Anatomy of Seed An inside look into a $1M seed round.
Brendan Baker @brendanbaker
Ringleader
AngelList
Daily Schooling
Daniel Odio Co-‐founder of Appmakr. www.danielodio.com
Anatomy of Seed Brendan Baker
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
Official Support
Marc Ventresca, Oxford Economic sociologist, expert in new market formaCon: hLp://bit.ly/htkT3l
Collaborator Support
Appmakr lets anyone launch their own iPhone app with no coding. Over 5,000 apps have been built, with 55M total user sessions.
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
Thoughts for startups and investors.
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? !
We tracked all kinds of stuff:
InsCtuConal Actor
Funding
VCs
Seed Funds
Angels
RejecCon
Intros
The key actors:
This is what it a seed round looks like.
Anatomy of Seed Brendan Baker
See for yourself: http://brendanbaker.co/anatomy.pdf!
It wasn’t easy.
Anatomy of Seed Brendan Baker
173 Actors 55 VCs 55 Angels 28 Seed Funds 27 Middlemen 5 Corporate 2 Institutions 1 Angel Group
130 Rejections 14 Commitments
Results
How do they all stack up?
Anatomy of Seed Brendan Baker
Angels
v Seed Funds
v VCs
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Seed funds give big.
Anatomy of Seed Brendan Baker
Appmakr raised an average of $6.9K per potential investor, but not all were equal*:
12.3K
6.4K 5.5K
* Ridiculously small sample size. Will this hold with more cases?
Angels VCs Seed Funds 0
5
10
15
Dol
lars
per
con
tact
(‘00
0 U
SD
)
But seed funds also took forever to decide.
Anatomy of Seed Brendan Baker
VCs and angels were quicker to respond.
Angels
0 10 Response Time (days)
20 30
22.4 days
VCs 20.4 days
Seed Funds 29.8 days
Old Style
v New Style
v Time Wasters
Anatomy of Seed Brendan Baker
There were three clear paths in the data:
Anatomy of Seed Brendan Baker
Old Style New Style Time Wasters
( )
The process was driven by an
influential first actor, whose weight
carried to help Appmakr get
downstream intros and investments.
Anatomy of Seed Brendan Baker
Old Style
It propagated through interpersonal networks, and was driven by dynamics within these networks.
How the Old Stylers invested
Anatomy of Seed Brendan Baker
Started with a supernode, in this case a well-connected angel.
There were more commitments from downstream intros. 1
Several commitments emerged from the first intros.
2
3
( )
The process was facilitated by a
credible market intermediary.
Investors made decisions efficiently,
without making new intros.
Anatomy of Seed Brendan Baker
New Style
It played out more like an efficient market, where investors evaluated the good (i.e. startup) and bought or not.
How the New Stylers invested
Anatomy of Seed Brendan Baker
Started with an ecosystem intermediary. In this case it’s AngelList.
1 Investors efficiently declined or committed. 2
There were few downstream intros and no downstream commitments.
3
( )
These intros just wasted Daniel’s time and energy. None of them
amounted to anything.
Anatomy of Seed Brendan Baker
Time Wasters
The trick is to identify the time wasters early. More on that later.
How the Time Wasters invested (or didn’t)
Anatomy of Seed Brendan Baker
There are many new introductions, but at most 3 at a time.
1 None of them led anywhere 2
There’s one late commitment, but Daniel already knew him.
3
Anatomy of Seed Brendan Baker
What if you can’t tell the Time Wasters
from the Old Style?
Should you use tools to try the new style?
Q
Anatomy of Seed Brendan Baker
13.8K
Old Style (incl Time Wasters)
New Style 0
5
10
Dol
lars
per
con
tact
(‘00
0 U
SD
)
Try the New Style (i.e. use tools). Appmakr found AngelList to be 3X more efficient than non-AngelList.
A
10.4K
3.4K
i.e. New Style v [Old Style + Time Wasters]
Thoughts for Startups and Investors
Anatomy of Seed Brendan Baker
( ) From the analysis and Daniel’s experience.
Startups
Anatomy of Seed Brendan Baker
Fundraising takes longer than you think.
Be ready for the grind.
1
Startups
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There are periods of low investor activity.
Avoid late summer and winter holidays.
2
Startups
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A large amount of your funds may come from
a few people. These are your super nodes.
Find them and support them.
3
Startups
Anatomy of Seed Brendan Baker
(however,)
A large number of intros will lead nowhere
and will waste your time.
Don’t invest much in these interactions.
4
( ) 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!
Startups
Anatomy of Seed Brendan Baker
(Let’s take a quick pause…)
They’re willing and able to make a bunch of intros.
2 1
3
How do you tell a super node from a time waster? Or a productive investor from an unproductive one?
Their eyes light up and they excitedly push a crumpled check into your hands
You have a pre-existing relationship with them
4 You see them in person. (In-person meetings averaged $11.5K, phone $3K and email less than $2K.)
Startups
Anatomy of Seed Brendan Baker
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…)
Startups
Anatomy of Seed Brendan Baker
With investors, there are leaders and followers.
You’ll have higher conversion after getting a
committed investor or two.
5
( )
Startups
Anatomy of Seed Brendan Baker
There are tools that can help.
Use them when it makes sense.
6
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.
Startups
Anatomy of Seed Brendan Baker
7Information is becoming more public
Startups can now build more with less
Get used to being open about your
traction and raise details.
Investors
Anatomy of Seed Brendan Baker
The market for early stage capital is
becoming more efficient. How does that
affect your own approach?
1
Investors
Anatomy of Seed Brendan Baker
Proprietary dealflow quantity and quality
will decline as a driver of returns.
2
Investors
Anatomy of Seed Brendan Baker
Market intermediaries (i.e. new startup tools)
are gaining importance. More will come.
How can you exploit these?
(e.g. Start Fund)
3
( )
Investors
Anatomy of Seed Brendan Baker
Advisory will become more important
than connective.
4
Old school: “we can make introductions for you.”
New school: “we can help you understand how to scale to 3M users on X platform.”
Investors
Anatomy of Seed Brendan Baker
Reputation is gold.
It will continue to gain importance in the near
term as information becomes more public.
5
Anatomy of Seed Brendan Baker
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.
Thanks
*
Anatomy of Seed Brendan Baker
*
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This is only one data point.
The next 10 startups we map will confirm or
refute the first findings.
* 1
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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.
* 2
Anatomy of Seed Brendan Baker
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.
* 3
Anatomy of Seed Brendan Baker
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.
* 4