ); Bizodo (Saas, paperwork automation); Social Starts (seed fund for start-ups); Brooklyn Bridge Ventures (Charlie O’Donnell); Entrepreneurs Roundtable Accelerator (ERA)

Tom Wisniewski: My background

� Born in NYC; grew-up in Montclair, NJ

� Physics and Philosophy major undergrad (Clark University); MBA at Tuck School (Dartmouth)

� 1st Job: Programmer at Morgan Stanley then moved to Investment Banking

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Additional Introductions

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� Ellie Wheller (Greycroft)

� Charlie O’Donnell (Brooklyn Bridge Ventures)

� Heather Miles (Venture Lawyer Extraordinaire)

� Other Guests

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So/.what questions do you have about Seed fundraising?

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� Demitri/Source of capital, MVP, stage need to be� Preyas/What do I have for a investor discussion� Ranjan/level of detail e.g numbers� Shashi/.Friend and Family, timeline� Wendy/.Best way meet/into to investors� John/.how much to Discolose, NDAs� Paul/.Persistance and annoying\� /.where to get details/research, full business case� Darrel/.Patents and IP � John/.prof/services to product/venture� Pierre/.valuation� /.See market for Med tech� Shefali/.legal structure: angel vs. VC� Lannie/Non-tech, how different?� /.Accedicated/� Bryan/.Debt vs. Equity

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Sources of Investment: Seed Fundraising, Angels and VC’s

Stage (Pre-Round):• Expected to

have:

• An idea, initial/rough b-plan

• Initial founders, key advisors

• Path to ???

• Detailed b-plan, • Key founders (bus & tech) full-time• Prototype/alpha done and tested, • Some piloting (paying?)

customers, some revenues?, • All legal documentation in place,

board of directors • Path to break-even or next funding

• Significant variation among firms but(. Angel req. +:- Anchor clients on board, revenue

growth (B2B), - Growing base of users, with strong

usage trends (B2C)- (..Growth potential! Credible

path to $100M Rev

• Don’t Expect: • $ Rev, Customers, Minimum Viable Product (MVP); full legal documentation

• Income (e.g. cash flow positive); all key management ; completely developed business model (e.g. understand it will change)

• Income (e.g. cash flow positive)

Who/what are they?

• People you already know, that trust you, and (maybe) understand your venture

• Experienced early stage investors (individuals or a group)

• Accredited Investors.• Angel investing is not their “job”;

may not be F/T endeavor• E.g.: NY Angels, GoldenSeeds

• Firm with multiple professionals that raises, invests and manages individual funds (other people’s $)

• Working F/T (this is their job()• E.g.: Greycroft, RRE, Union Square

Angel InvestmentFriends and

FamilyVenture Capital

“You”aka Bootstrapped

Earlier Stage Later Stage

Round Size $: • $10’s of K to $100K

• $100’s of K to $1M+

• $500K to $1.5M

Investment Size $: $5K – $10’s of K • $25K – $75K • $250K-$750K

Valuation (Pre-Mon):

• < $1 M • $1 – 5 M • $5-10 M

II. Seed Fundraising

“Seed” VC “Traditional Series A” VC

• $5M-$15M

• $3M – $5M

• $10 – 25 M

“Seed”

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Who are these “Angels”? What do they look like?

� Experienced, successful entrepreneurs: frequently multiple exits

• Some from “tech-start-ups” some from other businesses

• Usually some link to

� Successful “corporate” business people: CEO or CxO-types

� Older: most are in the 40-60 age group. But there are also notable angels

in their 20’s and 30’s e.g. newly minted start-up millionaires

� 3 – 10+ Angel Investments

� ~10% of investible capital in Angel Investments

� Differ *widely* in: Industry/Functional Experience, Investment Expience,

Interests, Target Sectors/Stage, Investment $, Risk Tolerance, personal

do’s/don’ts and hot buttons.

� Lists? Not many. All are partial. AngelList? Gust? Other?

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Active, NYC Early-Stage Tech Investors

� Active VCs in NYC (TW list and opinions)•Lerer Ventures (Seed)•Quotidien Ventures (Seed)•RRE Ventures (Seed)•First Round (Seed)•Brooklyn Bridge Ventures (Seed)• iNovia Capital (Seed)•Union Square Ventures (Series A & B)•Greycroft (Series A & B)•DFJ Gotham (Series A & B)•FirstMark Capital •Village Ventures

� Angels, Super Angels, Angel Groups and Micro VCs: [see links below]

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Angel/VC List: https://docs.google.com/spreadsheet/ccc?key=0Ap5XbqUM9nICdG40LXVVamRyN19zZHlTU3E2SmdDTkE#gid=0.

NYC VC: http://under30ceo.com/top-new-york-based-venture-capitalists-you-should-know/Angel Groups: https://gust.com/find-investors?keywords=&sort=distance&grouptype=ANGEL_GROUP&region=STATE

• Series A VC: Definitely >$1M, $3-5 M sweet spot

• Seed VC: <$1M , $250K-750K frequently

• Super Angels / Micro: up to $250K? , lots of $25’s –100K’s ?

• Angles: <$100K, typically $10-50K

Investment Size by Investor Type

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Who are the “right” investors? Where is there a “fit”?

� Just do it? Just go pitch some investors? (..Nope. Fit is critical. • Wrong question: How do I pitch “investors”?• Right question: Who are the “right” investors? (.*then*(. How do I pitch this

specific, individual investor?

� Reality Check. As a general rule, “people invest in things that they understand and have experience with”

• Find investors that come from industries, sectors, business models etc. that are same/similar to your venture and the customer markets it serves.

• If I have never invested in Caribbean real estate, oil wells(.or communication hardware, it is very unlikely that I will do it with you.

• For Angels/Angel Groups: use online bio’s / LinkedIn / AngelList to identify likely “good fit” Angels

• For VCs: Find the right person at the fund; Individuals at the fund focus on different sectors. The web site often spells it out.

� Thought Exercise: • “What would the “perfect” investor look like?”• (he/she probably doesn’t exist but this will help you :

- target, prioritize, know one when you see them”- To be specific (and effective!) when asking for referrals

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How to “get” a pitch meeting?

� Find/.Fit? Does this investor have “fit”? Do they invest in ventures like mine?

......if not, then move on. (or at least prioritize accordingly)

� Prep! • Know your audience. What have they invested in? Recently? What can you

find out about their background? Interests? Hot buttons?

- How? Duh(.Google: Blogs, Quora, YouTube, CrunchBase; talk to people they know, better(talk to those they have invested in.

• Create a good pitch: - What would they want to know? - How can I say what’s unique/ compelling - Make it easy. Think “executive summary” and KISS (Keep It Simple

Stupid)- adapt pitch to fit the situation.

• Don’t be lazy; invest some time.

� Connect. The hard part.• Avoid “cold-calls”; look for “warm introductions”• Networking. Who do you know that knows them? • Find them at an event. (Email sucks!)

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Tips on getting a meeting: http://www.quora.com/David-S-Rose-1/How-does-someone-get-a-meeting-with-angel-investor-David-S-Rose

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How to “get” a pitch meeting?

� Why?• Pitching by its very nature can be awkward. “This guy wants something from me.”

• Having a pitch be the first thing someone hears from you can be off-putting. “Do I know you?”

• Most investors mean-well, and would like to help(but - they are real busy - its very challenging to understand new ventures quickly- Its tough to say “no” (easy to avoid, or say maybe)

� Solution: Build a relationship before you need to pitch. OK, How?

• Give, don’t Ask: what can you do for them?• “Ask for advice, not money” . Turn people into advisors(..theninvestors.

• Debate / Discuss a topic, Ask opinion about X. • Find ways to “show” rather than “tell”: show me your smart, don’t tell me your smart 12

How do I build a relationship first?

Wrong Question/Right Question:

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What do I say? How do I say it?

� Why? Potential investors (or potential employees, customers, etc.) usually start out knowing nothing about you or your venture. • Getting someone “from 0 to 60 mph” is very challenging: too much to say,

don’t know where to start.• If you loose someone’s interest in the “first minute” , you usually loose them.• If you don’t understand someone's “perspective” e.g. expertise (they have 6

Saas investments vs. they can’t spell Saas) you will be ineffective- People generally understand things by association (to things they know).- That’s why so many start-up taglines are “XYZ corp is the Uber for the

ABC industry”

� Principles. Principles of good communication are the same. Much of the content will be the same; the format (e.g. pitch deck vs. elevator pitch) and level of detail will vary by Situation.

• A few principles of effective communication: Audience, Messages, Storyline, Goals.

• Messages and Storyline will tend to be similar across formats (e.g. deck vs. 1-pager). However good communication is tailored to the Situation.

• Situation. It’s the(Audience, Time Allowed, Relationship, Past Communication, Goals\

• Mostly, level of detail varies.

Communication is critical.

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Common “Forms” of Pitch Communication. What are they? Which should I use?

“Document” Simplistic Description Common Situation/ Use

1-pager “1 pager Exec Summary, Word doc”

• Email attachment or handout• Online platforms e.g. Gust, AngelList

Email Brief “Teaser paragraph of text / bullets” • “In the intro email” (w/ attachments)

Business Plan “10-40 page Word doc” • Detailed discussions (similar use)• Stand-alone, due diligence

Pitch Deck “10 page PowerPoint presentation”

• “15 minute stand-up presentation”• Email attachement

Long-Form Pitch Deck

“20-40 page version of 10 pager; PowerPoint presentation”

• “60-90 minute follow-up meeting with smaller group”

Elevator Pitch “No document, just you talking for 60 seconds”

• Your quick intro after you meet someone in person

“Video” Pitch “10 minute video of your deck/ demo w/ you voice”

• Email attachment• Online platforms e.g. Gust, AngelList

Due Diligence Docs “All the detailed spreadsheets, data, etc. that back-up your pitch”e.g. Financial Projections, Sales Funnel, Legal Docs

• For detailed discussions with interested investors, usually post-term-sheet

• Online platforms e.g. Gust, AngelList

The Good News: • you don’t need to have all of them (maybe ever, certainly 1 or 2 to start is fine) • much of the content, messages, storylines can be shared and reused• Preparing thoughtful docs ((refines your thinking and your venture.

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Good Pitch Deck

From “Triple Play” of VC Presentations by Mark Suster (former entrepreneur, now VC)

� Slide 1 – Team Bio� Slide 2 – 50k foot view of your company� Slide 3 – Problem Definition� Slide 4 – How do you solve the problem?� Demo Web Version and � a Demo Video Example� Slide 5 – Market Sizing� Slide 5 warning: (Market Sizing Pitfalls)� Slide 6 – Competition� Slide 7 – Customer Adoption / Traction� Slide 8 – Team� Slide 9 – Financial projections� Slide 10 – Use of Proceeds� Slide 11 – Fund raising process / Next steps� Appendix – Back-up slides� How to deal with the dreaded question of

valuation?

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http://www.bothsidesofthetable.com/pitching-a-vc/

Adapted from “10 Slides to an Awesome Pitch” by Dave McClure, 500 Start-Ups

1. Elevator Pitch2. The Problem3. Your Solution (Demo Here!)4. Market Size5. Business Model ($)6. Proprietary Tech7. Competition8. Marketing Plan9. Team / Hires10. Money / Milestones

http://www.slideshare.net/dmc500hats/how-to-pitch-a-vc-sept-2010

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What does a successful investor pitch meeting look like?

From “Triple Play” of VC Presentations by Mark Suster

� Act I: Discussion. The warm-up. Share. Listen. Build rapport.

� Act II: Pitch

� Act III: Demo

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http://www.bothsidesofthetable.com/2009/09/12/do-you-need-a-powerpoint-deck-for-a-vc-meeting/

This one opinion. One order of things. Everything varies by Situation (e.g. Audience). You will adapt based on your presentation “style” and comfort level.

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What do investors care about? What do the want to see?

My (TW) List for Evaluation

1) Market Opportunity

2) Product3) Traction4) Team

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http://upstart.bizjournals.com/resources/author/2012/07/19/what-do-venture-capitalists-want.html?page=all

What do VC’s want? By Sheetal Shah

• Big Opportunities / Big Visions

• Idea/Founder Authenticity

• Founder Profile: Missionary Passion, Balanced Ego, Trust

• Objectivity• A-Teams

Many, many others/

• Elements of the B-Plan

• Lots of personal preference

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Angel Groups: How do they differ?

� Member Profile: What does the “typical” member look like? What industries, sectors, companies do they come from?

� Sector Focus. What types of companies are they investing in? • Internet, software (vs. Hardware vs. Pharma / Bio-tech vs. Clean/Green-tech)• B2C vs. B2B, Saas, Cloud-based, Content-based• How does their Portfolio compare to their stated strategy?• What is their “sweet spot”? Vs. their “also do”?

� Stage. What is the target “stage” for prospective investments? What completed milestones and characteristics are they looking to see?

• Revenues vs. Pre-Revenue? Product/Tech development? MVP complete? • Customer/market validation? Anchor accounts? User levels?

� Valuations/ Investment Size: Pre-Money valuation range and size initial investment• “We typically invest $200 – 500K at valuations in the $1-3 Million level.”

� Group Structure / Investment Decisions. How is the Angel Group structured? Most importantly, how are investment decisions made? Who makes them?

• Network: Angel Group runs the process, individuals make independent “opt in” decisions to invest on a deal-by-deal basis.

• Democratic: Angels commit $ to the group, $ decisions are made based on voting• Fund structure: Angels commit $ to the group, and an “investment committee” makes

all/most funding decisions. Additional Opt-in co-investments available.

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NY Angels Profilewww.newyorkangels.com

� Member Profile: ~80 investor/members; several early-stage funds; Member backgrounds are generally representative of the tech / entrepreneurs / industries in NYC: software, e-commerce, ad-tech, finance, media

� Sector Focus: Internet, e-commerce, new-media, software; B2C and B2B. Mostly NYC Area.

� Stage. Mostly early stage (with some customers/revs), some seed stage (pre-revenue)

� Valuations/ Investment Size: NYA pre-money valuations tend to range from $1M – 4M; investments tend to range from $250K to $1M+;

• For larger rounds, NYA often leads the deal and helps find the rest of the capital by sharing/syndicating the deal with other Angel Groups

� Group Structure / Investment Decisions. NYA core structure is as a group of individual investors. Individual investors “opt in” to deals and make their own investment decisions.

• Typical member invests $25-50K in a deal.• In addition to the core “opt-in” model, NYA has just closed a small seed fund that will

operate in parallel (using a “democratic model” for investment decisions)

� History/Background. NYA has invested $45M+ in 70+ companies.• We are very active in the NYC entrepreneurial / early-stage ecosystem

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A “Typical” Angel Group Process for Entrepreneurs

1. Find the right group(s) to pitch

2. Apply online

3. Get invited to screening

4. Meet with screening panel

5. Get invited to present

6. Present to full group(s)

7. Get invited to due diligence session

8. Deep dive w/ interested investors

9. Get presented a draft term sheet

10. Negotiate the term sheet

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What is typical success rate for funding?• Industry data for angel

groups and VCs: 0.5% - 2% of companies submitting b-plans get funded

What can increase the speed and success rate?• Member referral • Investor referral• Lead Investor /Term

Sheet• Have good pitch and

due diligence docs• Well practiced,

thoughtful pitch

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Variations on the Theme: Other Players

� “Super Angel” (vs. Angels, Angel Groups). Sophisticated angel investor with a large portfolio of early stage investments (30? 50?) and that is investing frequently (10 + per year). E.g. David Rose, Fabrice Grinda

� Microfund or Micro VC Fund. Small VC fund ($1-10 M) often run by a single person typically making “angel” size investments in early stage companies.

� Seed Fund. VC fund focused on “seed” (aka Angel) stage investments: often pre-revenue, pre-product. Some VC’s that typically invest in “Series A” rounds will reserve a portion of their fund for seed investments: e.g. $250 – 750K investments at $1-5 Million valuations

� Incubator/Accelerator. Entity that provides non-monetary support/services (in addition to $’s) to early stage ventures. Typical support/services can include: space, IT infrastructure, shared admin service, advice/feedback, introductions/networking. Public vs. private, independent vs. captive. Examples: TechStars, ER Accelerator, DreamIT, Y-Combinator

� Strategic Partner/Investor. Some operating companies will invest in ventures. Typically it is in an industry/ sector / product-space similar to theirs (sometime with an eye toward potential acquisition in the future)

� Crowd Funding Platforms. Currently this is financing via donation or “pre-sale” of products. Equity financing under JOBS Act is TBD. Not obvious this will be a good match for most Tech

� AngelList. Similar to an angel group, but without centralized control. More of a open “marketplace” of individual investors and ventures to facilitate funding.

� Gust. Software platform that most angel groups utilize (and many small VC’s) to run their investment process and connect angel groups together to share deals.

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Legal Primer for Start-ups: What’s Important?

� The 5 W's + 1H of Formation - When to form (timing/tax issues? What to form (choice of entity)? Where to form (choice if jurisdiction?) Why to form (tax and legal issues)? Who to form with (co-founder equity and vesting)? How to Form (DIY v. lawyer)

� IP 101 - Overview of intellectual property law:•Government filings and timing (Trademark, Patents)•Contractual IP law (PIIAs, licensing agreements)

� Advisory board 101s - How important, what is appropriate compensation - I find most companies think the advisory board is more important than it is. I also have found an increase in charlatan "advisors" who ask for a lot of equity and have NO connection to the VC world or have any value to add.

� Deal terms - Debt v. Equity.•Debt - How notes work and what terms matter (valuation and cap)?•Equity - Common v. Preferred Stock features. Board structure.

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Source: Heather Miles heather@hmileslaw.com

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Investor Perspective: Notes vs. Preferred Equity

� History. Preferred Equity is standard for both Angel/Seed and VC (Series A, B, etc.). Convertible Notes were used as a “bridge” to a [reasonably well defined, high probability] upcoming financing.

• Now: Convertible Debt much more popular at Angel/Seed round

� Preferred Equity. Equity (stock) that has defined “preferences” over common stock.• Establishes a value for the company e.g. [$3.5M] pre-money valuation• Liquidation Preferences. Most commonly used is “non-participating preferred” aka

“straight preferred”. E.g. a [1x] liquidation preference. Means investors get their invested money back plus [1x] before common equity holders. In the event of success, everyone converts to common and shares pari passu. Liquidation preference is really downside protection for investors

• Investor rights. E.g. approval of key company decisions

� Convertible Note. Debt that converts to equity when a next financing round occurs. As Debt, typically: carries interest rate (e.g. 8%); has preference to all equity: gets paid back 1st; secured by assets of company

• Converts to equity at “same terms” as next round(..except the Note usually has- Discount [10-30%] to the valuation (in the next round)- Cap on valuation (in the next round); means “valuation not to exceed $__”.

• Terms of conversion- Upon “qualified financing”, e.g. financing of a least [$2M]- End of the Note’s term [18 months]- At the option of investors

� Other Key Terms. Employee option pool, board composition, dividends, anti-dilution provisions, pro-rata investment rights, capped legal expenses.

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This is really the subject of a separate dedicated class. That said(.

Source: NY Angels Educational Meetup

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Key Success Factors and Take-Away’sfor attracting Seed Investment

� Pitch, Get Feedback, Revise. Repeat. No venture idea was built in a vacuum. The ONLY way to develop business ideas is to share them, solicit feedback, make adjustments, develop/refine/add and(..DO IT AGAIN!

• Many ventures fail to gain investor attention because there are too many gaps

(perceived and real).

� Find Good Advisors. To get good, detailed feedback and input you need to be talking to right people, with the right experiences: Experienced entrepreneurs and investors, prospective clients and partners.

• Networking, networking, networking(.

� Communication is Paramount. Potential investors (or potential employees, customers, etc.) usually start out knowing nothing about you or you venture. Getting someone up to speed: a challenge. Getting someone to write a check: a big challenge. At the core is effective communication.

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Key Success Factors and Advice/.continued

� Find Investors that Fit. People invest in things that they know, understand, have experience with. Find ones that match. [see previous pages]

� Find “Lead” Investor(s). Its critical to get one or more investors on board who can take the lead in driving the investment process: due diligence, term sheet, investor commitments, closing documents/process

• Investors trust/..other investors. Their interests are aligned. Lead investors help attract additional “followers”. With Angel Groups: use available bios / LinkedIn to

� Understand (and Manage) the Process. You are more likely to succeed if you really understand what’s happening (or should be happening) For each step (e.g. investor search, screening, presentation, due diligence, term sheets, etc.):

• What is happening or needs to? • Why? What’s the rationale?• Who is doing what? How do perspectives and motivations differ?• ,,now, what can I do to make it work for me?

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Key Success Factors and Advice/.continued

� Valuation (and Key Terms). Be realistic. Be Flexible. Realize this is a professional (not personal) discussion ; there will be back and forth. Ultimately the “market” sets the price/terms.

• There is more to investment terms than valuation(.Important to understand.

� Timing. Am I ready for Angel Investment?......A few probing questions:• Have you covered the key success factors mentioned here? Do you have a

compiling business opportunity with huge growth potential? • Do you really need the money? Now? The more that you can accomplish on

your own, the more compelling your case (and valuation) will be(..• Are you ready to work for a someone else? e.g. the investors, the board of

directors• Fund raising is “brain damage”. It wastes valuable time that could be spent

growing the business. Avoid it, minimize it, delay it if you can.

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� Better understanding of the marketplace: fundraising process,

sources of capital, do’s and don’ts, etc.

� A set of specific insights that will *change* what you are doing in

fundraising.

� A “to-do” list: starting point(s), actions, things to try.

� A set of recommended resources to consult and learn more

from.

� A few new relationships with others in the NYC start-

up/fundraising ecosystem: fellow entrepreneurs, investors, etc.

� Answers to specific questions about fundraising that you might

have.

What would I like you to walk away with?

Well, this will obviously be different depending on your past experiences and the stage of your venture but(.

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Other Classes

• TW Follow-on classes:

• The Seed Stage Pitch: the Art and Science of Communication Monday 4/15 at 7PM

• Introduction to VCs: A Primer for Entrepreneurs [Timing TBD]

• Start-up Strategy: Marrying Effective Strategic Thinking to the Real World of Early-Stage Tech [Timing TBD]

• Other GA Classes• Essentials of Start-up Law (Course by WSGR) ??

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III. Additional Q&A, Feedback and Beverages///

Feedback on this class:

� What did you like most about this seminar?

� What could be added and improved to make it better?

� What other topics would you like to see a seminar conducted on ?

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Thanks! Thomas Wisniewski Contact Info

Email: twisniewski@newyorkangels.comLinkedIn: http://www.linkedin.com/in/thomaswisTwitter: @thomaswis

This presentation: http://www.slideshare.net/Thomaswis/

New York Angels www.newyorkangels.com

New York Angels Educational Meetup: http://www.meetup.com/NY-Angels/

Heather Miles (start-up lawyer) heather@hmileslaw.com

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Additional Slides

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Strategic Partners

$100K

$1M

$10M

$100M

Idea Plan Prototype Beta Sales Profitability

Angel Investors

Angel GroupsSBIR/STTR Grants

Venture Capital

Banks

Friends, Family& Fools

IPO

Strategic Partners

Angel Investors

Angel GroupsGov /State Grants

Venture Capital

Banks

Friends, Family& Fools

IPO

Source:

Tom Stephenson, Verge

Another view of the funding “marketplace”/.

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Early L

ate

VCMostly later stage

3,400 deals$0.5-1.0B per

YearAngels

49,000 dealsMostly early-stage

$20B per Year

Deal Volume and Stage: VC’s vs. Angels

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September 2011

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Venture Capitalists“Professional fund managers who investlarge pools of other people’s money for an economic return.”

Angel Investors“Rich(-ish) people who invest their own money for economic and other reasons.”

Non-$ Value added: “Many entrepreneurs have expressed to me that the value of the time that angels invest (.exceeds the value of their money”

Other Definitions for/. VC’s vs. Angels

Source:

David Rose, Bill Payne

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Average Profile of an Angel

� Age 57

� Masters degree

� 15 year entrepreneur

� 2.7 ventures founded

� 9 years investing

� 10 investments

� 2 exits/closures so far

� 10% of wealth in angel investments

“Accredited Investor” (SEC definition)

$1 million in assets (not including home) or

$200,000 annual income in past two years

35

Also worth noting//..within the “average” there are “newly minted” angels: entrepreneurs post sale of their company/ IPO.

September 2011

confidential

Annual Sources of Start-up Funding

Venture Capital ~$.3 billion

State Funds ~$.5 billion

Angel Investors ~$20 billion

Angels: 90% of outside

equity for start-ups?

Friends & Family ~$60 billion$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

$22

1

Sources: MoneyTree, NASVF, multiple studies on informal capital

36

September 2011

confidential

New Company Formation

Source of Equity Funds – Typical Year

0 100,000 200,000 300,000 400,000 500,000

500 Classic VCs

1000-2000 Seed Funds

>50,000 Angels

>200,000 Friends & Family

500,000 Startup Companies

37

September 2011

confidential

Companies Backed by American Angels

38

September 2011

confidential

0

5

10

15

20

25

30

2 to 10 11 to 25 26 to 50 51 to 75 76 to 100 101+

Investors Per Group

Source: 2009 ACA Confidence Survey and 2008 Member Directory

Average = 43.6

Median = 32.5

Percent of Groups

39

September 2011

confidential

Average Preferred Investment Per Round - 2008

Percent of

GroupsSource: 2009 ACA Angel Group Confidence Survey and 2008 Member Directory

0 10 20 30 40 50

> $750,000

$500,000 - $750,000

$250,000 - $500,000

$150,000 - $250,000

< $150,000

40

September 2011

confidential

Growth in Number of American Angel Groups

Sources: Center for Venture Research (pre 03 data) and Kauffman Foundation/ACEF (04-09 data)

0

50

100

150

200

250

300

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Likely Drivers (the Benefits of Angel Groups)

• Shared expertise in:

• Angel investing• Companies /

sectors• Bus. functions

(IT, Sales, Fin)• Scale (more

investment $)• Deal flow (quality

and quantity)

41

September 2011

confidential

Additional Thoughts/..

� Lots of start-up advice out there. Lots about the art of fundraising. • Huge volume of blogs, articles, Quora-posts, etc.• Well((.that’s good, right? Yes.• But why doesn’t it help?

- Overwhelming- Conflicting- Not specific- Not enough context- It’s just advice, ideas, (..not interactive, not experience.

• Need to understand the “why” behind it all and adapt it to your venture, your situation.

� Beware of simple answers, absolutes. As you are reading and listening to all these opinions, data sources

• For any “fact” “rule” “truth”( if you don’t understand how it is both true/false, you don’t really understand the point.

- Under what circumstances is this “rule for fundraising” “true”? Where does it apply well With whom?

- How and when is it not true (Or less true)?

42