Seed Funding Strategies

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


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


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”


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


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


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


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%


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


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


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,…)


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


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


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


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


Questions?

Economy & Finance

Seed Funding Strategies