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8 tips for founders trying to raise their first round of venture capital

Published October 15, 2019

If you’re an avid TechCrunch reader, someone who loves to absorb endless startup profiles and pore through fundraising stories, you might think raising venture capital is easy. In reality, it’s very, very difficult and not the best source of capital for most businesses.

For startups hoping to scale far and wide as fast as possible, VC may be the right fit. To shed light on the process of raising equity capital from venture capital firms and provide some exclusive tips and tricks for Extra Crunch subscribers, we sat down with three experts on the subject. Below are the top pieces of advice from Charles Hudson, founder and managing partner of Precursor Ventures, Redpoint Ventures general partner Annie Kadavy, and DocSend founder Russ Heddleston. The following has been lightly edited for length and clarity.

1. First, make sure your company is fit to raise venture capital.

Charles Hudson: I think venture capital, it’s really a specialty type of capital. It’s really for companies that have the aspiration to grow really quickly, to build really large businesses … If you’re not a company that needs to grow quickly, venture capital might not be the right source of capital for you. There has to be a really big prize at the end of the journey.

2. Raise capital early if you’re stressing about small costs or fretting competition

Russ Heddleston: If you’re thinking about whether or not to raise, there are a couple of reasons that I will often advise people to raise early. One is if they’re really stressing about buying a whiteboard for their office, or like some something of relatively small cost. If you think it could be a big company, and you’re stressing about small things, raise money and buy the whiteboard, hire the additional person and get back to what you should be doing, which is running your business and growing it quickly.

The other thing is if you ask the question, ‘is there a competitor I don’t know about?’ If you heard tomorrow, that competitor just raised $2 million, or $5 million or $10 million, how nervous would that make you? For some businesses, you’re like, I don’t really care, it’s a services industry, it’s not a winner take all market. And other times, you’re like, oh, I’d be really nervous. So if either those apply, that’s a good reason to make a compelling case to someone like Charles.

The number one thing you can do to get a VC’s attention is make [your pitch] really simple. Precursor Ventures’ Charles Hudson

3. It’s OK to take a salary

Annie Kadavy: I’d be hard-pressed to think of an example where a founder is not paying themselves, the question, though, is how much? You’re paying yourself enough so that the basic costs of life and running your business are not giving you anxiety, because as an early stage investor one of our primary roles is to try and keep the baseline stress as low as it can be, because it’s really hard to go build a company.

If a founder is coming in at the Series A and they say I’m going to go pay myself $300,000, we might be like, well, that doesn’t really feel right, shouldn’t you want to put some of that money into the company? The ranges I’ve seen are anything from $60,000 up to probably $120,000 at the Series A, or maybe $150,000. Then, as the company grows and as the balance sheet grows and it’s de-risked, your salary as an executive at the company will scale with that.

Get your pitchdeck analyzed by top investors and experts at Disrupt SF next week

Published September 27, 2019

…And see other pitchdecks get the teardown treatment from top early-stage investors Charles Hudson (Precursor Ventures), Anu Duggal (Female Founders Fund) and Russ Heddleston (CEO of DocSend). If you’re attending Disrupt, you’ll get an email with instructions on how you can submit your deck and if you are selected, you can get feedback directly from them in a workshop setting.

If we use your deck, we’ll also provide you a free ticket to any TechCrunch event of your choosing next year.

This is part of a new project to make Disrupt even more focused on founders. We’re already offering the Extra Crunch stage, where you’ll get lots of time to ask questions yourselves in addition to hearing their interviews. For this additional project, we’re setting up workshops with experts on our Q&A stage where they’ll be going over the actual founder problems.

These folks have seen everything, so they will have a gut sense for how generalized advice can be applied to your specific team and market — the nuance that can compellingly explain your strengths and weaknesses. Hudson and Duggal have written some of the first checks for some of the most interesting startups today. The Athletic, Clearbanc, Incredible Health, Sudo and Pico are names you may recognize from the Precursor portfolio; Tala, BentoBox, Thrive Global and WayUp are a few of the many on Female Founder Fund’s list.

Pitching your product will kill your fundraising

Heddleston, meanwhile, is a repeat founder who now has some of the best insight into trends in funding through his current company, DocSend . As you may have read on TechCrunch already, the company provides document management for a large portion of startup founders out there, allowing them to share anonymized data with DocSend about how investors are reading their pitch decks. He’ll provide a data-driven founder perspective.

Data says there are only two seasons for fundraising and one secret window

Attendees will be notified via email on how to submit their pitch deck. If you want to submit your deck for review, get your pass to the event here and we’ll send out an email with instructions on how to submit your deck.

Please note: The workshop is open to conference attendees and is officially on the record. Other investors and members of the media may be in the workshop and see what you have in your deck, so plan accordingly.

At TechCrunch Disrupt, insights into key trends in venture capital

Published September 20, 2019

At TechCrunch Disrupt, the original tech startup conference, venture capitalists remain amongst the premier guests.

VCs are responsible for helping startups — the focus of the three-day event — get off the ground, and, as such, they are often the most familiar with trends in the startup ecosystem, ready to deliver insights, anecdotes and advice to our audience of entrepreneurs, investors, operators, managers and more.

In the first half of 2019, VCs spent $66 billion purchasing equity in promising upstarts, according to the latest data from PitchBook. At that pace, VC spending could surpass $100 billion for the second year in a row. We plan to welcome a slew of investors to TechCrunch Disrupt to discuss this major feat and the investing trends that have paved the way for recording funding.

Mega-funds and the promise of unicorn initial public offerings continue to drive investment. SoftBank, of course, began raising its second Vision Fund this year, a vehicle expected to exceed $100 billion. Meanwhile, more traditional VC outfits revisited limited partners to stay competitive with the Japanese telecom giant. Andreessen Horowitz, for example, collected $2.75 billion for two new funds earlier this year. We’ll have a16z general partners Chris Dixon, Angela Strange and Andrew Chen at Disrupt for insight into the firm’s latest activity.

At the early-stage, the fight for seed deals continued, with larger funds moving downstream to muscle their way into seed and Series A financings. Pre-seed has risen to prominence, with new funds from Afore Capital and Bee Partners helping to legitimize the stage. Bolstering the early-stage further, Y Combinator admitted more than 400 companies across its two most recent batches,

We’ll welcome pre-seed and seed investor Charles Hudson of Precursor Ventures and Redpoint Ventures general partner Annie Kadavy to give founders tips on how to raise VC. Plus, Y Combinator CEO Michael Seibel and Ali Rowghani, the CEO of YC’s Continuity Fund, which invests in and advises growth-stage startups, will join us on the Disrupt Extra Crunch stage ready with tips on how to get accepted to the respected accelerator.

Moreover, activity in high-growth sectors, particularly enterprise SaaS, has permitted a series of outsized rounds across all stages of financing. Speaking on this trend, we’ll have AppDynamics founder and Unusual Ventures co-founder Jyoti Bansal and Battery Ventures general partner Neeraj Agrawal in conversation with TechCrunch’s enterprise reporter Ron Miller.

We would be remiss not to analyze activity on Wall Street in 2019, too. As top venture funds refueled with new capital, Silicon Valley’s favorite unicorns completed highly anticipated IPOs, a critical step toward bringing a much needed bout of liquidity to their investors. Uber, Lyft, Pinterest, Zoom, PagerDuty, Slack and several others went public this year, and other well-financed companies, including Peloton, Postmates and WeWork, have completed paperwork for upcoming public listings. To detail this year’s venture activity and IPO extravaganza, David Krane, CEO and managing partner of Uber and Slack investor GV, will be on deck, as will Sequoia general partner Jess Lee, Floodgate’s Ann Miura-Ko and Aspect Ventures’ Theresia Gouw.

There’s more where that came from. In addition to the VCs already named, Disrupt attendees can expect to hear from Bessemer Venture Partners’ Tess Hatch, who will provide her expertise on the growing “space economy.” Forerunner Ventures’ Eurie Kim will give the Extra Crunch Stage audience tips on building a subscription product, Mithril Capital’s Ajay Royan will explore opportunities in the medical robotics field and SOSV’s Arvind Gupta will dive deep into the cutting-edge world of health tech and more.

Disrupt SF runs October 2-4 at the Moscone Center in the heart of San Francisco. Passes are available here.

Afore Capital raises second pre-seed venture capital fund

Published September 18, 2019

As expectations from seed investors intensify, a new stage of investment has established itself earlier in the venture-backed company life cycle.

Known as “pre-seed” investing, one of the first legitimate outfits to double down on the stage has refueled, closing its second fund on $77 million.

Afore Capital’s sophomore fund is likely the largest pool of venture capital yet to focus exclusively on pre-seed companies, or pre-product businesses seeking their first bout of institutional capital. In many cases, a pre-seed startup may even be “pre-idea,” yet to fully incorporate. While some funds are happy to invest that early, Afore seeks slightly more mature companies.

Afore invests between $500,000 and $1 million in nascent startups. As it kicks off its second fund, founding partners Anamitra Banerji and Gaurav Jain tell TechCrunch they plan to lead all of their investments.

We have the opportunity to build a firm that defines a category. – Afore founding partner Anamitra Banerji

Standouts in Afore’s existing portfolio include the no-fee credit card company Petal — which has raised roughly $50 million to date — mobile executive coaching business BetterUp, childcare information platform Winnie and Modern Health, a B2B mental wellness platform.

Afore portfolio companies have raised more than $360 million in follow-on funding, with an aggregate market cap of $1.5 billion, Jain, the founding product manager at Android Nexus and former principal at Founder Collective, tells TechCrunch. “These are high-quality teams with high-quality projects and ideas.”

Jain and Banerji — a founding product manager at Twitter and former partner at Foundation Capital — began raising capital for Afore’s $47 million debut fund in 2016. Since then, the landscape for seed investing has shifted. Early-stage investors have begun funneling larger sums of capital to standout teams at the seed, while billion-dollar venture capital funds set aside capital for serial entrepreneurs working on their next big idea. As a result, deal sizes have swelled and deal count has shrunk simultaneously.

“Pre-seed has replaced seed in the venture ecosystem,” Banerji tells TechCrunch. “We saw this early as a result of both of us having been at funds. We knew that this was going to be a massive category just like seed was before it. Now we think it’s clearly here to stay and we have the opportunity to build a firm that defines a category.”

Since launching the firm, the pair explain they’ve noticed more and more founders explicitly stating that they are in the market for a pre-seed round, a statement you wouldn’t have heard as recently as two years ago.

This is a result of Afore’s efforts to legitimize the stage through investments and programming, including its annual Pre-Seed Summit. Though Afore is certainly not the only VC fund focused on the earliest stage of startup investing — other firms deploying capital at the stage include Hustle Fund, which closed an $11.8 million debut fund last year, plus the $20 million immigrant-focused pre-seed fund Unshackled Ventures and the predominant seed and pre-seed stage firm Precursor Ventures, which announced a $31 million second fund earlier this year.

In the past year alone, more than $200 million has been dedicated to the pre-seed stage, with at least nine new funds launching to nurture early-stage startups.

More and more firms are setting up shop at the pre-seed stage as competition at the seed stage reaches new heights. As we’ve previously reported, monster funds are becoming increasingly active at the seed stage, muscling seed funds out of top deals with less dilutive offers. While the pre-seed stage, for the most part, remains protected from competition at the later stage, these firms still have to compete.

The fight for seed

“Nobody wants to lose sight of a deal, so they are willing to toss small amounts of capital very early behind interesting founders,” Jain said. “But frankly, we aren’t sure if it’s good for a company to raise that much capital that early in their life cycle.”

Working with a fund that isn’t passionate about what you are building or familiar with the plights of the stage of your business is terrible for founders, adds Jain. Pairing with a focused fund like Afore, on the other hand, allows for “incentive alignment.”

Afore invests across all industries, preferring to back startups in categories “before they are categories.”

“What we are looking for is deep authenticity and passion around the product they are building,” says Banerji. “Ideas on their own aren’t enough. Founder resumes on their own aren’t enough. While we do care about all of those aspects, we get crazy about their clarity of thought in the short term.”

“We don’t take the point of view of ‘here is some money, it’s OK to lose it,’ ” he adds. “For us to invest, the founder must be all in. And we generally don’t invest in celebrity founders; we are going after the underdog founder.”

Startups Weekly: Peloton’s 29 secret weapons

Published August 31, 2019

Hello and welcome back to Startups Weekly, a weekend newsletter that dives into the week’s noteworthy startups and venture capital news. Before I jump into today’s topic, let’s catch up a bit. Last week, I wrote about a new e-commerce startup, Pietra. Before that, I wrote about the flurry of IPO filings.

Remember, you can send me tips, suggestions and feedback to kate.clark@techcrunch.com or on Twitter @KateClarkTweets. If you don’t subscribe to Startups Weekly yet, you can do that here.

What’s new?

Peloton revealed its S-1 this week, taking a big step toward an IPO expected later this year. The filing was packed with interesting tidbits, including that the company, which manufacturers internet-connected stationary bikes and sells an affiliated subscription to its growing library of on-demand fitness content, is raking in more than $900 million in annual revenue. Sure, it’s not profitable, and it’s losing an increasing amount of money to sales and marketing efforts, but for a company that many people wrote off from the very beginning, it’s an impressive feat.

Despite being a hardware, media, interactive software, product design, social connection, apparel and logistics company, according to its S-1, the future of Peloton relies on its talent. Not the employees developing the bikes and software but the 29 instructors teaching its digital fitness courses. Ally Love, Alex Toussaint and the 27 other teachers have developed cult followings, fans who will happily pay Peloton’s steep $39 per month content subscription to get their daily dose of Ben or Christine.

“To create Peloton, we needed to build what we believed to be the best indoor bike on the market, recruit the best instructors in the world, and engineer a state-of-the-art software platform to tie it all together,” founder and CEO John Foley writes in the IPO prospectus. “Against prevailing conventional wisdom, and despite countless investor conference rooms full of very smart skeptics, we were determined for Peloton to build a vertically integrated platform to deliver a seamless end-to-end experience as physically rewarding and addictive as attending a live, in-studio class.”

Peloton succeeded in poaching the best of the best. The question is, can they keep them? Will competition in the fast-growing fitness technology sector swoop in and scoop Peloton’s stars?

In other news

Last week I published a long feature on the state of seed investing in the Bay Area. The TL;DR? Mega-funds are increasingly battling seed-stage investors for access to the hottest companies. As a result, seed investors are getting a little more creative about how they source deals. It’s a dog-eat-dog world out there, and everyone wants a stake in The Next Big Thing. Read the story here.

Rounds of the week

Time to Disrupt

Don’t miss out on our flagship Disrupt, which takes place October 2-4. It’s the quintessential tech conference for anyone focused on early-stage startups. Join more than 10,000 attendees — including over 1,200 exhibiting startups — for three jam-packed days of programming. We’re talking four different stages with interactive workshops, Q&A sessions and interviews with some of the industry’s top tech titans, founders, investors, movers and shakers. Check out our list of speakers and the Disrupt agenda. I will be there interviewing a bunch of tech leaders, including Bastian Lehmann and Charles Hudson. Buy tickets here.

Listen

This week on Equity, TechCrunch’s venture capital-focused podcast, we had Floodgate’s Iris Choi on to discuss Peloton’s upcoming IPO. You can listen to it here. Equity drops every Friday at 6:00 am PT, so subscribe to us on Apple Podcasts, Overcast and Spotify.

Learn

We published a number of new deep dives on Extra Crunch, our paid subscription product, this week. Here’s a quick look at the top stories:

How Pivotal got bailed out by fellow Dell family member, VMware by Ron Miller
How to use Amazon and advertising to build a D2C startup by Matt Altman and Tyler Elliston
Customer success isn’t an add-on — Start early to win later. By Dale Chang and Jay Nathan.

Annie Kadavy, Russ Heddleston and Charles Hudson will tell us how to raise seed money at Disrupt SF

Published June 17, 2019

Just about anyone can come up with a good idea. Fewer people can execute on that idea and turn it into a prototype or MVP. But there is still one final challenge for most entrepreneurs that can prove challenging.

How do you secure that initial seed capital and take your idea to the next level?

At Disrupt SF in October, Redpoint’s Annie Kadavy, DocSend’s Russ Heddleston and Precursor’s Charles Hudson will sit down together and chat it out on the Extra Crunch stage.

Kadavy, Heddleston and Hudson can offer a unique perspective on the process of early-stage fundraising.

Kadavy joined Redpoint in 2018 after a four-year stint at Charles River Ventures, where she sourced or led deals with ClassPass, Cratejoy, DoorDash, Lauren & Wolf and Patreon. She’s also spent time within firms like Bain & Company, Warby Parker and Uber Freight. She understands the importance of operational experience, and knows better than most how to take a company from point A to point B.

Heddleston, co-founder and CEO of DocSend, has a completely different perspective. DocSend is used to securely send and track documents, and one of the most prevalent documents on the platform happens to be pitch decks. Heddleston can tell us about what characteristics get (and keep) the attention of investors, as well as what turns them off.

Hudson, managing partner at Precursor Ventures, has been on both sides of the conference room table. He founded Bionic Panda Games, which was acquired by Zynga in 2010. He moved on to SoftTech VC (now Uncork Capital), where he spent eight years working on seed-stage investments in the consumer internet space. At Precursor Ventures, he’s continuing to invest in early-stage companies that are tackling problems in new markets.

These three each have their own perspective on how to get the attention of investors and how to turn a conversation into a cap table.

“How to Raise Your First Dollars” is but one of many panels that will take place on the Extra Crunch stage at Disrupt SF. The Extra Crunch stage, much like Extra Crunch on the web, is meant to serve as a resource for aspiring entrepreneurs and VCs, offering practical, step-by-step advice on how to get to where you’re going.

We’re thrilled to have Kadavy, Heddleston and Hudson join us at the show.

Disrupt SF runs October 2 – October 4 at the Moscone Center in SF. Tickets to Disrupt SF are available here.

Where top VCs are investing in media, entertainment & gaming

Published May 6, 2019

Most of the strategy discussions and news coverage in the media and entertainment industry is concerned with the unfolding corporate mega-mergers and the political implications of social media platforms.

These are important conversations, but they’re largely a story of twentieth-century media (and broader society) finally responding to the dominance Web 2.0 companies have achieved.

To entrepreneurs and VCs, the more pressing focus is on what the next generation of companies to transform entertainment will look like. Like other sectors, the underlying force is advances in artificial intelligence and computing power.

In this context, that results in a merging of gaming and linear storytelling into new interactive media. To highlight the opportunities here, I asked nine top VCs to share where they are putting their money.

Here are the media investment theses of: Cyan Banister (Founders Fund), Alex Taussig (Lightspeed), Matt Hartman (betaworks), Stephanie Zhan (Sequoia), Jordan Fudge (Sinai), Christian Dorffer (Sweet Capital), Charles Hudson (Precursor), MG Siegler (GV), and Eric Hippeau (Lerer Hippeau).

Cyan Banister, Partner at Founders Fund

“In 2018 I was obsessed with the idea of how you can bring AI and entertainment together. Having made early investments in Brud, A.I. Foundation, Artie and Fable, it became clear that the missing piece behind most AR experiences was a lack of memory.