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:  brendan@ox1.co        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

Anatomy  of  Seed            Brendan  Baker  

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

Anatomy  of  Seed            Brendan  Baker  

There are periods of low investor activity.

Avoid late summer and winter holidays.

2

Startups

Anatomy  of  Seed            Brendan  Baker  

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  

*

Anatomy  of  Seed            Brendan  Baker  

This is only one data point.

The next 10 startups we map will confirm or

refute the first findings.

* 1

Anatomy  of  Seed            Brendan  Baker  

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