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What I Learned Seed Investing Over the Last 10 Years Jeff Clavier Managing Partner, SoftTech VC Pre-Money Conference - Jun '14 Last Year

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How to Fund-Raise the Roof? How To Raise Enough Capital To Avoid The Series A Crunch Pre-Money Conference - Jun '15

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Brief bio Jeff Clavier (@jeff) French born C/C++ & Distributed Computing Hacking CTO at Financial Services startup in 1989 Acquired by Reuters in 1993 “Traditional” VC in the Valley since 2000 Angel/Seed Investing since 2004 SoftTech VC (@softtechvc) 11 years old 165 investments 40+ exits $2.5B in follow-ons Pre-Money Conference - Jun '15

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How we built our footprint Pre-Money Conference - Jun '15 2004 2007 2011 2014 “Super-Angel” “Super-Angel” Fund Micro-VC Funds

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$85M SoftTech VC IV Primer 45 seed deals over 3 years $500K to $1M+ per initial investments $35M = 45 deals @ $750K $50M for Series As/Bs Heavy recycling (120%) Geos: SF/SV, NY, SoCal, Can Target ownership: 7 to 10% Always syndicating with peer micro-VCs and angels Sectors New Areas: VR/AR, drones, AI/robots,… Pre-Money Conference - Jun '15

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The 2014 Funding Ecosystem Pre-Money Conference - Jun '15

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The 2015 Funding Ecosystem Pre-Money Conference - Jun '15

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Zooming in on Seed Stage(s) Pre-Seed: the old “Friends & Family” round Team = founders, Stage = Concept, Runway = 12 months+ Size = $500/750K, Investors = Angels, Pre-Seed Funds Seed: the first Institutional Round Team = founders + few engineers, Runway = 18/24 months Stage = early data: usage, acquisition, (some) revenues Size = $1.5/$3M, Investors = Syndicate of Seed VCs + others Seed Prime/Extension: backup to a failed Series A Stage = some data/validation, not enough to raise a Series A Investors = Seed Prime Funds + insiders Pre-Money Conference - Jun '15

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What’s Happening at Seed Stage? Startup costs have dropped 10X, but Operating Costs have increased 2/3X (in Silicon Valley) Traction proof needed to raise Series A trending higher as # of candidates is increasing 10X increase in capital available at Seed stage forced larger rounds to make room for investors Branded firms, and some new ones, have ownership targets due to portfolio concentration and fund size Way too much capital chasing seed deals = sellers market (good) but support is not uniformly good Pre-Money Conference - Jun '15

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Our Advice to Seed Entrepreneurs Figure out burn required to achieve the typical Series A hurdles in your sector Typical runway is 18 to 24 months Research via your network and CrunchBase/AngelList which funds are potential leads Build a strong round foundation with Seed funds as leads, based on value add and expertise – and complement with useful angels/other sources Avoid “party rounds” at all cost – no one cares Pre-Money Conference - Jun '15

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What That Means For Investors Pre-Money Conference - Jun '15

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What That Means For Investors (& LPs) Have a clear portfolio construction strategy: How many deals, of which size over which period? Do you plan to follow on in Series A? Series B? Only Major investors are typically given these rights Have a clear appeal for entrepreneurs: Experience, expertise, network, track record Area(s) where you can add value Will you lead/co-lead? Take a board seat? Figure out how much ownership “you’re worth” Pre-Money Conference - Jun '15

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How much ownership are you “worth”? The size of your fund and your portfolio construction will dictate your ownership needs A $1B exit should return at least half of your fund Capital being a commodity, round construction would ideally be built based on “value add” Entrepreneurs will reference you, better have delivered on the goods with your existing portfolio If you claim the lead position, and aren’t prepared or fit to take the board seat = BFP Committing involvement, time, advice, additional capital, etc. Pre-Money Conference - Jun '15

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Beating the Series A/B Crunch Have a clear “Hot or Not” map for sectors you invest in, and understand runway implications for the Not’s Early on establish and validate hurdles to clear in order to get the next round Pre-market early with the “most likely/best fit” group of investors Understand that the Seed round unlocks the A, and the A unlocks the B Pre-Money Conference - Jun '15

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Statistics from the last 18 months Raised $550M in 35 follow-on rounds across Fund II, III and IV Average Series A: $9M Average Series B: $19M Fund IV closed 24 rounds for a total of $20M Average $800K ($500K to $1.2M) Average ownership: 7.5%. 10 board seats Pre-Money Conference - Jun '15

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Reserve Planning Why invest in follow-on rounds? Avoid costly dilution of a position at low valuation “Double down on winners” and increase dollars invested to maximize returns Planning to follow-on in one round? Reserve 50%. Two? Reserve 75% - but take into account your expected loss rate SoftTech’s model is 20% failure before A, 10% post A Of Fund IV’s $85M, $50M and recycled capital will go to reserves Pre-Money Conference - Jun '15

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Recycling does matter… a lot Say you have a $50M fund, and you need to deliver a 4X gross return. About 25% will go to management fees and costs. To produce a $200M total return, you’d need a 5.5X performance if you don’t put “fees in the ground” 200 / (50 * (1 – 25%)) = 5.5 Recycling means that you don’t distribute all proceeds back to LPs Standard 120% recycling clause means 50% of proceeds are re-invested Cashflow/distribution optimization is tricky since early exits are impossible to plan for Pre-Money Conference - Jun '15

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Good luck, and thank you! www.softtechvc.com @softtechvc Pre-Money Conference - Jun '15