fundraising

Auto Added by WPeMatico

What to expect while fundraising in 2021

Published December 11, 2020

Russ Heddleston
Contributor

Russ is the co-founder and CEO of DocSend. He was previously a product manager at Facebook, where he arrived via the acquisition of his startup Pursuit.com, and has held roles at Dropbox, Greystripe and Trulia. Follow him here: @rheddleston and @docsend

We’ll interact through a mix of the old and the new

The pandemic forced all of us to drastically change how we work and interact with colleagues and clients. When the pandemic subsides and vaccines are widely available, in-person meetings and gathering back at the office will definitely resume, but it’s safe to say the old ways of networking and fundraising won’t shift back 100%. Founders and VCs alike have navigated the ups and downs of remote networking and fundraising interactions and will stick to what works and what doesn’t.

Is traveling to a conference the best way for a founder to have a chance at meeting the VC who is right to support their business? Will a VC want to drive an hour through Bay Area traffic for an in-person status update meeting on their latest investment? Zoom fatigue aside, video conference calls do have some benefits — efficiency, no travel time — although not all meetings are best conducted virtually.

No matter what 2021 has in store, founders can still take proactive steps to help them succeed in their fundraising efforts.

The extent to which businesses go in-person or stick to virtual meetings could depend directly on what round of fundraising they are working toward or have completed. Businesses in the pre-seed round might stick with more Zoom meetings in order to conserve resources.

Founders in the seed round will likely split between video and in-person meetings as they are under pressure to show traction in this round, as we found in our report on seed fundraising, yet will also need to conserve resources and time. For Series A, they might have to meet less in person because they have established relationships with their investors. Series B might see more in-person meetings as their business has reached a level of complexity that is difficult to communicate via a deck or video conference.

The funding divide may widen for those outside Silicon Valley

Robinhood raises $200M more at $11.2B valuation as its revenue scales

Published August 17, 2020

Robinhood announced this morning that it has raised $200 million more at a new, higher $11.2 billion valuation. The new capital came as a surprise.

Astute observers of all things fintech will recall that Robinhood, a popular stock trading service, has raised capital multiple times this year, including an initial $280 million round at an $8.3 billion valuation, and a later $320 million addition that brought its valuation to $8.6 billion.

The Exchange explores startups, markets and money. You can read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.

Those rounds, coming in May and July, now feel very passé in the sense that they are frightfully cheap compared to the price at which Robinhood just added new funds. D1 Partners — a private capital pool founded in 2018 — led the funding.

The unicorn’s new nine-figure tranche, a Series G, values the firm at $11.2 billion. A $2.6 billion bump in about a month is an impressive result, one that points to an inescapable conclusion: Robinhood is still growing, and fast.

How fast is the question. There are three things to bring up in this regard: Trading growth at Robinhood, the company’s soaring incomes from selling order flow to other financial institutions, and, oddly enough, crypto. Let’s peek at each and come up with a good why as to the new Robinhood valuation.

After all, we’re going to see an IPO from this company before the markets get less interesting, if it’s smart.

Growth

Robinhood is currently walking a line between enthusiasm that its trading volume is growing and conservatism, arguing that its userbase is not majority-comprised of day traders. The company is stuck between the need for huge revenue growth and keeping pedestrian users from tanking their net worth with unwise options bets.

It’s worth noting that Robinhood spent a lot of its funding round announcement email to TechCrunch talking about its users safety and education work. It makes sense given that we know that the company is seeing record trades, and record incomes from options themselves. After a Robinhood user killed themself after misunderstanding an options trade on the platform, Robinhood pledged to do better. We’re keeping tabs on how well it manages to meet the mark of its promise.

But back to the revenue game, let’s talk volume. On the trading front Robinhood has lots of darts. And by darts we mean daily average revenue trades. Robinhood had 4.31 million DARTs in June, with the company adding that “DARTs in Q2 more than doubled compared to Q1” in an email.

The huge gain in trading volume does not mean that most Robinhood users are day trading, but it does imply that some are given the huge implied trading volume results that the DARTs figure points to. Robinhood saw around 129,300,000 trades in June, which is 30 days. That’s a lot!

Founders can raise funding before launching a product

Published August 17, 2020

It’s possible to raise VC funding even if you haven’t built a real product, according to Charles Hudson, founder and managing partner at seed-stage firm Precursor Ventures. It’s just very, very difficult.

I interviewed Hudson during TechCrunch Early Stage, our virtual event for startup founders. He gave a short talk titled “How to sell an idea when you don’t have a product,” then answered questions from me and from attendees watching at home.

Hudson said Precursor invests in about 25 startups every year and that a majority are pre-launch and pre-traction. So when he’s considering startups where there “isn’t any evidence or traction,” he and other investors are basically considering two things: How well the founder knows the industry, and how well the investors know the founder.

Of course, if you’ve already had success and you know everyone on Sand Hill Road, it might not be that hard to get that first check. But what about everyone else?

Below, I’ve quoted some highlights from Hudson’s thoughts about how to raise money pre-product. You can also watch the full presentation/conversation at the end of this post.

‘You need to have a unique and durable insight that will still be true in 12 to 18 months’

You need to have a unique and durable insight that will still be true in 12 to 18 months … The unique part is important because you still haven’t launched your product yet. And so whatever it is that you’re doing, if it’s not unique, if it’s a really obvious insight, you’ll probably have 10 or 12 competitors that are launched in the market by the time you get your product out.

How to get what you want in a term sheet

Published August 13, 2020

One of the most exciting moments in the life of every newly christened founder is the sweet relief of seeing a term sheet come in from an investor. After weeks, perhaps months (but hopefully not years!), of work fundraising and pitching, there is nothing like getting that email with a PDF attached to it laying out the terms and conditions of the VC relationship going forward.

Of course, that rejoicing dampens quickly as all the specific nuances of the deal suddenly come to the forefront. It’s one thing to get the valuation you want, or the amount of capital you are seeking, but what about the setup of the board of directors? What should you do about deal terms that may shape your startup for a decade or more?

The reality of term sheets, as our guest Lior Zorea discusses, is that the terms you agree to early on at a startup tend to be the terms that will carry through for the life of the company. That means getting that first term sheet right is critical for ensuring the financial and capital success of your business.

Seed funding tips and tricks from Uncork Capital founder Jeff Clavier

Published August 10, 2020

Angel funding, seed investing and generally focusing on earlier stage investing is a huge business in the world of startups these days — it helps investors get in early to the most promising companies, and (because of the smaller size of the checks) allows for even the less prolific to spread their bets.

There was a time when it was immensely difficult for a founder to get a first check, not least because there were fewer people writing them. However, Jeff Clavier was an exception to that rule.

As the founder of Uncork Capital (formerly known as SoftTech VC), he has been in the business of angel and seed investing for 16 years, popularizing the opportunity and highlighting the need for more support at this stage — well before it was cool. You could say he was early to early stage.

Clavier said that at the end of 2019, it was estimated that there were more than 1,000 firms focusing on seed investing in the market, but by the end of this year, there will be about 2,000. “Don’t ask me whether it makes any sense because when I started 16 years ago, I didn’t think would be a big deal,” he said. “But certainly that creates a bit of a conundrum for founders to try and understand.”

As of now, Clavier has made nearly 230 investments and counting.

TechCrunch Early Stage, our virtual conference highlighting that stage of startup life, was the perfect venue to hear from him on all things seed investing and building startups today. Below are some highlights, a link to the video and a pitch deck he put together for the chat. Questions were edited for space and clarity.

Not all VCs are created equal (so know who you are pitching)

First thing to understand is that not all VCs are created equal. There are a bunch of different firms, tons of them out there, and you as a founder need to understand what are the specifics of your pitch opportunity, how to match with the right firm, and to figure out what stage of “early” you happen to be.

Startups can be super early, or mid-stage, which is typically what we refer to as pre-seed. Then there’s the seed stage, where you have developed a product, with a demo. And there is post-seed, where you have product but are not quite ready to raise a Series A. So who are the firms that can actually be the right fit for me at those different stages? The qualification part of the targeting is really important. Especially in a COVID environment when you can’t spend the same kind of time with each other.

It’s useful for founders to try and understand investors better, maybe asking a couple of questions like, “When is the last time you made a brand new investment at seed stage?” And “How has your investment process changed as a result of COVID?”

For investors, you want to understand how you’re going to evolve your process to cope with the fact that you don’t spend time with those founders face-to-face. Some firms are still struggling with that.

At Uncork, we’re now past the point of portfolio triage that we had in the first few weeks of of the pandemic. What was surprising to me was the speed and velocity at which some deals actually.

Find an investment lead

How to pick the right Series A investors

Published August 7, 2020

Early-stage startup founders who are embarking on a Series A fundraising round should consider this: their relationship with the members of their board might last longer than the average American marriage.

In other words, who invests in a startup matters as much — or more — than the total capital they’re bringing with them.

It’s important for founders to get to know the people coming onto their board because they’ll likely be a part of the company for a long time, and it’s really hard to fire them, Jake Saper of Emergence Capital noted during TechCrunch’s virtual Early Stage event in July. But forging a connection isn’t as easy as one might think, Saper added.

The fundraising process requires founders to pack in meetings with numerous investors before making a decision in a short period of time. “Neither party really gets to know the other well enough to know if this is a relationship they want to enter into,” Saper said.

“You want to work with people who give you energy,” he added. “And this is why I strongly encourage you to start to get to know potential Series A leads shortly after you close your seed round.”

Here are the best methods to meet, win over and select Series A investors.

Identify industry experts

Saper recommends extending the typically short Series A time frame by identifying a handful of potential leads as soon as a founder has closed their seed round. Founders shouldn’t just pick any one with a big name and impressive fund. Instead, he recommends focusing on investors who are suited to their startup’s business category or industry.

The story behind Rent the Runway’s first check

Published August 5, 2020

When Rent the Runway co-founders Jennifer Fleiss and Jennifer Hyman got their first term sheet, it had an exploding clause in it: If they didn’t sign the offer in 24 hours, they would lose the deal.

The co-founders, then students at Harvard Business School, were ready to commit, but their lawyer advised them to pause and attend the meetings they had previously set up with other investors.

Twelve years later, Rent the Runway has raised $380 million in venture capital equity funding from top investors like Alibaba’s Jack Ma, Temasek, Fidelity, Highland Capital Partners and T. Rowe Capital. Fleiss gave up an operational role in the company to a board seat in 2017, as the company reportedly was eyeing an IPO.

But the shoe didn’t always fit: Earlier this year, Rent the Runway struggled with supply chain issues that left customers disgruntled. Then, the pandemic threatened the market of luxury wear more broadly: Who needs a ball gown while Zooming from home? In early March, the business went through a restructuring, furloughing and laying off nearly half of its workforce, including every retail employee at its physical locations.

In 2009, Fleiss and Hyman were successful Harvard Business School students. Hyman’s college roommate knew a prominent lawyer who agreed to advise them on a contingency basis in exchange for connecting them with potential investors.

Still, fundraising “was extremely hard,” Hyman said. “We were in the middle of a recession and we were two young women at business school who had never really done anything before.”

Fleiss said venture capital firms often sent junior associates, receptionists and assistants to take the meeting instead of dispatching a full-time partner. “It was clear they weren’t taking us very seriously,” Fleiss said, recounting that on one occasion, a male investor called his wife and daughter on speaker to vet their thoughts.

In an attempt to test their thesis that women would pay to rent (and return) luxury clothing, Fleiss and Hyman started doing trunk pop-up shows with 100 dresses. On one occasion, they rented out a Harvard undergraduate dorm room common hall and invited sororities, student activity organizations and a handful of investors.

Only one person showed up, said Fleiss: A guy “who was 30 years older than anyone else in the room.”

Old-fashioned meets nontraditional

Extra Crunch Live: Join our Q&A tomorrow at noon PDT with Y Combinator’s Geoff Ralston

Published July 29, 2020

From Airbnb to Zapier, and Coinbase to Instacart, many of the tech world’s most valuable companies spent their earliest days in Y Combinator’s accelerator program.

Steering the ship at Y Combinator today is its president, Geoff Ralston . We’re excited to share that Ralston will be joining us on Extra Crunch Live tomorrow at noon pacific.

Extra Crunch Live is our virtual speaker series, with each session packed with insight and guidance from the top investors, leaders and founders. This live Q&A is exclusive to Extra Crunch members, so be sure to sign up for a membership here.

Ralston took on the YC President role a little over a year ago shortly after Sam Altman stepped away to focus on OpenAI.

In the months since, Y Combinator has had to reimagine much about the way it operates; as the pandemic spread around the world, YC (like many organizations) has had to figure out how to work together while far apart. In the earliest weeks of the pandemic, this meant quickly shifting their otherwise in-person demo day online; later, it meant adapting the entire accelerator program to be completely remote.

While still relatively new to the president seat, Ralston is by no means new to YC. He joined the accelerator as a partner in 2012, and his edtech-focused accelerator Imagine K12 was fully merged into YC’s operations in 2016.

Watch the first TechCrunch Early Stage ‘Pitch Deck Teardown’

Published July 24, 2020

Have you ever taken something apart, like a clock or a motor?

The method is particularly useful when it comes to learning how things work — or how they don’t, in some cases.

During TechCrunch’s Early Stage event, two venture capitalists took pitch decks and evaluated them with a critical eye on content, presentation and overall messaging. If you missed it the first time through, watch it below in its entirety.

The session was a blast. This was the first time we’ve hosted this event, but we’re working on bringing this session to TechCrunch’s main event, Disrupt, this September.

Accel’s Amy Saper and Bessemer’s Talia Goldberg gave great advice as we clicked through each deck. First impressions are everything, and pitch decks are often the first glimpse of companies by potential investors and business partners. It’s critical that these decks properly present and illustrate in a concise and effective manner the goals and potential of a company.

Ann Miura-Ko’s framework for building a startup

Published July 23, 2020

As an early-stage investor, Floodgate’s Ann Miura-Ko looks for two breakthroughs in order to invest in a startup: The first happens in the value-seeking stage of a startup’s journey and the second occurs in its growth-seeking phase.

“There are really two stages to building a company,” Miura-Ko said at the TechCrunch Early Stage virtual event earlier this week. “One is what we call value-seeking mode, and this is where you’re really trying to figure out what the company actually looks like, including what’s the product? Who are you selling to? How do you price it? All of these things are still being discovered in the value-seeking mode.”

After founders have answered those questions, they can move into growth-seeking mode, she said. That’s the point when startups are trying to attract as many customers as possible.

Throughout these two distinct stages, Miura-Ko says she looks for the two breakthroughs: the inflection insight and product-market fit.

Inflection insights

The idea of an inflection insight, Miura-Ko said, is a relatively new framework Floodgate is exploring. Often times, she said founders need to ride some massive, exponential curves that allow their businesses to grow sustainably and scale.

These inflections have two parts to it: cause and impact. The causes are generally either technological (cloud, 5G), regulatory (GDPR, AV regulation) or societal (belief or behavior shifts). On the impact side, products and distribution may become cheaper or faster, while also presenting new use cases or customers, she said.

“Or even more interesting, you have something that was impossible that now is possible,” she said. “And that is an exponential impact that you could ride on.”

But simply finding that inflection insight doesn’t mean you should create a business. What founders must do next is determine if the insight is right and nonconsensus.