Anatomy of Seed An inside look into a $1M seed round.
Brendan Baker @brendanbaker
Ringleader
Collaborator
Support Daily Schooling
AngelList 8000 startups reviewed with AngelList, hundreds of conversaCons with founders about their fundraising, daily schooling from Nivi and Naval, engineering and business at Cambridge and Oxford. e:
[email protected] t: @brendanbaker w: www.brendanbaker.co q: www.quora.com/Brendan-‐Baker
Daniel Odio Co-‐founder of Appmakr. www.danielodio.com
Appmakr lets anyone launch their own iPhone app with no coding. Over 5,000 apps have been built, with 55M total user sessions.
Official Support
Marc Ventresca, Oxford Economic sociologist, expert in new market formaCon: hLp://bit.ly/htkT3l Anatomy of Seed Brendan Baker
We wanted to see what a fundraising process looks like for a startup and get an inside look at how the industry is changing.
Anatomy of Seed Brendan Baker
So we analyzed 500+ emails from Appmakr’s first raise to map the path they took through investor networks to raise $1M. The result? ! Thoughts for startups and investors. Anatomy of Seed Brendan Baker
We tracked all kinds of stuff: The key actors: Seed Funds Angels VCs
Intros
InsCtuConal Actor
RejecCon
Funding
This is what it a seed round looks like.
See for yourself: http://brendanbaker.co/anatomy.pdf! Anatomy of Seed Brendan Baker
It wasn’t easy.
173 Actors Results 130 Rejections 14 Commitments
55 VCs 55 Angels 28 Seed Funds 27 Middlemen 5 Corporate 2 Institutions 1 Angel Group Anatomy of Seed Brendan Baker
How do they all stack up?
Anatomy of Seed Brendan Baker
Angels v Seed Funds v VCs
Anatomy of Seed Brendan Baker
Seed funds give big. Appmakr raised an average of $6.9K per potential investor, but not all were equal*:
Dollars per contact (‘000 USD)
15
10
12.3K
6.4K
5
0
Seed Funds
Angels
* Ridiculously small sample size. Will this hold with more cases?
5.5K
VCs Anatomy of Seed Brendan Baker
But seed funds also took forever to decide. VCs and angels were quicker to respond. VCs
20.4 days
Angels
22.4 days
Seed Funds 0
29.8 days 10
20
30
Response Time (days)
Anatomy of Seed Brendan Baker
Old Style v New Style v Time Wasters
Anatomy of Seed Brendan Baker
There were three clear paths in the data:
Old Style
New Style
Time Wasters Anatomy of Seed Brendan Baker
Old Style
The process was driven by an influential first actor, whose weight carried to help Appmakr get downstream intros and investments.
(
It propagated through interpersonal networks, and was driven by dynamics within these networks.
)
Anatomy of Seed Brendan Baker
How the Old Stylers invested
3
There were more commitments from downstream intros.
1
Started with a supernode, in this case a well-connected angel.
2
Several commitments emerged from the first intros.
Anatomy of Seed Brendan Baker
New Style
The process was facilitated by a credible market intermediary. Investors made decisions efficiently, without making new intros.
(
It played out more like an efficient market, where investors evaluated the good (i.e. startup) and bought or not.
)
Anatomy of Seed Brendan Baker
How the New Stylers invested
3 1
Started with an ecosystem intermediary. In this case it’s AngelList.
2
Investors efficiently declined or committed.
There were few downstream intros and no downstream commitments.
Anatomy of Seed Brendan Baker
Time Wasters
These intros just wasted Daniel’s time and energy. None of them amounted to anything.
(
The trick is to identify the time wasters early. More on that later.
)
Anatomy of Seed Brendan Baker
How the Time Wasters invested (or didn’t)
1
There are many new introductions, but at most 3 at a time.
3 2
There’s one late commitment, but Daniel already knew him.
None of them led anywhere
Anatomy of Seed Brendan Baker
Q
What if you can’t tell the Time Wasters from the Old Style? Should you use tools to try the new style?
Anatomy of Seed Brendan Baker
i.e.
New Style v [Old Style + Time Wasters] Dollars per contact (‘000 USD)
13.8K
10
10.4K
5 3.4K 0
New Style
Old Style
(incl Time Wasters)
A
Try the New Style (i.e. use tools). Appmakr found AngelList to be 3X more efficient than non-AngelList.
Anatomy of Seed Brendan Baker
Thoughts for Startups and Investors
( From the analysis and Daniel’s experience. )
Anatomy of Seed Brendan Baker
Startups
1 Fundraising takes longer than you think. Be ready for the grind.
Anatomy of Seed Brendan Baker
Startups
2 There are periods of low investor activity. Avoid late summer and winter holidays.
Anatomy of Seed Brendan Baker
Startups
3
A large amount of your funds may come from a few people. These are your super nodes. Find them and support them.
Anatomy of Seed Brendan Baker
Startups
(however,)
4
A large number of intros will lead nowhere and will waste your time.
Don’t invest much in these interactions.
(
Daniel’s Rule of 10: ‘If I don’t get >10 intros from someone, I’m not going to invest a lot of time.’ Use at your own peril!
)
Anatomy of Seed Brendan Baker
Startups (Let’s take a quick pause…) How do you tell a super node from a time waster? Or a productive investor from an unproductive one?
1
They’re willing and able to make a bunch of intros. 2 Their eyes light up and they excitedly push a crumpled check into your hands
3 You have a pre-existing relationship with them see them in person. (In-person meetings averaged 4
You $11.5K, phone $3K and email less than $2K.) Anatomy of Seed Brendan Baker
Startups
It’s probably not about identifying them immediately, so much as amplifying support for your super nodes and reducing the time and energy drain from your time wasters.
(OK, back to the list…) Anatomy of Seed Brendan Baker
Startups
5 With investors, there are leaders and followers. You’ll have higher conversion after getting a committed investor or two.
Anatomy of Seed Brendan Baker
Startups
6 There are tools that can help. Use them when it makes sense.
(
AngelList, Techcrunch Disrupt, Venture Hacks, Founders’ Institute, Y Combinator, Launch.is, University competitions, Angel Groups General Assembly, AngelPad, Bootup, i/o Ventures, Hackers and Founders, NYCSeed, Founder’s Den, Seedcamp, General Assembly, Founder’s Roundtable, VC open house days, 160 Vark, Sunfire, Meetup groups, AVC.com, TheFunded.com, 500 Startups, Bothsidesofthetable.com, LinkedIn groups, chrisdixon.org, Techstars, steveblank.com and many more.
)
Anatomy of Seed Brendan Baker
Startups
7 Information is becoming more public Startups can now build more with less Get used to being open about your traction and raise details.
Anatomy of Seed Brendan Baker
Investors
1 The market for early stage capital is becoming more efficient. How does that affect your own approach?
Anatomy of Seed Brendan Baker
Investors
2 Proprietary dealflow quantity and quality will decline as a driver of returns.
Anatomy of Seed Brendan Baker
Investors
3 Market intermediaries (i.e. new startup tools) are gaining importance. More will come. How can you exploit these? (e.g. Start Fund)
Anatomy of Seed Brendan Baker
Investors
4 Advisory will become more important than connective.
(
Old school: “we can make introductions for you.” New school: “we can help you understand how to scale to 3M users on X platform.”
)
Anatomy of Seed Brendan Baker
Investors
5 Reputation is gold. It will continue to gain importance in the near term as information becomes more public.
Anatomy of Seed Brendan Baker
Thanks Startups: for building kickass companies. Investors: for helping them get there. Daniel Odio: for access to his email and story. Marc Ventresca: for guidance and a deep understanding of market formation. @mingyeow, @naval, @michaelaiello, @cjwake for feedback on ideas and first drafts.
*
Anatomy of Seed Brendan Baker
* Anatomy of Seed Brendan Baker
*
1 This is only one data point.
The next 10 startups we map will confirm or refute the first findings.
Anatomy of Seed Brendan Baker
*
2
Is post-hoc email tracking accurate enough? I think so. Even if the meeting is by phone or in person, there is rarely a meeting that isn’t set up or followed up by email these days.
Anatomy of Seed Brendan Baker
*
3 Definitions are imperfect.
So is the mapping. Judgments had to be made about what is VC v seed fund, what were really intros, engagement start and end, etc.
Anatomy of Seed Brendan Baker
*
4
What about existing networks? It would be fascinating to overlay this onto a map of existing relationships (ex: ‘investor X made 5 of 30 potential intros’). If anyone wants to do this, get in touch. Anatomy of Seed Brendan Baker