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

qmohammad@omersventures.com

www.qasimmohammad.com

@QasimAMohammad