Sunday, March 10, 2019

startup financing

startup financing

15 Expert Tips for Startups Seeking Angel or Seed Financing -

Posted: 09 Mar 2019 09:58 AM PST

business financing

Very early stage startups often seek angel or seed financing in order to gain initial traction on developing their product or technology, land initial customers, and make other progress. Angel or seed rounds typically range from $100,000 to $500,000 or more.

I have been an angel, seed, and venture capital investor in a number of technology companies. For me, there are always four key points I look for when reviewing an early stage seed or angel investment opportunity:

Has the Entrepreneur Been Referred to Me by a Trusted Colleague?

I get inundated with unsolicited executive summaries and pitch decks. Most of the time, I ignore these solicitations. The way to capture my attention is to get a warm introduction from someone I know and trust: an entrepreneur, a lawyer, an investment banker, an angel investor, or another venture capitalist.

Is There a Great Management Team in Place?

Many investors consider the team behind a startup more important than its business idea or product. I want to know that the management team has the right set of skills and has the drive, experience, and temperament to grow the business. Investors want to see a group that has all of this along with an obvious passion to do something truly great and unique.

Is the Market Opportunity Big Enough?

Most investors are looking for businesses that can scale and become successful, so make sure you spell out clearly why you believe your business has the potential to become really big. Don't present small ideas. If your first product or service is small, perhaps you need to position your company as a "platform" business that will allow for the creation of multiple products over time. Investors want to know the actual addressable market and what percentage of it you plan to obtain over time.

For most investors, a "big" market opportunity is in excess of $1 billion in sales annually.

Has the Company Achieved Some Early Traction?

I don't typically want to invest in an "idea"; I want to see early traction or customers. A company that has gotten some early traction is more likely to obtain financing and have a higher valuation.

Examples of early traction can include the following:

  • The creation of a beta or minimally viable product
  • Initial or pilot customers, especially brand-name customers
  • Strategic partnerships
  • Customer testimonials
  • Admission into competitive programs such as Y Combinator or other technology accelerators or incubators

I asked a number of other early stage investors their tips for obtaining startup financing. Here's the real-world advice they had to offer:

Show Me Your Dedication and Passion

melissa guzy"We want to see dedication and perseverance in founders, and that they are passionate about the business and will have the desire and ability to get through difficult times. Startups are hard, and an entrepreneur needs to understand that the roadblocks that they likely will encounter must be tackled. Of course, I care about the market opportunity and the technology, but I care more about working with a great dedicated founder who wants to build a great company." —Melissa Guzy, Managing Partner of Arbor Ventures (investment focus on early stage financial technology companies)

Define the Problem You Are Solving

Ellen Herlacher"Good entrepreneurs begin their pitch with a well-articulated problem statement. This helps validate that they are building a product that customers need and are willing to pay for (it also validates that they know who their customers are). The problem should be a big pain point that is not addressed adequately by existing companies. This is, of course, followed by "The Solution," which introduces the entrepreneur's approach to the problem and explains why they specifically are best positioned to solve it in a way that has widespread appeal for customers." —Ellen Herlacher, Director, Tufts Health Ventures (investment focus on early to mid-stage healthcare services and healthcare IT companies)

Founder Intangibles

Patrick Eggen"At the early stage, I typically look for certain attributes in a founder. One essential and often overlooked skill is storytelling, the uncanny ability to craft a compelling narrative on why you are building something unique. Storytelling serves as a wonderful proxy for many elements of company-building: it is great indicator of how you will sell your vision to customers, partners, recruits, investors, and ultimately an acquirer. It is also critical for founders to convey this narrative with utter conviction and authenticity; ideally, they have experienced firsthand the pain of the problem they are trying to solve. At the same time, I like founders who are coachable, as collaboration and alignment with investors is so important. Finally, it's crucial to be flexible, iterate quickly, and make decisions fast—decision fatigue can paralyze company-building." —Patrick Eggen, General Partner, Counterpart Ventures (investment focus on early and mid-stage SaaS, B2B marketplace, and mobility companies)

Show Me Customer Interest

Zach Coelius"As a four-time entrepreneur, I spent well over a decade struggling through the brutality of building companies. During those years it became massively apparent to me that the only thing that matters in a startup is the delta between your product and the other solutions to market. That's it. I like to say that you haven't found product fit until you can cold call a customer, on their cell phone, at nine o'clock at night, as they are putting their kid to bed, and describe what you do in one sentence, and then have them take the call. That may seem like an impossibly high bar, but startups are impossibly hard and unless you have that, your chances of success are very low. The fastest way to get me to write a check is to be able to tell a story about that delta. Ideas are meaningless; validated ideas are priceless." Zach Coelius, Managing Partner, Coelius Ventures (investment focus on early stage technology entrepreneurs) 

Show Why You Care

May Samali"We want to hear why you care about the problem you are trying you solve. The desire to solve a problem you have encountered firsthand is a strong motivation for entrepreneurship. Did your battle with depression move you to build a mental health platform? Did your frustrations as a public servant push you to build a SaaS solution for government? These stories are part of your personal narrative; include them and your passion will shine through in your pitch. How did you come to discover the problem you are building a solution to? Why are you the right founder to solve this problem? We hear a lot about product-market fit, but at the very early stages, founder-market fit is just as important. Your product will dramatically change, but the founding team's motivation is likely to remain a constant." May Samali, Venture Partner, NextGen Venture Partners (investment focus on early stage U.S.-based technology companies across all industry verticals)

Leverage Your Customers

Josh Breinlinger"One of the lesser-known secrets to fundraising is to leverage your own happy customers. If you're in a business that sells to other startups, you may find that some of your customers are venture-funded themselves. A quick search on Crunchbase will help you identify all of the key investors that have funded your customers. If they're happy with your service, they may be willing to introduce you to their own investors, and these intros carry a lot of weight because they are from a highly trusted source." —Josh Breinlinger, Managing Partner, Jackson Square Ventures (investment focus on early stage SaaS and marketplace investments)  

Tell Me What You Don't Know

Jennifer Savage"So many unknowns remain at the angel and seed stages, so be upfront about that. Tell me what you have proven so far, and then what you want to prove next and why. Founders who present clear thinking about what they want to prove out with the funding they receive demonstrate a much greater level of understanding of the risks involved in the business they envision. It doesn't matter if the future unfolds differently—in fact, it's likely to!" —Jennifer Savage, Partner, Illuminate Ventures (investment focus on seed stage enterprise software / SaaS applications)

Hyperscale It!

Duncan Davidson"We have shifted from the Lean Startup to the Hyperscale Startup as the money has flowed into venture capital. Even Steve Blank, who popularized Lean, agrees: if you can, go for Hyperscale. The art is to know how to Hyperscale. Figure out the product/service at small scale, get the details right, hire 'been there/done that execs,' then go big when you know how to spend the big bucks wisely. It may start as a lean company, and usually should in order to figure it all out first; but once everything clicks and you know the playbook, raise big and go big." —Duncan Davidson, Founding Partner, Bullpen Capital (investment focus on growth seed technology companies) 

Show Me Why the Team Is Uniquely Qualified

Michael Gilroy"At the very earliest stages of a startup's life, people are by far the most important ingredient of success. With every meeting I'm asking myself two things: why is this team uniquely qualified to solve this problem, and why am I uniquely qualified to be an investor in this company? When you have a uniquely qualified team solving a problem, the team has a competitive advantage at the early stages of the business, and this can help fend off fast followers. I view early stage investors as early employees; they need to be grinding it out on the recruiting, customer, fundraising, and partnership fronts alongside the management team. Sometimes that can be with a few early customers and partners, or a few C-level hires for the business. If I can't tell myself a compelling story there, I assume adverse selection and move on because presumably the team is also doing that same calculation." —Michael Gilroy, Partner at Canaan Partners (investment focus on seed through Series B rounds in enterprise software and fintech companies)

With these numbers, it’s no surprise SoftBank is investing in Latin America - TechCrunch

Posted: 10 Mar 2019 10:10 AM PDT

After SoftBank announced its plans to launch a $5 billion innovation fund in Latin America, we reached out to the good folks at the Latin American Venture Capital Association (LAVCA) for some context, and what they told me only validates the reasoning behind SoftBank's interest in the region. (In 2017, we reported on the growing interest in Latin America.)

Let's start with some numbers. Venture funding in Latin American startups is up — way up — from previous years. Specifically, LAVCA's data shows that VC funding more than doubled in 2017 to $1.14 billion compared to $500 million in 2016. While 2018 numbers haven't been finalized, LAVCA is projecting another record year with venture investments topping $1.5 billion.

If you combine private equity and venture investing, the numbers are even more impressive. LAVCA estimates that PE and VC fundraising together in Latin America in 2017 totaled $4.3 billion, up from $2.3 billion in 2016.1

Julie Ruvolo, director of venture capital for LAVCA, said all this "fits squarely in this larger momentum that's been building over the last year or two."

"We've been seeing the continued, and increased, entry of significant global players in the market," she told Crunchbase News. "Plus, we've been seeing an uptick in $100 million-plus rounds, which was a relatively rare thing in Latin America."

Also unsurprising is the breakdown of where the majority of venture dollars have gone in Latin America. Brazil led the region across all stages of VC investment, capturing 73 percent of VC investment dollars in 2017 and the first half of 2018 (201 startup investments totaling $1.4 billion). Mexico was the second most active market by number of deals (82 startup investments totaling $154 million), but Colombia saw more money invested ($188 million over 23 deals).

Here's a quick rundown of just some of the bigger deals that took place during that same time frame:

It's worth noting that fintech is the top sector of VC investment by dollars and number of deals in Latin America. The region also hosts a number of unicorns, including Brazilian ride-hailing startup 99; Colombian last-mile delivery service Rappi; Brazilian learning systems provider Arco Educação; and Brazilian fintech startup Stone Pagamentos.

With all this innovation and investing going on in Latin America, there is clearly large potential. And SoftBank is now poised to capitalize on that.

  1. The fundraising and investment data LAVCA collects is specific to fund managers that have raised capital from third-party institutional investors/limited partners and doesn't account for other types of private capital investors, like a SoftBank fund or sovereign wealth fund, corporate, etc.

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