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Princeton ECS Summit Deck 2013 04.pdf

Published Apr 20, 2013 in Business & Management
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Presentation Slides & Transcript

Presentation Slides & Transcript

Navigating Venture Capital How to Raise Money for Your Startup Alexander Pease April 19 th , 2013

Personal Introduction Venture Capital 101 How to Approach Fundraising Pitch Decks: Science Exchange Case Study VC 2.0: Alternatives to Traditional VC Questions Outline

Personal Intro Alexander Pease ! Princeton physics Õ12 ! hackNY Õ11 (developer at Vostu) ! , @AlexanderMPease, github:AlexanderPease ! Internet VC Þrm based in NYC ! Investment thesis-driven partnership, est. 2004 ! 4 funds, $600M AUM ! Series A and later-stage investments ! Portfolio ! Social networks: Twitter, Tumblr, Foursquare, SoundCloud ! Marketplaces: Kickstarter, Etsy, Lending Club, Science Exchange, Shapeways ! And many more: 10Gen, Codecademy, Stack Exchange, Twilio, Flurry, Kik ! We blog a lot!,,, 3 Union Square Ventures

Venture Capital 101 4

What do VCs do? ! Finance private companies by purchasing equity in a long term investment ! Equity = stocks, i.e. a percentage of the company (usually <20% per Þrm) ! Add value to their portfolio companies (ex: as board members) ! Earn returns via IPOs, M&A and secondary transactions (relatively new thing) ! To make investments, VCs raise pools of capital from institutional and accredited (i.e. rich) individual investors. These are the Limited Partners (LPs) of the fund. ! Returns are judged as a multiple of capital invested. Standard success is 3x. Industry returns are a long Poisson distribution (ok median, low mean, couple of crazy successful outliers) ! VCs are looking to invest in companies that can return their fund, i.e. billion dollar companies. Rule of thumb: only 1 out of 10 investments will succeed, so it has to succeed big 5 What is venture capital?

! By sector: internet, health care, renewable energy, etc. ! Some Þrms break down further (ex: allocate $10M to mobile) ! Investment theses (ex: USV invests in Ònetworks enabled by the internetÓ) ! By size: small (<$50M) to large (>$1B) ! By geography (i.e. only invest in Europe) ! Stage ! Angels/incubators/seed-stage Þrms invest in small teams w/ an idea, beta or early product. Sometimes Þnancing is combined with Òfriends and family roundÓ ! Series A to mid-stage Þrms: launched product, initial user and revenue traction ! Late-stage Þrms Most of you should focus on angels and seed-stage Þrms or applying to an incubator/accelerator program 6 Segmentation of venture capital

Angels ! High net worth individuals who invest their own money (ex: Yuri Milner) ! Most expect real returns, but tend to invest out of interest in technology / team ! If youÕre only at the idea stage, just talk to angels ! Some active angels band together into groups (ex: SV Angel, Empire Angel, NYC Seed) or have an employee/intern help them manage operations Incubators / Accelerators ! ÒSummer campÓ for ßedging companies ! Examples: Y Combinator, Techstars, 500 Startups, Launchpad LA, etc. ! Invests in teams / good ideas / early products ! Gives you space / community / mentors / cash for ~3 months ! Holds ÒDemo DayÓ graduation, intros you to investors for further Þnancings ! Takes equity stake (5-8%) 7 Early stage investors

Seed stage Þrms ! Some Þrms are exclusively seed stage ! These Þrms have smaller funds, will not be able to make follow-on investments! ! Will not typically take board seat ! Ex: Flybridge Capital, Quotidian ! Many larger Þrms also make seed stage investments ! Ex: NEA, Andreessen Horowitz, Google Ventures An excellent resource for identifying angels and seed-stage Þrms is AngelList ( 8 Early stage investors, con.

Investment strategies ! Spray & Pray: invest in everything, hope a couple of them succeed ! More at the seed stage ! Non-competitive investments: wonÕt invest in competitive companies ! Syndication: multiple Þrms investing in a single Þnancing (very common) Team structure ! Every VC Þrm is di ! erent, but partners are always at the top ! Partnerships: partners invest by unanimous decision, share equal economics ! Small Þrm: everyone is sourcing deals ! Large Þrm: team of analysts cold-calling, associates sourcing, principals doing due diligence, partners championing a deal ! Young investment professionals (analyst, associate, principal) can still be very helpful in navigating their particular Þrms investment process ! Ex: helping you identify which partner will be most interested in your company 9 Investment structure

! Pre-money vs. post-money valuations ! Right of Þrst refusal (ROFR) / pro rata rights ! Board seats and responsibilities ! VCs represent multiple interests: the company, shareholders and themselves/LPs ! Stock preference ! Vesting terms ! Capitalization table / option pool ! Liquidation preferences ! Anti-dilution protection These only apply once you are negotiating a term sheet Read FeldÕs ÒVenture Deals,Ó it explains everything! 10 Important investment concepts

How to Approach Fundraising 11

WARNING: Fundraising is a full-time job for your CEO Identifying Þrms ! Research and identify Þrms in your space and price range ! Red ßag: entrepreneurs who are clearly just contacting every Þrm on the planet ! ÒWho you knowÓ - get an intro if you can! ! Never email info@ addresses or use LinkedIn - itÕs a black hole ! DonÕt email multiple partners - if you canÕt get an intro to someone at the Þrm, pick the partner you think has the closest interests / existing investments to your company ! Working with junior professionals can be very helpful - give you initial feedback, reÞne your pitch to the philosophy of each particular Þrm, identify the best partner ! ÒZombie VCsÓ - make sure the VCs youÕre talking to have made an investment within the past 6 months ! Resources: , 12 Strategy

The goal of your Þrst meeting is to get a second meeting! ! No one invests after an hour (if they want to, either youÕre a genius or theyÕre an idiot) ! The best entrepreneurs cultivate a relationship before getting to the actual fundraising ! Contacting VCs a few months before you plan on raising is ideal. You can talk about product, progress in a casual setting ! Absolutely no NDAs! You donÕt have to share everything but being open is good ! Bring either a pitch deck or a working demo Actual fundraising conversations ! Goal is to get a term sheet (i.e. signed sheet with intention to invest) ! Resist Òlight interestÓ - itÕs easy for a VC to say Òsure, keep in touchÓ than getting him/her to commit or pass ! Having a term sheet from another Þrm is the best forcing function (i.e. expiration date) ! Valuation is a two-way conversation. They might want to price you independently, or you can start with a number ! Each Þrm in a syndicate invests at the same valuation ! By taking VC funding, you are in a social contract to grow and exit a large business 13 First meeting

Pitch Decks: Science Exchange Case Study 14

Why are they important / how are they used? ! First impression of your business, product and idea ! Even after a few meetings, we still go back to look at stats, etc. ! VCs may pass these around, even to other Þrms Elements of a good pitch deck ! Natural, convincing story ! Identify market pain point - focus on this ! Your solution - have this come naturally out of the market need ! Landscape - market size, competitors, etc. ! Business statistics - users, downloads, revenue, trends, etc. ! Plans - next moves, (reasonable) forecasts, long-term goals ! Your team - why are you guys perfect to execute this business? ! Professional presentation - how can you build a company if you canÕt make a slideshow? ! Not too wordy - VCs skim these! Use graphs, diagrams and product pictures! 15 Pitch decks

The marketplace for scientiÞc experiments Elizabeth Iorns Co-Founder & CEO 305-799-1597 | Dan Knox Co-Founder & CPO/COO 650-799-0921 | email address email address

VISION Provide efÞcient access to the worldÕs scientiÞc expertise 2

TEAM Founders Founding team members A balanced & complementary founding team Elizabeth Iorns CEO ¥ Prev. Assistant Professor at University of Miami Med School ¥ Ph.D. in Cancer Biology (University of London) Ryan Abbott CTO ¥ Prev. co-founded Loudpixel, a social media analytics platform ¥ BS in Computer Science (Michigan State) Dan Knox CPO/COO ¥ Prev. founding team at DailyMe, a news personalization platform ¥ MBA (MIT) plus degrees in Economics, Finance and Law Eric Alli Designer / Software Engineer Former startup founder; ÒIÕm BIG on ThemeforestÓ Nick VanHowe Software Engineer MSU CS grad; ex Software Engineer at Bank of America E.J. Dyksen Software Engineer Calvin CS grad; ex Exchange Server team at Microsoft Bilal Mahmood Customer Development Stanford grad; Gates scholar; ex Policy Analyst at US O.I.E. Carl Quintanilla CNBCÕs Squawk on the Street 10/6/2011 An Economist , a Breast Cancer Researcher and a Software Engineer start a company. That could be the start of an awkward joke but this trio actually did it... 3

RESEARCH LANDSCAPE ¥ Contract research is growing 16% year-on-year due to: ¥ Specialization and lack of access to all latest technology ¥ Increasing spend by smaller companies (e.g. biotech companies) who are more likely to rely on external experts than internal capacity ¥ Economic pressures driving shift from Þxed costs (i.e. in-house research) to variable costs (i.e. contract research) IN-HOUSE RESEARCH Research conducted by researcher and/or researcherÕs internal team. Costs : Salaries / Staff, Equipment, Consumables CONTRACT RESEARCH Research conducted through a contract relationship with a third-party (contract research service provider or individual). Costs : Fee-for-service experiment costs 4

PROBLEM ¥ Researchers are forced to rely on: 1. Purchasing experiments from known providers or providers found via Google or static listing directories 2. Bartering experiments via personal relationships 3. Doing experiments themselves (often purchasing equipment or learning techniques for experiments they only do once ) It is currently difÞcult for researchers to access specialized research expertise DEMAND SIDE SUPPLY SIDE 1.4 million US Researchers 15,000 US Contract Research Providers 5

SOLUTION RESEARCHER VALUE PROPOSITION ¥ Access to 1000s of research providers ¥ Save time and money => get more research done ¥ Easy payment for services PROVIDER VALUE PROPOSITION ¥ Access to new business ¥ Platform to market services & build reputation ¥ Management, billing and reporting tools Science Exchange makes it easy for researchers to connect with specialist contract research providers DEMAND SIDE SUPPLY SIDE 1.4 million US Researchers 15,000 US Contract Research Providers 6

IMPACT Longer term, Science Exchange can enable all researchers to provide market-based access to their expertise DEMAND SIDE SUPPLY SIDE 7+ million Global Researchers 7 All Researchers and Contract Research Providers ¥ Implications of a market-based approach to scientiÞc collaboration: 1. Funding . Entirely new way to fund research (parallels to bootstrapping a startup) 2. Reputation . New form of reputation based on experimental excellence rather than publication record 3. Democratization . Equal access to all types of research expertise; the rise of citizen scientists

MARKET Global R&D > $1Trillion US R&D $368 Billion US Health Research $141 Billion US Contract Health Research $31 Billion Initial target market: Contract research spending in the US Health Research market Total serviceable market: $31.2 billion (with a 16% CAGR) 8 The market opportunity is truly massive


PROJECTS POSTED ¥ 36% MoM growth between June and October, driven by organic trafÞc and general awareness building ¥ Slow down in November and December due to seasonal factors Projects posted / month 0 25 50 75 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 36% MoM growth (Jun - Oct) 3 #% #% #%

PROJECTS POSTED ¥ Bounce back in January to 65 projects (extrapolated from Jan 1-13 data) ¥ Return to 36% MoM growth between January and October, driven by growth strategies Projects posted / month (forecast) 0 400 800 1,200 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 36% MoM growth (Jan - Oct) 4 #% #% #%


GROWTH Growth strategies 1. Grow researcher base ¥ Publication partnerships. Partner with publisher with 400M monthly pageviews ¥ SEO/SEM. 500k daily searches for SciEx experiment type names ¥ Targeted email campaign. Target researchers based on grants and publications 2. Grow provider base ¥ Institutional partnerships. Average 30-40 contract research facilities per institution ¥ Targeted recruitment. Recruit providers in speciÞc areas of need via conferences etc. ¥ Provider marketing tools. Get providers to market themselves to drive demand. 3. Increase usage ¥ Awesome service and customer support. Make Þrst time posters, repeat posters ¥ Targeted follow-up projects. Increase frequency of posting through targeted emails ¥ Value-added services. e.g. Bundling and Research Concierge service 4. Expand focus ¥ Expand geographically ¥ Expand into different research verticals (e.g. nanotech) ¥ Alternative use cases for provider network (e.g. validation, patient driven research) 10 Explains 4 key growth strategies in detail, why this requires capital. Also includes internal marketplace numbers: how many scientists they currently have on the platform, how many transactions have been made, etc.

2013 OBJECTIVES 13 ¥ End of 2013 forecast : ¥ Increased number of projects posted per month to 1100 posted projects ¥ Increased number of projects awarded per month to 400 awarded projects ¥ Increased gross transactional value (GTV) to $1,000,000 awarded project value ¥ Hired 10 new team members: ¥ 4 product/engineering hires (1 x data mining; 1 x ERP systems; 1 x UX/UI; 1 x generalist) ¥ 4 support/community hires (hire as needed to maintain high levels of customer satisfaction) ¥ 1 BD hire (industry focused to complement existing university focused expertise) ¥ 1 operations hire SpeciÞc short-term (1 year) goals

COMPETITION Potential to own this winner-takes-all market ¥ Created listing directory of research providers ¥ Business model based on charging providers a listing fee (~$1440 / year) ¥ Poor traction Direct competitor: Potential competitors: ¥ Business model supports much larger opportunity ¥ Better relationship with providers ¥ Strong academic partners (with large numbers of potential researchers and providers) Characteristics SciEx advantage ¥ Provide management software to research providers ¥ Business model based on charging providers for software ¥ No researcher-facing brand presence ¥ Business model supports much larger opportunity ¥ Strong researcher-facing brand ¥ Cross-institutional payment platform 10 $#

FUNDING Looking to raise a $4-6m Series A to accelerate adoption Raised $20k in June 2011 (part of Y Combinator Summer 2011) Raised $1.5m in September 2011 (incl. Yuri Milner, Maynard Webb, A16Z, Ash Patel) Seed Angel Series A Raising $4-6m Series A in Q1 2013 Looking for partners with expertise in building and scaling marketplace businesses 11 Previous funding Current fundraising $# $# $# $# names of smart investors

CONTACT Science Exchange, Inc. 459 Hamilton Ave (Suite 205) Palo Alto, CA 94301 Elizabeth Iorns Co-Founder & CEO 305-799-1597 | Dan Knox Co-Founder & CPO/COO 650-799-0921 | 12 email address email address Address IRL

VC 2.0: Alternatives to Traditional VC 33

! Crowdfunding ! Raise money to execute on building a product ! No strings attached! Total freedom! ! Real companies are being founded after successful crowdfunding campaigns ! Ex: Kickstarter, IndieGoGo have created gTar, Pebble, etc. ! JOBS Act ! Legislation that will make equity crowdfunding available to non-accredited investors. This will not go into e ! ect for another ~6 months ! Number of companies are jockeying for this space ! FundersClub is the most successful. Their platform is currently equity crowdfunding for accredited investors. Plan to open up to non-accredited investors once regulations pass ! BootstrappinÕ ! Do you really need outside capital for your business? ! Can you grow your business slowly, support yourself initially with consulting / side jobs? 34 Alternatives to VC