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Startup
Funding 101
@QasimAMohammad
(OMERS Ventures)
For Dementia Hack – May 9, 2016
Step 1:
Understanding
the Funding
Landscape
For Dementia Hack – May 9, 2016
VC FUNDING IN CANADA HAS BEEN ON THE RISE…
$805.3M
$992.8M $955.6M
$637.4M
$883.1M
$1.36B
$1.21B
$1.45B
$1.72B
$1.45B
0
0.2
0.4
0.6
0.8
1
1.2
$0.00M
$200.0M
$400.0M
$600.0M
$800.0M
$1.00B
$1.20B
$1.40B
$1.60B
$1.80B
$2.00B
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: PitchBook Data, Inc. Total Capital Invested (None)
VC funding in Canada has been on a steady rise over the last 10 years. The
industry follows a cyclical model, so your ability to raise capital depends a
lot on macroeconomic factors.
Note: 2015 values are YTD as at November 21, 2015 For Dementia Hack – May 9, 2016
…BUT WE’RE SEEING SIGNS OF A COOL DOWN
The current cycle is beginning to slow down, as demonstrated through the
decline in deal count over the last couple of quarters.
For Dementia Hack – May 9, 2016
…BUT WE’RE SEEING SIGNS OF A COOL DOWN
The current cycle is beginning to slow down, as demonstrated through the
decline in deal count over the last couple of quarters.
For Dementia Hack – May 9, 2016
Step 2:
The Main Stages
of Funding
For Dementia Hack – May 9, 2016
STARTUP FUNDING LIFECYCLE
You guys are here
For Dementia Hack – May 9, 2016
EARLIER ROUNDS OF FINANCING
Source: Mark Suster TC Post For Dementia Hack – May 9, 2016
Step 3:
Dealing with
Investors
FROM PITCH TO CLOSE
Company Pitch
VC Information
Sourcing
VC Decision
Term Sheet
Due Diligence
Investment
Going back and
forth with
investors can be
hard.
This entire
process varies
from fund-to-fund,
and depends on
how quickly YOU
are able to get the
process moving.
Usually takes 1
quarter. ~1 month
Get in driver’s
seat!
Dealing
with
Investors
For Dementia Hack – May 9, 2016
YOUR STARTUP IS LIKE A HOUSE
Like a house, when you go out and raise funding, your company looks shiny
and exciting. Plan to drum up as much interest as possible. We all know
what happens to houses that sit on the market for too long!
For Dementia Hack – May 9, 2016
ALL ABOUT NEGOTIATING
Successful deals are all about following the basic principles of negotiation.
Keep your focus on finding the best investment partner, and negotiate a deal
that would make you both successful.
#1. Negotiate
package deals –
do NOT get
fixated on
specific issues
etc.
#2. Keep your
best alternative
to negotiated
agreement
(BATNA) high
#3. Your
reservation
points are
determined by
your BATNA
#4. Operate
realistically
within the zone
of possible
agreement
(ZOPA)
For Dementia Hack – May 9, 2016
Step 4:
Understanding
the Term
Sheet
For Dementia Hack – May 9, 2016
WHAT ARE TERM SHEETS?
• Documents that define relationship between you / your
company and the investor
• Represents a set of deal terms and the valuation,
which go hand in hand
• Deal terms are levers to adjust valuation
• Valuation and terms are driven as much by qualitative
factors as by the quantitative elements
• Use terms to address specific risks
Source: Prof. Yael Hochberg – Kellogg School of Mgmt For Dementia Hack – May 9, 2016
WHAT TO WATCH OUT FOR
• Valuation: A high valuation isn’t necessarily a good
thing. Comes with big expectations, and a bigger
possibility of a down round in the future.
• Liquidation Preference: How many times the investor
can dip into his/her principal at the time of exit. Also
sets the conversion price for convertible preferred
shares.
• Participation vs. Non-participation: Often used in
combination with liquidation preference. Participation
entails getting the liquidation preference AND pro-rata
share of the remaining piece of the pie.
Source: Prof. Yael Hochberg – Kellogg School of Mgmt For Dementia Hack – May 9, 2016
WHAT TO WATCH OUT FOR
• Founder Vesting: You have to earn your stake in the
business. Be familiar with the reverse vesting
schedule.
• Board Structure: What is the investor proposing?
Does it look like the kind of board you want to report to,
or that can help your business succeed?
• Option Pool: If you don’t have one already carved out
in the cap table, be weary of how the investor is
weaving it into the term sheet. Is it coming in on the
pre-money valuation or post-money valuation?
For Dementia Hack – May 9, 2016
Step 5:
Final Tips for
Lift-Off!
For Dementia Hack – May 9, 2016
SERIES A CRUNCH: BEWARE!
As number of Seed stage investments rises, move to Series A becoming
increasingly difficult for start ups.
Number of seed
investments has risen
1,230% from 2006 to 2015
(162 to 2,155).
Seed to Series A
success rate has
declined from 46% in
2006 to 6% in 2015.
Data: Pitchbook For Dementia Hack – May 9, 2016
EARLY STAGE INVESTORS IN CANADA
List of the top 25 most
active seed investors in
Canada between 2007
and 2015; BDC and
Real Ventures are #1
and #2.
(Capital Invested In US $000s)
Investor Name InvestmentsActive
Investments
Total Capital
Invested
Business Development Bank of Canada 49 43 $69.16
Real Ventures 45 37 $73.21
MaRS Investment Accelerator Fund 34 28 $40.39
Innovacorp 20 19 $19.16
GrowLab 14 11 $0.64
iNovia Capital 13 12 $22.67
Communitech HYPERDRIVE 13 11 $4.27
Extreme Venture Partners 13 8 $13.08
FounderFuel 13 12 $6.03
Y Combinator 13 13 $5.84
New Brunswick Innovation Foundation 11 11 $4.48
Version One Ventures 10 7 $11.50
Capital Angel Network 10 10 $11.23
Relay Ventures 9 7 $29.56
Yaletown Venture Partners 9 9 $18.68
500 Startups 9 7 $14.39
Daniel Debow 9 8 $18.81
Anges Québec 9 9 $5.82
Boris Wertz 9 6 $7.82
Mike McCauley 9 9 $13.48
Ontario Centres of Excellence 9 9 $7.12
The Next 36 9 7 $11.13
GrowthWorks 8 6 $9.58
East Valley Ventures 8 8 $3.68
Devon Galloway 8 8 $9.89
Seed
Source: Pitchbook (list as at Nov. 2015) For Dementia Hack – May 9, 2016
DON’T FORGET THE ANGELS!
• Anges Quebec (Quebec)
• Brightspark (Toronto)
• China Canada Angels Alliance Ltd. (Toronto)
• First Angel Network (Halifax)
• Full Stack (Vancouver)
• Georgian Angel Network (Blue Mountains)
• GTAN (Cambridge)
• Invest-Tech (Calgary)
• Keiretsu Forum Vancouver/BC (Vancouver)
• Maple Leaf Angels (Toronto)
• Newfoundland and Labrador Angel Network (St.
John’s)
• Niagara Angel Network (Niagara Falls)
• Northern Ontario Angels (Thunder Bay
• Omega Star (Mississauga)
• Saskatchewan Capital Network (Saskatoon)
• Southwestern Ontario Angel Group (London)
• Vancouver Angel Technology Network (West
Vancouver
• Windsor Essex Capital Angel Network (Windsor)
• York Angel Investors (Markham)
• iGan Partners (Toronto)
For Dementia Hack – May 9, 2016
CONTACT
Qasim Mohammad
Analyst, OMERS Ventures
www.qasimmohammad.com
@QasimAMohammad