Insider’s Guide to Raising Seed Capital:

An Introduction

Thursday, February 27, 2014

NY Educational Meetup Webinar

Insights on successful fundraising from an active venture investor

and fellow entrepreneur

Tom Wisniewski

RosePaul Investments

Thanks to all that

participated today in

the online Webinar.

My contact info is on

p.20.

Cheers,

-TW

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Agenda

I. Kick-off and Introduction

II. Seed Fundraising

III. Additional Q&A

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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 here?

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

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Please use the JoinMe Chat feature to voice your questions

to me and the group!

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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?

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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

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

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….[Let’s review some of the questions asked]

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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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Tom Wisniewski: Investor Profile Direct “Angel” Investor in Companies

• $25K-250K investments; Typical valuations: $1-5 Million,

• Typical Stage: at least some “product” done, some customer/sales traction

• Sector focus: Opportunistic generally within internet/software space;

- fair amount of Saas B2B, and consumer “marketplace” models, ecommerce enablers.

- NOT (or not much?): hardware, heathcare/pharma, cleantech

• NYC based: 50% investments in NYC area companies; total of ~80% NE overall (e.g

Boston, DC), 20% West Coast.

• Examples:

- Sociocast (social/behavioral big data analytics)

- LiveLook (Saas, live collaboration sales/service platform)

- Anvato (Ad insertion to live video streaming via proprietary machine vision)

- Moveline (Uber for the moving industry)

- Bizodo (Saas, paperwork automation; “Adobe 2.0” internet document sharing)

- Movio (Digital “RedBox”; content delivery via “last 100 ft” of wifi internet)

- HeTexted (Relationship advice forum generating content, media opportunities)

- Wanderu (Kayak for ground transportation)

- DealFlicks (a “Priceline” or “Hotel.com” for movie theater tickets)

- iCharts (tool that enables engaging, sharable, embedible chart content)

Investor in Funds

• In addition to direct investments in start-ups, invest in VC and PE funds.

• Examples:

- Social Starts (Seed fund for start-ups leveraging the Social Web)

- Brooklyn Bridge Ventures (Charlie O’Donnell’s fund)

- Entrepreneurs Roundtable Accelerator (ERA Fund)

- Greycroft Partners (Venture Fund)

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NY Angels Profilewww.newyorkangels.com

Member Profile: ~100 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 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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Active, NYC Early-Stage Tech Investors

Some Active VCs in NYC

•Lerer Ventures (Seed)

•Quotidien Ventures (Seed)

•RRE Ventures (Seed)

•First Round (Seed)

•Brooklyn Bridge Ventures (Seed)

• ff Ventures (Seed)

•BoldStart (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 ?

• Angels: <$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…..then

investors.

• Debate / Discuss a topic, Ask opinion about X.

• Find ways to “show” rather than “tell”: show me your smart, don’t

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How do I build a relationship first?

Wrong Question…

Right Question:

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Key Success Factors and Take-Away’s

for 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.

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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Other TW Classes

What: Show Me the Money – Series

Session 5: “What VCs are investing in and why?

When: Thursday, March 20th 6-9PM

Where: General Assembly in NYC (generalassemb.ly)

Speakers: Ellie Wheller, Greycroft Ventures

John Frankel, ff Venture Capital

Link: http://bit.ly/1fUU0gN

Next NYA EDU Webinar

What: All You Ever Wanted to Know About Term Sheets

When: Tuesday, March 11th, 9-10AM

Where: General Assembly in NYC (generalassemb.ly)

Speaker: David Rose, RoseTech Ventures, Founder of NYA

Link: http://bit.ly/TermSheets

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III. Additional Q&A, Feedback Welcome

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: thomas@rosepaul.com

LinkedIn: http://www.linkedin.com/in/thomaswis

Twitter: @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/