SDForum Quarterly Venture Breakfast with PWC’s: Seed Investments

This morning I attended the SDForum Quarterly Venture Breakfast with PWC’s Seed Investment Report given by Steve Bengston from Emerging Company Services (ECS) group at PricewaterhouseCoopers. In the United States, last year the reported amount of VC investments totaled to $25.5B. Of the 25.5B, 1.2B was invested at the seed stage across 311 companies.

Moderator Allison Leopold Tilley, Pillsbury Winthrop


Moderator question to the panelist: Are Steve’s numbers correct?
Bill: Steve’s numbers are accurate, however it only captures the reported data. Most early stage investments are made by families, friends, and unorganized angel groups, all of which do not report their investments. I am not sure what the exact number is, but I estimate that there are 2-3 times more dollars and deals that were not reported last year. The majority of companies are funded by non institutional non traditional capital.

Larry believe Bill’s assumptions are true given there are more than 500 social networking sites alone and only 311 deals were made last year. Larry also believes that the failure rate of companies funded through non institutional capital is incredibly higher.

Moderator question to the panelist: What is the definition of Seed/Early stage investments?
Jim: Seed investments are made into companies in their infancy stages. Usually do not have a flushed out management team, product is not finished, and teams working within their garages. Playing the game this early is hard. 80% of seed companies die and never secure another round of funding. We are swinging for the fences, trying to hit home runs. Thus we need to invest in many companies, to diversify our risk. Teams that do not meet their milestones get cut lose.

Bill: The days of pre-product, pre-prototype, pre-revenue are over unless you are a brand name executive with multiple successful exits. The best way to convince an investor is with paying customers. Do not waste time on a business plan telling us what you are going to do. Build your credibility and substantiate your offering with customers. We look for guys who can sell.

Audience question: From first point of contact, how long does it usually take to secure funding?
Richard: From the very first time we meet, we begin an evaluation of you. How you present yourself, how you articulate your vision, your credibility of being able to execute on your plan, etc. This is the beginning of what is known as our due diligence process. On average, it takes 12 months before a check is cut.

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