Posts Tagged: Angel investor

How to deal with the Series A crunch

Since CBInsights released its report in December, conversations have accelerated about the pending “Series A Crunch.” With headlines declaring that more than 1,000 seeded startups will soon be orphaned, it’s only natural that startups are concerned about the future funding landscape.

While experts may differ on the implications or severity of the Series A Crunch, the numbers provided by CBInsights are straightforward. Seed financing grew from 89 fundings in Q1 2009 to more than 500 in Q3 2012. However, Series A fundings have remained fairly stable over this time. That means there are a lot more seeded startups out there: an excess demand for a limited supply of Series A financings.

I recently had lunch with an entrepreneur who asked what he should do. As I’m assuming this is a common question heard in huddled discussions in offices from San Francisco to Boston, here’s my advice on how to navigate today’s financing waters:

If you haven’t raised your seed round yet…

If you’re looking to raise your seed round, aim for more money than you had originally planned. Traditionally, I’ve advised startups to raise enough money to sustain them for 18 months. However, you should lengthen your runway in anticipation of having a harder time closing a Series A round. Startups should now be looking for seed funding to last them 24-36 months. For example, a startup of mine just raised a $3 million seed round.

In addition to looking for a large seed round, startups may need to put more thought into who’s funding them. For starters, it’s important to avoid party rounds in this kind of environment. Not having a lead investor in your seed round can make it tougher to pull together a bridge round or follow-on financing down the road, since no single investor feels in charge or vested in your success.

Do your homework on potential investors. You’ll increase your chances of getting funded beyond the seed round if you take money from VCs that are known to be patient investors and have enough funds reserved for follow-on investments. As an example, Version One has more than 50% of its funds reserved for follow-on financing.

If you have raised your seed round and are trying to raise a Series A round in the next 6-12 months

If you fall into this category, you should know that plenty of companies are raising Series A funds. However, you’ll most likely see more competition over the next year.

Your first step should be an honest assessment of your company’s chances to get Series A financing. Ask for brutally honest feedback from your seed round investors, advisors, and any other investors you know and trust.

The Series A Crunch has been compared to Darwinian natural selection, thinning out the weaker startups. In this environment, the startups that will struggle the most to get Series A financing will either:

a) Not have enough traction

b) Not have the right team

c) Not have a large enough market

So, if you find yourself falling into one of the three categories above, what can you do? Your chances will be rather limited to close a Series A deal – as a result, you need to get creative:

1. Lengthen your runway by cutting your burn rate: You’ll need to give yourself enough time to get to profitability or get traction in the market. Take a close look at your burn rate and determine where you can make cuts. Do you need to cut salaries or head count and start sharing office space?

2. Look for alternative sources of capital: VCs are not the only game in town and it is possible to fund your company without them. For example, look for strategic investors or another angel round. I even heard of one startup who successfully raised money from its suppliers.

Final thoughts
With more companies seeking Series A financing this year, it’s time to get smart. It may go without saying but the more runway you have, the greater your opportunity to gain traction and attract funds. Don’t be discouraged by talk of the Series A Crunch, but be realistic about your situation and plan accordingly.

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Reinvesting your capital

A big part of Silicon Valley’s success as a startup ecosystem can be linked to a continuous recycling of capital: entrepreneurs who made made money selling their company become angels, angel investors and VCs take profits from one deal and invest those in more deals. With tech ecosystems getting more and more important in places outside of the Valley, one can observe the same trends around the “recycyling of capital“: NYC now has a very strong base of entrepreneurs-turned-angels, an increasing amount of early-stage investors out of Seattle have made their money at Amazon, and you see Ryan Holmes (Hootsuite), Jason Bailey or Markus Frind (Plentyoffish) in many of the Vancouver angel deals.

The same trend happens on an institutional investor basis. Founders’ Collective and Social+Capital were both started and financed by groups of successful entrepreneurs and my own Version One Ventures is backed by over a dozen successful Canadian and US entrepreneurs, including some of the above mentioned.

Tech entrepreneurs are often in the best position to invest in other startups as they understand startup life, the product and the market. This was the investment thesis I started my angel investor career with after the exit to Amazon and I think I have done much better by investing in startups than putting my money in real estate, bonds or stocks.

Re-investing capital into startups is what keeps ecosystems going and I hope that we will see even more of this outside of the Valley and NYC.

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Announcing Version One Ventures

I am excited to announce today the launch of Version One Ventures, a new $15 million micro-VC fund. Version One will back outstanding web and mobile entrepreneurs across North-America with $250,000 to $500,000 investments in Seed and Series A rounds.

The fund builds on my successes with over 35 angel investments which include six exits – among them acquisitions by Google, Twitter, Salesforce, and Groupon. My simple investment thesis: back passionate entrepreneurs who are trying to solve a big problem with a strong product vision.

Version One came to life in the same way that most start-ups evolve. I bootstrapped my first angel investing projects with my own funds, found product-market fit and in the past 2 years have gotten significant traction with exits and follow-on rounds for portfolio companies (most recently for social publisher Wattpad, crowdfunding platform Indiegogo and educational network Edmodo).

With the Internet rapidly moving into everybody’s hands, today’s entrepreneurs will be in the position to build the companies we all dreamt of in 1999 when I started my own start-up JustBooks.The timing was therefore right to take my “angel investing project” to the next level and create a larger fund with a big vision: to become one of the most respected early-stage funds in North-America by being a trusted and helpful partner for entrepreneurs.

As a former entrepreneur myself, I feel the most rewarding aspect of being an investor is to help other entrepreneurs start, build and scale companies and to pass on some of the lessons I learned the hard way over 8 start-up years. Helping others to achieve greatness is what venture capital is all about and how I see my role.

I am fortunate to have found outstanding investors who share this vision. Led by Jeff Mallett (the former President and COO of Yahoo), Version One Ventures is backed by over a dozen successful American and Canadian Internet entrepreneurs as well as a number of high-net worth individuals.

Version One’s typical investment will be $250K to $500K in Seed and Series A financing rounds in consumer Internet, e-commerce, SaaS and mobile companies. To date Version One has already made 5 investments: Top Hat Monocle (interactive learning platform), Julep (multi-channel beauty brand), Jobber (business management software for contractors), (Instagram artist marketplace) and Sunnytrail (social intelligence platform).

I am very grateful to a number of people who have helped me grow as an investor, especially Albert Wenger and Fred Wilson from Union Square Ventures, Jeff Clavier from SoftechChris Fralic from First Round Capital and Christoph Braun from Acton Capital. Thank you for your support and mentorship.

Version One is open for business – stay tuned (@versiononevc)!

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The products of start-ups sometimes evolve so quickly that the communication of those changes falls behind – websites suddenly appear outdated and stale compared to the real story. This is how I felt when I looked at the w media ventures site a few weeks ago and decided that it was about time for a relaunch. w media had changed in quite a few ways over the past couple of years and the website was still telling a different story:

  • While I was exclusively focused on consumer internet companies when I started in 2007, this focus has expanded to SaaS (GoInstant) and mobile (Flurry, Kima Labs, Rewardloop) start-ups since.
  • A similar expansion happend in the geographical focus. While I originally only invested in the Pacific Northwest and Western Canada, 5 of my last 6 investments were either based in Eastern Canada, New York or the Silicon Valley.
  • What has stayed the same is the focus on investing in passionate entrepreneurs with deep domain knowledge, great product and design instincts and a desire to change the world.
I hope that the relaunched website not only looks cleaner and more modern but also does a better job of explaining the focus, showcasing the w media ventures portfolio companies and communicating my thoughts. We are only at the beginning of the “Internet cycle” and it is extremely exciting to be a part of this next wave of innovation by investing in the best consumer internet, SaaS and mobile entrepreneurs throughout North-America.
P.S.: Big thanks to Christine Rondeau and her team at Bluelime Media for a job well done!
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The Art of the Investor Pitch

I gave a talk yesterday at Bootup about the “Art of the Investor Pitch” – Maura Rodgers did a great job summarizing it and here is the full slide deck. Being good at pitching investors is one of the key success factors for entrepreneurs so have a look at the presentation to see if there are any tips / techniques in there that you are not yet using.

The art of the investor pitch

View more presentations from Boris Wertz.
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