Are you ready to make that leap from bootstrapping to investment capital? If you're ready to accelerate the growth of your startup, check out this presentation from Kristine Di Bacco, Associate with Fenwick and West, LLP (www.fenwick.com) and Sirk Roh, COO for Early Growth Financial Services (www.earlygrowthfinancialservices.com), which covers how to take your startup to the next level of financing -- including an in-depth look at convertible promissory notes and term sheets.

1. Seed Funding Your Startup
From Bootstrapping to Convertible Debt
and Series Seed Financing
#seedfunding
Kristine M. Di Bacco
Associate
Fenwick & West, LLP
Sirk Roh
COO
EGFS

2. Who We Are
2Seed Funding Your Startup

3. Presentation Overview
3
 Bootstrapping
 The leap from bootstrapping to
investment
 Preparing for investment capital
 Different ways to structure your
first investment round:
•Convertible debt
•Series seed preferred stock
 Current deal flow
 Sample term sheets
Seed Funding Your Startup

4. Bootstrapping
4
 Better focus on execution
 No dilution
 Independence
 Caveats: Keep personal
finances separate from
business!
Seed Funding Your Startup

5. Moving On Up…
5
 How do you go from that bootstrap stage to the next level?
First step…
Seed Funding Your Startup
First step… How do you go
from that
bootstrap stage
to the next level?

6. Friends and Family
6
 Smaller investment
 Formalize process
 Be transparent about
risks
 What happens when
you start bringing in
professional investor?
Seed Funding Your Startup

7. Preparing for Professional Investors
7
 Angels vs VCs
 Tailor money raising issues, going from bootstrap to next level
 What does it mean to talk to professional investors
 How to build a financial model that appeals to investors
 Top-down vs bottom up projections
 Finances need to tell a story
Seed Funding Your Startup

8. Two Ways to Do Seed Financings
8Seed Funding Your Startup
Convertible Debt Series Seed

9. Convertible Notes or Series Seed Preferred?
9Seed Funding Your Startup
Convertible Notes Series Seed
Pros • Doesn't require
company valuation
(but may need to
negotiate a
"valuation cap")
• Quick/cheap
• More prevalent for
smaller $ rounds
• Clearer definition
around investor rights
• Starts long-term capital
gains clock (important
if early exit)
• Relatively quick
(cheaper than Series A)
Cons • Valuation
uncertainty for
investors (unless
there is a cap)
• Requires negotiations
around valuation
• Higher legal fees
• More expensive than
convertible note

10. Convertible Promissory Notes
10
 Simple Terms
•Amount of money raise, interest, maturity/default
 More Negotiated Terms
What is a qualified financing?
Optional conversion on non-qualified financing?
Kicker payment on change of control (sale of company)
Seed Funding Your Startup

11. Sample Convertible Note Term Sheet: Official Terms
11
 Convertibility on Qualified
Financing
 Convertibility on Non-
Qualified Financing
 Sale of the Company
 Term: Prepayment
 Closing(s)
 Subordination
 Note Purchase Agreement
Seed Funding Your Startup

12. vs. Series Seed Preferred Stock:
Valuation and Purchase terms
12
• Pre-money valuation is negotiated:
• How market factors in
• If you’re pre-revenue, need
milestones
• Deal flow
• Examples of pre-money valuation
for different types of companies
• Size of option pool
• Reps and warranties from
Company slimmed down from
Series A
• Minimal closing conditions
Seed Funding Your Startup

13. Series Seed Preferred Stock:
Conversion and Distribution Rights
13
• No price-based anti-dilution
protections
• Non-participating liquidation
preference
• No preferential dividend rights
• No redemption rights
• Series Seed board seat
• Limited protective provisions
and voting rights
Seed Funding Your Startup

14. Series Seed Preferred Stock:
Contractual Stockholder Rights
14
• Better rights given to future investors guaranteed to Series Seed
investors
• Right of first offer on future financings (optional)
• Limited information rights
• Drag-along for smaller investors and common stock (optional)
• No registration rights
• No Company covenants
• No co-sale rights
Seed Funding Your Startup

15. Sample Term Sheet and Investment Documents
15Seed Funding Your Startup
Go to www.seriesseed.com
Also, check out the Fenwick & West VC Survey (done quarterly):
http://www.fenwick.com/publications/Pages/silicon-valley-venture-survey-first-qu

16. Questions?
16Seed Funding Your Startup
Kristine M. Di Bacco
650.988.8500
www.fenwick.com
@fenwickwest
Check out Kristine’s bio!
We look forward to hearing from you!
Sirk Roh
415.234.3437
www.earlygrowthfinancialservices.com
@EarlyGrowthFS