Seed Funding Your Startup

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Seed Funding Your Startup From Bootstrapping to Convertible Debt and Series Seed Financing #seedfunding Kristine M. Di Bacco Associate Fenwick & West, LLP Sirk Roh COO EGFS

description

Are you ready to make that leap from bootstrapping to investment capital? If you're ready to accelerate the growth of your startup, check out this presentation from Kristine Di Bacco, Associate with Fenwick and West, LLP (www.fenwick.com) and Sirk Roh, COO for Early Growth Financial Services (www.earlygrowthfinancialservices.com), which covers how to take your startup to the next level of financing -- including an in-depth look at convertible promissory notes and term sheets.

Transcript of Seed Funding Your Startup

Page 1: Seed Funding Your Startup

Seed Funding Your StartupFrom Bootstrapping to Convertible Debt

and Series Seed Financing#seedfunding

Kristine M. Di BaccoAssociateFenwick & West, LLP

Sirk RohCOOEGFS

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Who We Are

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Presentation Overview

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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

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Bootstrapping

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Better focus on execution No dilution Independence Caveats: Keep personal

finances separate from business!

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Moving On Up…

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How do you go from that bootstrap stage to the next level?

First step…

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First step… How do you go from that bootstrap stage to the next level?

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Friends and Family

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Smaller investment Formalize process Be transparent about

risks What happens when

you start bringing in professional investor?

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Preparing for Professional Investors

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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

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Two Ways to Do Seed Financings

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Convertible Debt Series Seed

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Convertible Notes or Series Seed Preferred?

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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

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Simple Terms•Amount of money raise, interest, maturity/default

More Negotiated TermsWhat is a qualified financing?Optional conversion on non-qualified financing?Kicker payment on change of control (sale of company)

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Sample Convertible Note Term Sheet: Official Terms

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Convertibility on Qualified Financing

Convertibility on Non-Qualified Financing

Sale of the Company Term: Prepayment Closing(s) Subordination Note Purchase Agreement

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vs. Series Seed Preferred Stock: Valuation and Purchase terms

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• 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

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Series Seed Preferred Stock: Conversion and Distribution Rights

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• 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

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Series Seed Preferred Stock: Contractual Stockholder Rights

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• 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

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Sample Term Sheet and Investment Documents

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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-quarter-2014.aspx

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Questions?

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Kristine M. Di Bacco650.988.8500

www.fenwick.com@fenwickwest

Check out Kristine’s bio!

We look forward to hearing from you!

Sirk Roh415.234.3437

www.earlygrowthfinancialservices.com@EarlyGrowthFS