FundraisingA Silicon Valley Perspective

Ariel Polerariel@poler.org

@ariel

I've been on both sides of the table...

Started three Internet companies    - I/PRO (1994): VCs & strategic investors (4 rounds)    - Topica (1998): Angels, VCs and private equity investors (3 rounds)    - TextMarks (2006): self financed to profitability.

Chairman or Active Board Member at 10 companies    - Kana (VC, PE, IPO); LinkExchange (VCs); Freedom Financial (angels); Passporta (angels); Papilia (angels); Odeo (VC); StumbleUpon (angels); LOLapps (angels, VC); SpeedDate (angels, VC); Strava (angels, VC).

Angel in over 40 start-ups    - NexTag, AdMob, Kongregate, SlideShare, Flixster, Rockyou, Xobni, Causes, Aptimus, Outright, Blippy, Digital Impact, Thumbtack, Viikii, Accept, Instructables, Groupspaces, Evite, WeGame…

Silicon Valley is Another Planet!

- Very unique, even within the US and California- We have the process down to a science:    - term sheets    - compensation arrangements    - partnerships    - technologies & services    - legal, banking, accounting, hr...- You get to eat with the influencers every day!

VCs and Angels only represent a tiny fraction of the financings in the world

Most companies are bootstraped, funded by friends & family, credit cards, cash flow, etc. etc.

But: VCs & Angels do account for a large share of innovative technology start-ups in the US.

It is not a Black and White distinction between Angels, VCs, Private EquityThere are many shades of Grey...- Angels with funds.- VCs that focus on seed investments.- VCs that participate in seed rounds.- VCs with Private Equity like late stage funds

On "average", It takes 6 Months... 

But averages are often meaningless

"Hot deals" are done in a few weeks, some times a few days

Most deals never get done.

And somehow the average is 6 months...

International Companies have better changes of fundraising elsewhereSilicon Valley is the only region with too many good deals. Investors elsewhere HAVE TO invest outside their region, but we don't. So the bar is much higher...

. Find investors who understand you

- Who has invested in related companies?-Go through the web sites of top VCs and review portfolio companies and partners' histories. Do the same for angels.- It is never too early to develop relationships with potential investors – get their advice before their money…

It is about the person, not the firm

There are lousy people at the best firms and great people at 2nd tier firms...

The Ideal Process

- The right potential investors are identified- Investors are contacted through someone who knows them.    - Don't cold call!!!

- Don’t contact too many investors- Enough information is provided to generate a meeting or call if there is a potential fit.- From here, next steps vary depending on many factors,

You Need a Forcing Function - a deadlineInvestors will take as much time as you give them. They will rarely commit unless you give them a deadline - or they feel they might be left out.

Their answer will be the same in two weeks or two months.

Forcing functions? other investors, self financing, M&A.

"You are too early for us...” and other excuses…Most investors do deals when they get excited by them. But they don't like to say "i am not excited", so instead they use an easy excuse.

Team builders vs. team replacers

- Most investors hate to search for a new CEO or management team. We much rather invest in teams that will grow.- Of course, there are exemptions.

Typical deal points and terms

- Check out SeriesSeed.com- Priced vs. convertible.- Convertible: discounts vs. caps.- Liquidation preference: participating vs not. 1x vs 2x.- Anti dilution- Employee pool- Board- Protective provisions

The “YCombinators”Rent & Ramen money for three months plus

advice and a network.

Silicon Valley: Ycombinator, AngelPad, i/o Ventures, Dogpatch Labs.

Other places:SeedCamp in EuropeTechStars in ColoradoNY, Atlanta, Sidney…

Control

Most SV investors don't want control.- they don't want to run the company.- they don't want to replace the management team.-they can't really "force" management too much.

Best thing you can do to get financing?

Focus on the success of the company. The less you need the money the easier it will be to get it!!!

Questions?