FROM PRE-SEED TO SERIES A
WHAT YOU NEED TO KNOW
Disclosure
This presentation is for informational purposes only. Certain of the information contained in this presentation is based upon forward-looking
statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. Peterson Partners
Inc. and Peterson Venture Partners LLC (herein collectively “Peterson”) believes that such statements, information, and opinions are based upon
reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual
events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed
on such forward-looking statements, information and opinions.
Investments discussed in this presentation are for illustrative purposes only and there is no assurance that Peterson will make any investments
with the same or similar characteristics as any investments presented. The investments are presented for discussion purposes only and are not a
reliable indicator of the performance or investment profile of any strategy.
Please remember that different types of investments involve varying degrees of risk, including the loss of money invested and that past
performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or
investment strategy, including the investments or investment strategies recommended or proposed by Peterson will be profitable. Further, there
can be no assurance that investment objectives will be achieved and clients and investors must be prepared to bear the risk of a total loss of their
investment.
No part of this document may be redistributed in whole or in part or transmitted in any form or by any means without the express prior written
consent of Peterson.
CONFIDENTIAL / NOT FOR DISTRIBUTION
2
Venture arm of leading alternative asset manager
PETERSON
PRIVATE
EQUITY
Most recent
fund
PETERSON
SEARCH
PARTNERS
PV IV: $20m+
Fund VII: $140m
Fund II: $235m
Fund I: $10m
Fund type
Early Stage Venture
Growth & Buy-out
Real Estate
Search Funds / Searcherbacked companies
Mandate
Seed and
small A rounds
$2-10m EBITDA,
$10-$25m Revenue
Fulcrum piece of the
capital stack with bestin-class partners
CF+ (>$1m EBITDA)
Untapped growth
potential
Opportunistic, focus on
capital efficiency in
large and growing
markets
Opportunistic, with
focus on business,
financial, and
healthcare services
Multi-family,
hospitality, senior living
Opportunistic focus on
micro private equity
opportunities
$100K-$500K Initial
Up to $1.5m Total
$5m - $15m
Varies
$300K-$1m Acquisition
Focus
Investment
Size
3
Years of investing experience from early to late stage
Investment Committee
Investment Team
Ben Capell
Tim Hansen
Partner
Peterson Ventures
Associate
Peterson Ventures
Industry Experience:
7 years
Industry Experience:
3 years
Boards:
EcoScraps, LifeSeasons,
Therapydia, MicroBenefits,
Social Dental (O), Grow (O),
Chatbooks (O)
HireVue (O), Dropship (O)
Joel Peterson
Clint Peterson
Founding Partner
Peterson Partners
Managing Partner
Peterson Partners
CFO/CCO
Peterson Partners
Industry Experience:
40 years
Industry Experience:
8 years
Industry Experience:
9 years
Boards:
(Chairman) JetBlue Airways,
Bonobos, FranklinCovey, Ladder
Capital Finance, Integra,
Packsize
Boards:
Azul (O), Benefit Guard,
Velocity, Cloud, EMX,
Glenfarne, Interior Define,
RevOptix, RIA, Riivivia, Si
Senor, Vigzul
Eric Noble
Experience:
Personal Pathways,
Charles River Associates
Experience:
Accenture,
Pelion Venture Partners
Experience:
Stanford GSB
Trammell Crow Company
Experience:
TowerBrook,
Soros Private Equity
Experience:
Pricewaterhouse Coopers
MBA, BYU
MBA, BYU
MBA, Harvard
MBA, Harvard
M.S. Finance, Suffolk
University
4
Three key trends related to Seed Stage investing
• Rise of the Micro-VC and the Seed Round
• The “Series A Crunch”
• Best practices for raising a Series A
5
Micro VCs have replaced Series A investors as first
institutional capital
• Since 2011 there has been a significant increase in microVC firms (~40 to ~220 now)1
• Startups have become more cash-efficient, allowing smaller
funds to get into the game
• Micro VCs are more attractive to entrepreneurs because
their interests are better aligned
Please refer to footnotes in the appendix for sources and additional clarification.
6
Micro-VCs are more aligned with entrepreneurs in the
early stage
Willingness to
lead rounds.
Flexibility in
follow-on
financing
options.
Outcome
flexibility.
Smaller exits are
OK.
Interests
are aligned
7
Seed is the new Series A: early stage venture financing
then vs. now
Then…
From $250-$500K
Friends & Family
round … straight to
$1-3M Series A
…Now
Friends & Family
$100-200K
Pre Seed
$250-750K
Seed
$1-3M
Series A
$5-7M
8
Traditional “early” stage venture investing is now
happening in the Pre-Seed and Seed round
Pre-seed is the new
seed.
Seed is the new
Series A
Series A is the new
Series B
• $250K – $500K
• Build team, initial product
and prototype
• $1M – $3M
• Refine product, establish
product-market fit, early
revenue
• $5M – $7M (growing to
$10M)
• Scale, customer
acquisition, grow revenue
9
Seed rounds are looking more and more like old Series A
The volume of seed deals is decreasing while the
valuations and size of seed rounds are increasing
Please refer to footnotes in the appendix for sources and additional clarification.
10
The “Series A Crunch” = Increased volume of Seed Deals
vs. Series A
The number of seed deals from 2010 to 2014 far
exceeded the number of Series A deals
Please refer to footnotes in the appendix for sources and additional clarification.
11
Only 27% of companies that raised Seed rounds have
been able to raise a Series A1
Follow-on Financing rounds
1200
2006
2007
2008
2009
2010
2011
2012
2013
1000
800
600
400
200
Percent of companies raising Series
A after seed round
27%
69%
Industry Standard
Peterson Ventures 2
0
Seed
Series A
Series B
Our seed deals are raising A rounds at >2X the market average
Please refer to footnotes in the appendix for sources and additional clarification.
12
Keys to avoiding the “Series A Crunch”
• Understand what key Series A milestones are for each
business and each industry
• Understand the financing trends in each particular industry
• Raise enough money from the right partners to hit
critical milestones
13
General Series A metrics by industry1
General
• Product/market fit
• Proof of product repeatability
• Clear path to scale
• Lifetime Value (LTV) of
customer 3x+ Customer
Acquisition Cost (CAC)
Consumer Apps
SaaS
• $50-150K Monthly Recurring Revenue
(MRR)
• >100% YoY MRR growth
• 50K Daily Active Users (DAU)
• 25% MoM user growth
eCommerce / Consumer Product
Marketplace
• $500K-$1M monthly Gross Market Volume
(GMV)
• 20-30% MoM growth in GMV
• Decreasing transaction velocity
•
•
•
•
$1M Monthly Recurring Revenue (MRR)
Repeat customers
Lifetime Value
Gross Margins
Know the appropriate Series A metrics for each
industry and business
Please refer to footnotes in the appendix for sources and additional clarification.
14
Follow-on rates by investor type
1
Follow-on rates are strongest with multiple
institutional investors who invest in multiple rounds
Please refer to footnotes in the appendix for sources and additional clarification.
15
Size of seed round is growing
1
• Optimal round size was
$1M - $1.5M in most
cases
• Larger rounds have
higher follow-on rates
because it gives the
startup a longer runway
to gain traction
Many companies are now raising between $2m and $4m
prior to raising a Series A
Please refer to footnotes in the appendix for sources and additional clarification.
16
Summary: Keys to avoiding the Series A Crunch
• Understand what key Series A milestones are for each
business and each industry
• Understand the financing trends in each particular industry
• Raise enough money from the right partners to hit
critical milestones
17
THANK YOU
Footnotes and Sources
Page 6
1 http://techcrunch.com/2015/04/26/the-microvc-shakeout/
Page 10
1 https://mattermark.com/exploring-the-connection-between-startup-funding-activity-and-u-s-interest-rates/
Page 11
1 https://mattermark.com/exploring-the-connection-between-startup-funding-activity-and-u-s-interest-rates/
Page 12
1 http://www.redpoint.com/why-startups-face-increasing-competition-in-raising-series-as-and-bs
2 Seed investments made in 2012 and 2013
Page 14
1 https://equityzen.com/blog/metrics-required-for-series-a/
Page 15
1 https://www.cbinsights.com/blog/seed-venture-capital-funds/
Page 16
1 http://tomtunguz.com/seed-followon-rates/
19