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Anatomy of Seed
An inside look into a $1M seed round.


           Brendan	
  Baker	
  
             @brendanbaker	
  
Ringleader
                                      Collaborator
                                                   Support

                                                                                                               Daily Schooling




                                                                                                                      AngelList

8000	
  startups	
  reviewed	
  with	
           Daniel	
  Odio	
  
AngelList,	
  hundreds	
  of	
                   Co-­‐founder	
  of	
  Appmakr.	
  
conversaCons	
  with	
  founders	
               www.danielodio.com	
                                           Official Support
about	
  their	
  fundraising,	
  daily	
  
schooling	
  from	
  Nivi	
  and	
  Naval,	
  
engineering	
  and	
  business	
  at	
  
Cambridge	
  and	
  Oxford.	
  	
  
                                                 Appmakr	
  lets	
  anyone	
  launch	
  
e:	
  brendan@ox1.co	
  	
  	
  	
  
                                                 their	
  own	
  iPhone	
  app	
  with	
  no	
  
t:	
  @brendanbaker	
  	
  	
  	
                                                                     Marc	
  Ventresca,	
  Oxford	
  Economic	
  
w:	
  www.brendanbaker.co	
                      coding.	
  Over	
  5,000	
  apps	
  have	
  
                                                                                                      sociologist,	
  expert	
  in	
  new	
  market	
  
q:	
  www.quora.com/Brendan-­‐Baker	
            been	
  built,	
  with	
  55M	
  total	
  user	
  
                                                                                                       formaCon:	
  hLp://bit.ly/htkT3l	
  
                                                 sessions.	
  


                                                                                                        Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
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	
  
So	
  we	
  analyzed	
  500+	
  emails	
  from	
  
 Appmakr’s	
  first	
  raise	
  to	
  map	
  the	
  path	
  
they	
  took	
  through	
  investor	
  networks	
  to	
  
                    raise	
  $1M.	
  

    The result? !

Thoughts for startups and investors. 


                                            Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
We tracked all kinds of stuff:
The	
  key	
  actors:	
              RejecCon	
  
                                                    Funding	
  
Seed	
  Funds	
  
       Angels	
  
            VCs	
  


                        Intros	
  




 InsCtuConal	
  Actor	
  
This	
  is	
  what	
  it	
  a	
  seed	
  round	
  looks	
  like.	
  




See for yourself: http://brendanbaker.co/anatomy.pdf!
                                                   Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
It wasn’t easy.

   173 Actors
       55 VCs
                     55 Angels
                     28 Seed Funds
 Results
            27 Middlemen
                     5 Corporate
130 Rejections
      2 Institutions
14 Commitments
      1 Angel Group

                           Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
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.
Appmakr raised an average of $6.9K per potential investor, but not all were equal*:



                                                 15
               Dollars per contact (‘000 USD)




                                                           12.3K
                                                 10


                                                  5
                                6.4K
                                                                                                         5.5K


                                                  0
                                                        Seed	
  Funds	
           Angels	
               VCs	
  

   *	
  Ridiculously	
  small	
  sample	
  size.	
  Will	
  this	
  hold	
  with	
  more	
  cases?	
        Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
But seed funds also took forever to decide. 
VCs and angels were quicker to respond.


 VCs
                           20.4 days

 Angels
                              22.4 days

 Seed Funds
                                                 29.8 days


0
              10
                           20
                                             30
                      Response Time (days)




                                                    Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Old Style 
v New Style
v Time Wasters




                  Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
There were three clear paths in the data:




  Old	
  Style	
     New	
  Style	
      Time	
  Wasters	
  


                                        Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Old Style

     
The process was driven by an
influential first actor, whose weight
       carried to help Appmakr get
downstream intros and investments.

(   It propagated through interpersonal networks, and was
           driven by dynamics within these networks.
                         )
                                              Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
How the Old Stylers invested


1
 Started with a supernode, in                            3
                                                          There were more
                                                          commitments from
 this case a well-connected                               downstream intros.
 angel.
                                2
                                 Several commitments
                                 emerged from the first
                                 intros.




                                                          Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
New Style

     
The process was facilitated by a
        credible market intermediary.
    Investors made decisions efficiently,
          without making new intros. 

(   It played out more like an efficient market, where investors
         evaluated the good (i.e. startup) and bought or not. 
                          )
                                                  Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
How the New Stylers invested


                                                               3
     There were few
                                                                      downstream intros and
                                                                      no downstream


1
 Started with an ecosystem
 intermediary. In this case it’s
                                   2
                                    Investors efficiently
                                    declined or committed. 
                                                                      commitments.


 AngelList.




                                                               Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Time Wasters



These intros just wasted Daniel’s
  time and energy. None of them
      amounted to anything. 


   (   The trick is to identify the time wasters early.
                      More on that later.
                          )
                                                 Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
How the Time Wasters invested (or didn’t)

                                             3
                                              There’s one late
                                              commitment, but Daniel
1
 There are many new
 introductions, but at
                                              already knew him.
 most 3 at a time.
                         2
                          None of them led
                          anywhere




                                                  Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Q

What if you can’t tell the Time Wasters
            from the Old Style?
Should you use tools to try the new style?




                                Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
i.e.   New Style v [Old Style + Time Wasters]
                                                       13.8K
                                                 10
               Dollars per contact (‘000 USD)
                                                             10.4K


                                                  5

                                                                                    3.4K
                                                  0
                                                           New	
  Style	
      Old	
  Style	
  	
  
                                                                              (incl	
  Time	
  Wasters)	
  



A

Try the New Style (i.e. use tools). Appmakr found AngelList to be
    3X more efficient than non-AngelList.



                                                                                                       Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Thoughts for Startups and Investors


     ( From the analysis and Daniel’s experience.
)


                                            Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Startups


                  1
Fundraising takes longer than you think.
        Be ready for the grind.




                               Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Startups


                     2
There are periods of low investor activity. 
Avoid late summer and winter holidays.




                                  Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Startups


                    3

A large amount of your funds may come from
  a few people. These are your super nodes.
        Find them and support them.




                                Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Startups



(however,)
                          4
A large number of intros will lead nowhere
            and will waste your time.
  
Don’t invest much in these interactions.

       (   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!
                 )
                                                                  Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Startups
(Let’s take a quick pause…)
How do you tell a super node from a time waster? Or a
productive investor from an unproductive one?

1

They’re willing and able to make a bunch of intros.
2
 Their eyes light up and they excitedly push a
   crumpled check into your hands
3
 You have a pre-existing relationship with them
4

You see phonein$3K and email less than $2K.)
averaged
   $11.5K,
           them person. (In-person meetings


                                            Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Startups


   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…)


                                      Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Startups


                       5
With investors, there are leaders and followers.
 You’ll have higher conversion after getting a
           committed investor or two. 




                                    Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Startups


                                        6
        There are tools that can help.
     Use them when it makes sense.



(                                                                                                   )
     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.




                                                                        Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Startups


                     7
Information is becoming more public
Startups can now build more with less
Get used to being open about your
traction and raise details.


                               Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Investors


                   1
 The market for early stage capital is
becoming more efficient. How does that
      affect your own approach? 




                                Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Investors


                    2
Proprietary dealflow quantity and quality
    will decline as a driver of returns.




                                  Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Investors


                     3
Market intermediaries (i.e. new startup tools)
   are gaining importance. More will come. 
        How can you exploit these?
              (e.g. Start Fund)


                                   Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Investors


                           4
Advisory will become more important
                than connective.


(   Old school: “we can make introductions for you.”
    New school: “we can help you understand how to
            scale to 3M users on X platform.” 
                                                                 )
                                               Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Investors


                      5
             Reputation is gold. 
It will continue to gain importance in the near
  term as information becomes more public. 




                                     Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
Thanks
            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.



                                                                      *
                                                 Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
*
     Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
*
                  1
        This is only one data point.
The next 10 startups we map will confirm or
           refute the first findings.




                                  Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
*
                     2
 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. 


                                    Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
*
                    3
          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.


                                   Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  
*
                   4
      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.

                                  Anatomy	
  of	
  Seed	
  	
  	
  	
  	
  	
  Brendan	
  Baker	
  

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Anatomy of Seed

  • 1. Anatomy of Seed An inside look into a $1M seed round. Brendan  Baker   @brendanbaker  
  • 2. Ringleader Collaborator Support Daily Schooling AngelList 8000  startups  reviewed  with   Daniel  Odio   AngelList,  hundreds  of   Co-­‐founder  of  Appmakr.   conversaCons  with  founders   www.danielodio.com   Official Support about  their  fundraising,  daily   schooling  from  Nivi  and  Naval,   engineering  and  business  at   Cambridge  and  Oxford.     Appmakr  lets  anyone  launch   e:  brendan@ox1.co         their  own  iPhone  app  with  no   t:  @brendanbaker         Marc  Ventresca,  Oxford  Economic   w:  www.brendanbaker.co   coding.  Over  5,000  apps  have   sociologist,  expert  in  new  market   q:  www.quora.com/Brendan-­‐Baker   been  built,  with  55M  total  user   formaCon:  hLp://bit.ly/htkT3l   sessions.   Anatomy  of  Seed            Brendan  Baker  
  • 3. 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  
  • 4. So  we  analyzed  500+  emails  from   Appmakr’s  first  raise  to  map  the  path   they  took  through  investor  networks  to   raise  $1M.   The result? ! Thoughts for startups and investors. Anatomy  of  Seed            Brendan  Baker  
  • 5. We tracked all kinds of stuff: The  key  actors:   RejecCon   Funding   Seed  Funds   Angels   VCs   Intros   InsCtuConal  Actor  
  • 6. This  is  what  it  a  seed  round  looks  like.   See for yourself: http://brendanbaker.co/anatomy.pdf! Anatomy  of  Seed            Brendan  Baker  
  • 7. It wasn’t easy. 173 Actors 55 VCs 55 Angels 28 Seed Funds Results 27 Middlemen 5 Corporate 130 Rejections 2 Institutions 14 Commitments 1 Angel Group Anatomy  of  Seed            Brendan  Baker  
  • 8. How do they all stack up? Anatomy  of  Seed            Brendan  Baker  
  • 9. Angels v Seed Funds v VCs Anatomy  of  Seed            Brendan  Baker  
  • 10. Seed funds give big. Appmakr raised an average of $6.9K per potential investor, but not all were equal*: 15 Dollars per contact (‘000 USD) 12.3K 10 5 6.4K 5.5K 0 Seed  Funds   Angels   VCs   *  Ridiculously  small  sample  size.  Will  this  hold  with  more  cases?   Anatomy  of  Seed            Brendan  Baker  
  • 11. But seed funds also took forever to decide. VCs and angels were quicker to respond. VCs 20.4 days Angels 22.4 days Seed Funds 29.8 days 0 10 20 30 Response Time (days) Anatomy  of  Seed            Brendan  Baker  
  • 12. Old Style v New Style v Time Wasters Anatomy  of  Seed            Brendan  Baker  
  • 13. There were three clear paths in the data: Old  Style   New  Style   Time  Wasters   Anatomy  of  Seed            Brendan  Baker  
  • 14. Old Style The process was driven by an influential first actor, whose weight carried to help Appmakr get downstream intros and investments. ( It propagated through interpersonal networks, and was driven by dynamics within these networks. ) Anatomy  of  Seed            Brendan  Baker  
  • 15. How the Old Stylers invested 1 Started with a supernode, in 3 There were more commitments from this case a well-connected downstream intros. angel. 2 Several commitments emerged from the first intros. Anatomy  of  Seed            Brendan  Baker  
  • 16. New Style The process was facilitated by a credible market intermediary. Investors made decisions efficiently, without making new intros. ( It played out more like an efficient market, where investors evaluated the good (i.e. startup) and bought or not. ) Anatomy  of  Seed            Brendan  Baker  
  • 17. How the New Stylers invested 3 There were few downstream intros and no downstream 1 Started with an ecosystem intermediary. In this case it’s 2 Investors efficiently declined or committed. commitments. AngelList. Anatomy  of  Seed            Brendan  Baker  
  • 18. Time Wasters These intros just wasted Daniel’s time and energy. None of them amounted to anything. ( The trick is to identify the time wasters early. More on that later. ) Anatomy  of  Seed            Brendan  Baker  
  • 19. How the Time Wasters invested (or didn’t) 3 There’s one late commitment, but Daniel 1 There are many new introductions, but at already knew him. most 3 at a time. 2 None of them led anywhere Anatomy  of  Seed            Brendan  Baker  
  • 20. Q What if you can’t tell the Time Wasters from the Old Style? Should you use tools to try the new style? Anatomy  of  Seed            Brendan  Baker  
  • 21. i.e. New Style v [Old Style + Time Wasters] 13.8K 10 Dollars per contact (‘000 USD) 10.4K 5 3.4K 0 New  Style   Old  Style     (incl  Time  Wasters)   A Try the New Style (i.e. use tools). Appmakr found AngelList to be 3X more efficient than non-AngelList. Anatomy  of  Seed            Brendan  Baker  
  • 22. Thoughts for Startups and Investors ( From the analysis and Daniel’s experience. ) Anatomy  of  Seed            Brendan  Baker  
  • 23. Startups 1 Fundraising takes longer than you think. Be ready for the grind. Anatomy  of  Seed            Brendan  Baker  
  • 24. Startups 2 There are periods of low investor activity. Avoid late summer and winter holidays. Anatomy  of  Seed            Brendan  Baker  
  • 25. Startups 3 A large amount of your funds may come from a few people. These are your super nodes. Find them and support them. Anatomy  of  Seed            Brendan  Baker  
  • 26. Startups (however,) 4 A large number of intros will lead nowhere and will waste your time. Don’t invest much in these interactions. ( 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! ) Anatomy  of  Seed            Brendan  Baker  
  • 27. Startups (Let’s take a quick pause…) How do you tell a super node from a time waster? Or a productive investor from an unproductive one? 1 They’re willing and able to make a bunch of intros. 2 Their eyes light up and they excitedly push a crumpled check into your hands 3 You have a pre-existing relationship with them 4 You see phonein$3K and email less than $2K.) averaged $11.5K, them person. (In-person meetings Anatomy  of  Seed            Brendan  Baker  
  • 28. Startups 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…) Anatomy  of  Seed            Brendan  Baker  
  • 29. Startups 5 With investors, there are leaders and followers. You’ll have higher conversion after getting a committed investor or two. Anatomy  of  Seed            Brendan  Baker  
  • 30. Startups 6 There are tools that can help. Use them when it makes sense. ( ) 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. Anatomy  of  Seed            Brendan  Baker  
  • 31. Startups 7 Information is becoming more public Startups can now build more with less Get used to being open about your traction and raise details. Anatomy  of  Seed            Brendan  Baker  
  • 32. Investors 1 The market for early stage capital is becoming more efficient. How does that affect your own approach? Anatomy  of  Seed            Brendan  Baker  
  • 33. Investors 2 Proprietary dealflow quantity and quality will decline as a driver of returns. Anatomy  of  Seed            Brendan  Baker  
  • 34. Investors 3 Market intermediaries (i.e. new startup tools) are gaining importance. More will come. How can you exploit these? (e.g. Start Fund) Anatomy  of  Seed            Brendan  Baker  
  • 35. Investors 4 Advisory will become more important than connective. ( Old school: “we can make introductions for you.” New school: “we can help you understand how to scale to 3M users on X platform.” ) Anatomy  of  Seed            Brendan  Baker  
  • 36. Investors 5 Reputation is gold. It will continue to gain importance in the near term as information becomes more public. Anatomy  of  Seed            Brendan  Baker  
  • 37. Thanks 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. * Anatomy  of  Seed            Brendan  Baker  
  • 38. * Anatomy  of  Seed            Brendan  Baker  
  • 39. * 1 This is only one data point. The next 10 startups we map will confirm or refute the first findings. Anatomy  of  Seed            Brendan  Baker  
  • 40. * 2 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. Anatomy  of  Seed            Brendan  Baker  
  • 41. * 3 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. Anatomy  of  Seed            Brendan  Baker  
  • 42. * 4 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. Anatomy  of  Seed            Brendan  Baker