ERA Workshop on Seed Stage Fundraising and Angels

Tom Wisniewski

Agenda

This session and the deck that follows are based on a series of classes and events I have led at General Assembly in NYC on Seed Stage Fundraising, Pitching, Angels, etc.

I. Kick-off and Introductions

II.Intro to “Angel” Capital

III.Key Success Factors & Advice

I. Kick-Off and Introductions

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

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: • RosePaul Ventures: Early stage investor and advisor • Investor and advisor to VC and PE funds• Member and director at New York Angels

OK, Who are you then?

● Give me a brief intro on you/your company

● What has been your fundraising to date?

…..What questions to you have about Angels and

Seed-stage Fundraising?

II. Intro to Angel Capital

Sources of Investment: Seed, 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…)

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

“Seed” VC “Traditional Series A” VC• $5M-$15M

• $3M – $5M

• $10 – 25 M

“Seed”

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?

Who are these Angels?

RosePaul / Tom Wisniewski Investor Profile

• $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: Software Enabled

Business - Saas B2B, and consumer “marketplace” models, ecommerce enablers.- NOT (or not much?): hardware, heathcare/pharma, cleantech, education,

• NYC based: 50% investments in NYC; total of ~80% NE overall, 20% West Coast

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

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

How to “get” the 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!)

How to “get” a pitch meeting?

How do I build a relationship first?

Wrong Question…Right Question:

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 tell me your smart

III. Key Success Factors & Advice

Key Success Factors and Take-Aways

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.

Key Success Factors and Take-Aways….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?

Key Success Factors and Take-Aways….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.

Thanks

Email: Thomas@rosepaul.comOffice: Around the corner at ERA!More Info: www.rosepaul.com