Seed Financing Landscape

Navigating The New Seed Landscape Mar Hershenson, Managing Partner Pear VC Pear LAUNCH Scale 2018 Pear

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State of Early Venture 3

Number of Seed Funds Year 2003 2010 2019 # Funds 0 33 ~800

Not only 24x funds…

… but also 4-20x bigger funds $200M “Example Fund” size increase over Hme $100M $85M $35M $7.4M I (y. 2004) II (y. 2007) III (y. 2011) IV (y. 2013) V (y. 2016) VI (y. 2019) Source: SEC Form -D filings 6 LAUNCH 2019 Pear

Rounds have shifted 2010 2019 Age of first institutional Seed 1y 2.5y Total Seed raised before Series A $1.3M $5.6M Series A size $5.1M $15.7M % Companies with revenue at A 15% 82% Source:Wing VC. Techcrunch. A quick look at how Series A and seed rounds have ballooned in recent years, fueled by top investors 7 LAUNCH 2019 Pear

Getting to a Series A is a ~3.5 year Journey $5.6M Raised Before Series A $250k-$750k $2-4M $1-4M Pre-seed Seed [Seed Plus] Pre-seed 2019 = Seed 2010 Seed 2019 = Series A 2010 Metrics in Seed round matter 8 LAUNCH 2019 Pear

Where do I have to be to raise Seed and A money?

Start-up journey has not changed Product Market Fit Stage : “0 “0 “0.5 “1 Idea stage. Valuable Valuable No product product I can product my No sell team can customers predictably sell Source : Nikhyl Singhal, CPO at Credit Karma 10 LAUNCH 2019 Pear

The round names have changed Product Market Fit Stage : “0 to 1” “0” “0.5” “1” 2019 Pre-Seed Seed Series A 2010 Seed Series A 2005 Series A 11 LAUNCH 2019 Pear

What are valuations at each stage?

It depends

Source : Jason Calacanis Blog. The Valuation vs Traction Matrix 14 LAUNCH 2019 Pear

“Elite Status” Start-ups Founder Hot Market Hype Location Background Attended top university RPA Big investor leading Silicon Valley! Worked at high-growth Crypto YC company AI …. Famous founder Second time founder 15 LAUNCH 2019 Pear

Expected Round Valuation Elite Startup $40-80M Typical Startup $30-50M $20-30M $10-15M $10-20M $3-6M “0” “0.5” “1” Typical Startup Pre-Seed Seed/Seed + Series A Elite Startup Seed/Seed + Series A 16 LAUNCH 2019 Pear

Assumptions Forward Average Start-up No Bio/Deep Tech Location: Silicon Valley 17 LAUNCH 2019 Pear

What matters most when* Pre-seed Seed Series A Public 1 Team Traction Market Traction 2 Traction Team Traction Market 3 Market Market Team Team * Caveat: Typical investors at each stage. A Series A investor will think market first at seed too (eg). 18 LAUNCH 2019 Pear

“0” stage, Pre-seed 19

!20 “Typical” Pre-seed Rounds ~$100k ~$750k Friends, Family & Fools Pre-seed Fund Angels Angels Friends, Family & Fools LAUNCH 2019 Pear

How to raise pre-seed from a fund Pre-seed - Emphasize “singular” achievements 1 Team* - Show you can execute - Attract complementary co-founders 2 Traction - Demonstrate “MVP” (does not mean you need to code) - Keep investors updated as you make progress (even if small) 3 Market Founder/CEO has ambition to build something big * Assumes non-elite status start-up 21 LAUNCH 2019 Pear

“0.5” stage, Seed 22

!23 “Typical” Seed Rounds ~$2M ~$4M Seed Fund Pre-seed Fund Angels Series A Fund LAUNCH 2019 Pear

Where do I have to be to raise seed Seed 1 Traction Proof of customer “love” A few customers that cannot live without your product 2 Team Core team is ready (Minimum Viable Team) (especially engineering/product) 3 Market Founder/CEO has ambition to build something big * Caveat: “On average”. Some investors ma 24 LAUNCH 2019 Pear

Test - when you reach “0.5” website When you are not changing your tsales ppt o acquire and retain a new customer app 25 LAUNCH 2019 Pear

Specifics on traction at seed Revenue $ 0-200k ARR (~10k MRR) Product Stickiness Fanatic Customers Most Critical Growth Organic/Viral Plan Clear Plan to reach $1.5-2M ARR in 18 months 26 LAUNCH 2019 Pear

Actual data and trends matter at seed Engagement Customer Love DAUs/WAUs/MAUs Organic growth Frequency of use Reference accounts 
 30d/90d/120d Retention Super-fans/addicted users Lengths of sessions Sings of love (posts/emails…) 27 LAUNCH 2019 Pear

Product Market Fit Measurements 60 56% 58% 47% 45 33% 40% benchmark 30 22% 15 0 Ini^al Q12017 Q2 2017 Q3 2017 Q4 2017 Source : How Superhuman Built an Engine to find Product/Market Fit by Rahul Vohra 28 LAUNCH 2019 Pear

Why Retention Matters 29 LAUNCH 2019 Pear

Cohort Analysis - Retention Cohort 0 1 2 3 4 5 6 7 8 9 Size 110 Jan 100% 33% 21% 16% 14% 13% 12% 12% 10% 12% 186 Feb 100% 31% 21% 14% 13% 12% 11% 11% 9% 184 Mar 100% 29% 18% 16% 14% 12% 10% 9% 225 Apr 100% 35% 29% 22% 20% 17% 15% 231 May 100% 42% 37% 34% 24% 21% 209 June 100% 44% 37% 33% 25% 240 Jul 100% 42% 38% 31% 271 Aug 100% 45% 40% 248 Sep 100% 51% 243 Oct 100% 2,147 Total 100% 39% 30% 24% 18% 15% 12% 11% 10% 12% Source: Diligence at Social Capital Part 2. Medium 30 LAUNCH Scale 2018 Pear

Advice for “0” to “0.5” “Experiment” Mentality • hyp —> test —> measure —> new hyp “Scrappy and Fast” Operations • Build fast. Kill Features. Simplest MVP Ignore “Fake” Signals • Number Employees. Money Raised. Speaking engagements. 31 LAUNCH 2019 Pear

The “0” to “0.5” journey in steps 1 2 3 4 First Repeat Vision/Idea Build founder founder driven sale driven sale Consumer Companies: 3) Launch to network 4) Organic growth/word of mouth expansion 32 LAUNCH 2019 Pear

Branch - “0” to “0.5” journey Data driven PMF driven “ Photo App (CAC was high!) —> Print SDK (no takers) —> Deeplinking (customers inbound) Duration: 15 months Team: 4 co-founders Cash spent: $50k 33 LAUNCH 2019 Pear

“1” stage, Series A 34

!35 “Typical” Series A rounds ~$8M ~$20M Series A Fund Seed Fund Series B Fund Corporate Fund LAUNCH 2019 Pear

From finding product fit to finding market fit Iterate on formula until Iterate on growth engine finding customer love until economics work Focus on the revenue engine Not the absolute revenue 36 LAUNCH 2019 Pear

Myths on the Street E-commerce Consumer $500k-1M MRR 50k DAUs 20% m-o-m growth 25% m-o-m growth SaaS Marketplace $100k-200k MRR $500k-1M GMV 100% y-o-y growth 25% m-o-m growth Source: Equityzen blog 37 LAUNCH Scale 2018 Pear

Growth is not Enough 38 LAUNCH Scale 2018 Pear

Revenue is not Enough SaaS Series A MRR-Valuation Correlation 180 135 ) ($M90 R R M 45 0 20 35 50 65 80 Post Money Valuation ($M) Source: Thomas Tungunz, Redpoint 39 LAUNCH Scale 2018 Pear

Test - when you reach “1” If I hire 1 AE, I will close this $400k ARR new business in 6 months If I spend $10k in ads, I will get 10k new users (or maybe no ad-spend is needed) 40 LAUNCH 2019 Pear

Where do I have to be to raise A? Series A 1 Market Need to convince series A investors this is a $10B+ company 2 Traction Can demonstrate that is a scalable business with efficient growth 3 Team Core product team built. Initial growth hacking/sales team 41 LAUNCH 2019 Pear

Specifics on traction at Series A Series A Round Revenue $0.5-4M ARR (~$200k MRR) Product Stickiness Net retention 80-150% Growth Efficient Growth Engine Most Critical (SE>1, LTV/CAC>3, default alive) Plan Plan to 3-5x in 12/18 months 42 LAUNCH 2019 Pear

Growth Quality
 (Quick Ratio – Added MRR/lost MRR) Source: Diligence at Social Capital Part 1. Medium 43 LAUNCH Scale 2018 Pear

Sample Metrics for Series A SaaS Companies METRIC GOOD BETTER BEST CARR 50-100% 100-200% 200%+ % Growth CAC PAYBACK 24 12-24 <12 Months CHURN 1-3% <1% Net negative Monthly CASH FLOW <1 ~1 >1 EFFICIENCY Source: Bessemer. Consumer Series A Metrics Cash Flow Efficiency - Net new ARR/Net Churn CARR - Committed Annual Recurring Revenue 44 LAUNCH 2019 Pear

Advice for “0.5” to “1” Focus on “Growth Engine” rather than “Abolute Growth” •Replicatable and efficient growth are better than just growth Measure “Growth Engine” Efficiency •Use data to measure performance. Build sales & marketing ops teams. Avoid “Fake” Growth •Sales & marketing cost higher than net revenue. GMV vs. actual revenue. 45 LAUNCH 2019 Pear

Doordash - “0.5” to “1” journey Duration: 10 months Business model iterations: First region to “1” Second region to “0.5” Extreme attention to metrics (LTV, CAC, Payback, Margin) Team - Key hires: Engineering. Operations Heads. Cash spent: < $2M 46 LAUNCH 2019 Pear

Summary 47

In Summary Seed Round Series A Round Revenue $ 0-200k ARR $0.5-4M ARR (~$10k MRR) (~$200k MRR) Product Stickiness Fanatic Customers Net retention 80-150% Growth Organic/Viral Efficient Growth Engine (SE>1, LTV/CAC>3, default alive) Plan Clear Plan to reach Plan to 3-5x in 12/18 months $1.5-2M ARR in 18 months 48 LAUNCH 2019 Pear

“What gets measured, gets done” Georg Rheticus, Astronomer 1514-1574 49 LAUNCH Scale 2018 Pear

Make an Ops Plan Q1 Q2 Q3 Q4 Revenue $100k ARR $1M ARR 100 leads New Hires 1 Demand Gen 1 Sales 1 Customer Success 1 Sales 3 Engineers 1 QA Engineer Product MVP Rev 2.0 Cash @ end 18 months 15 months 10 months 4 6 mmonontthshs 50 LAUNCH Scale 2018 Pear

Know your Northstar Focus on building a large business that makes money 51 LAUNCH 2019 Pear

Contact: [email protected] 52 LAUNCH 2019 Pear

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