Seed Funding Your Startup

Seed Funding Your Startup

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  Seed Funding YourStartup From Bootstrapping to Convertible Debt and Series Seed Financing #seedfunding Kristine M. Di Bacco Associate Fenwick & West, LLP Sirk Roh COO EGFS
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  Who We Are 2SeedFunding Your Startup
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  Presentation Overview 3  Bootstrapping The leap from bootstrapping to investment  Preparing for investment capital  Different ways to structure your first investment round: •Convertible debt •Series seed preferred stock  Current deal flow  Sample term sheets Seed Funding Your Startup
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  Bootstrapping 4  Better focuson execution  No dilution  Independence  Caveats: Keep personal finances separate from business! Seed Funding Your Startup
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  Moving On Up… 5 How do you go from that bootstrap stage to the next level? First step… Seed Funding Your Startup First step… How do you go from that bootstrap stage to the next level?
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  Friends and Family 6 Smaller investment  Formalize process  Be transparent about risks  What happens when you start bringing in professional investor? Seed Funding Your Startup
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  Preparing for ProfessionalInvestors 7  Angels vs VCs  Tailor money raising issues, going from bootstrap to next level  What does it mean to talk to professional investors  How to build a financial model that appeals to investors  Top-down vs bottom up projections  Finances need to tell a story Seed Funding Your Startup
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  Two Ways toDo Seed Financings 8Seed Funding Your Startup Convertible Debt Series Seed
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  Convertible Notes orSeries Seed Preferred? 9Seed Funding Your Startup Convertible Notes Series Seed Pros • Doesn't require company valuation (but may need to negotiate a "valuation cap") • Quick/cheap • More prevalent for smaller $ rounds • Clearer definition around investor rights • Starts long-term capital gains clock (important if early exit) • Relatively quick (cheaper than Series A) Cons • Valuation uncertainty for investors (unless there is a cap) • Requires negotiations around valuation • Higher legal fees • More expensive than convertible note
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  Convertible Promissory Notes 10 Simple Terms •Amount of money raise, interest, maturity/default  More Negotiated Terms What is a qualified financing? Optional conversion on non-qualified financing? Kicker payment on change of control (sale of company) Seed Funding Your Startup
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  Sample Convertible NoteTerm Sheet: Official Terms 11  Convertibility on Qualified Financing  Convertibility on Non- Qualified Financing  Sale of the Company  Term: Prepayment  Closing(s)  Subordination  Note Purchase Agreement Seed Funding Your Startup
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  vs. Series SeedPreferred Stock: Valuation and Purchase terms 12 • Pre-money valuation is negotiated: • How market factors in • If you’re pre-revenue, need milestones • Deal flow • Examples of pre-money valuation for different types of companies • Size of option pool • Reps and warranties from Company slimmed down from Series A • Minimal closing conditions Seed Funding Your Startup
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  Series Seed PreferredStock: Conversion and Distribution Rights 13 • No price-based anti-dilution protections • Non-participating liquidation preference • No preferential dividend rights • No redemption rights • Series Seed board seat • Limited protective provisions and voting rights Seed Funding Your Startup
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  Series Seed PreferredStock: Contractual Stockholder Rights 14 • Better rights given to future investors guaranteed to Series Seed investors • Right of first offer on future financings (optional) • Limited information rights • Drag-along for smaller investors and common stock (optional) • No registration rights • No Company covenants • No co-sale rights Seed Funding Your Startup
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  Sample Term Sheetand Investment Documents 15Seed Funding Your Startup Go to www.seriesseed.com Also, check out the Fenwick & West VC Survey (done quarterly): http://www.fenwick.com/publications/Pages/silicon-valley-venture-survey-first-qu
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  Questions? 16Seed Funding YourStartup Kristine M. Di Bacco 650.988.8500 www.fenwick.com @fenwickwest Check out Kristine’s bio! We look forward to hearing from you! Sirk Roh 415.234.3437 www.earlygrowthfinancialservices.com @EarlyGrowthFS