Anatomy of Seed

An inside look into a $1M seed round.

Brendan Baker
@brendanbaker

Ringleader

Collaborator

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Daniel Odio
Co-founder of Appmakr.
www.danielodio.com

Appmakr lets anyone launch

their own iPhone app with no
coding. Over 5,000 apps have
been built, with 55M total user
sessions.

Official Support

Marc Ventresca, Oxford Economic

sociologist, expert in new market
formaCon: hLp://bit.ly/htkT3l
Anatomy of Seed Brendan Baker

 We wanted to see what a

fundraising process looks like for
a startup and get an inside look at
how the industry is changing.

Anatomy of Seed Brendan Baker

So we analyzed 500+ emails from

Appmakrs rst raise to map the path
they took through investor networks to
raise $1M.
The result? !
Thoughts for startups and investors.
Anatomy of Seed Brendan Baker

We tracked all kinds of stuff:

The key actors:
Seed Funds
Angels
VCs

Intros

InsCtuConal Actor

RejecCon

Funding

This is what it a seed round looks like.

See for yourself: http://brendanbaker.co/anatomy.pdf!

Anatomy of Seed Brendan Baker

It wasnt easy.

173 Actors
Results
130 Rejections
14 Commitments

55 VCs
55 Angels
28 Seed Funds
27 Middlemen
5 Corporate
2 Institutions
1 Angel Group
Anatomy of Seed Brendan Baker

How do they all stack up?

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 Angels
v Seed Funds
v VCs

Anatomy of Seed Brendan Baker

Seed funds give big.

Appmakr raised an average of $6.9K per potential investor, but not all were equal*:

Dollars per contact (000 USD)

15

10

12.3K

6.4K

Seed Funds

Angels

* Ridiculously small sample size. Will this hold with more cases?

5.5K

VCs
Anatomy of Seed Brendan Baker

But seed funds also took forever to decide.

VCs and angels were quicker to respond.
VCs

20.4 days

Angels

22.4 days

Seed Funds
0

29.8 days
10

20

30

Response Time (days)

Anatomy of Seed Brendan Baker

 Old Style
v New Style
v Time Wasters

Anatomy of Seed Brendan Baker

There were three clear paths in the data:

Old Style

New Style

Time Wasters
Anatomy of Seed Brendan Baker

Old Style
The process was driven by an
influential first actor, whose weight
carried to help Appmakr get
downstream intros and investments.

It propagated through interpersonal networks, and was

driven by dynamics within these networks.

Anatomy of Seed Brendan Baker

How the Old Stylers invested

There were more

commitments from
downstream intros.

Started with a supernode, in

this case a well-connected
angel.

Several commitments
emerged from the first
intros.

Anatomy of Seed Brendan Baker

New Style
The process was facilitated by a
credible market intermediary.
Investors made decisions efficiently,
without making new intros.

It played out more like an efficient market, where investors

evaluated the good (i.e. startup) and bought or not.

Anatomy of Seed Brendan Baker

How the New Stylers invested

3
1

Started with an ecosystem

intermediary. In this case its
AngelList.

Investors efficiently
declined or committed.

There were few

downstream intros and
no downstream
commitments.

Anatomy of Seed Brendan Baker

Time Wasters
These intros just wasted Daniels
time and energy. None of them
amounted to anything.

The trick is to identify the time wasters early.

More on that later.

Anatomy of Seed Brendan Baker

How the Time Wasters invested (or didnt)

There are many new

introductions, but at
most 3 at a time.

3
2

Theres one late

commitment, but Daniel
already knew him.

None of them led

anywhere

Anatomy of Seed Brendan Baker

Q What if you cant tell the Time Wasters

from the Old Style?
Should you use tools to try the new style?

Anatomy of Seed Brendan Baker

i.e.

New Style v [Old Style + Time Wasters]

Dollars per contact (000 USD)

13.8K

10

10.4K

5
3.4K
0

New Style

Old Style

(incl Time Wasters)

A Try the New Style (i.e. use tools). Appmakr found AngelList to be
3X more efficient than non-AngelList.

Anatomy of Seed Brendan Baker

Thoughts for Startups and Investors

( From the analysis and Daniels experience. )

Anatomy of Seed Brendan Baker

Startups

1
Fundraising takes longer than you think.
Be ready for the grind.

Anatomy of Seed Brendan Baker

Startups

2
There are periods of low investor activity.
Avoid late summer and winter holidays.

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Startups

3
A large amount of your funds may come from
a few people. These are your super nodes.
Find them and support them.

Anatomy of Seed Brendan Baker

Startups
(however,)

A large number of intros will lead nowhere

and will waste your time.
Dont invest much in these interactions.

Daniels Rule of 10: If I dont get >10 intros from someone, Im

not going to invest a lot of time. Use at your own peril!

Anatomy of Seed Brendan Baker

Startups
(Lets take a quick pause)
How do you tell a super node from a time waster? Or a
productive investor from an unproductive one?

1 Theyre willing and able to make a bunch of intros.

2 Their eyes light up and they excitedly push a
crumpled check into your hands

3 You have a pre-existing relationship with them

see them in person. (In-person meetings averaged
4 You
$11.5K, phone $3K and email less than $2K.)
Anatomy of Seed Brendan Baker

Startups

Its probably not about identifying them

immediately, so much as amplifying support for
your super nodes and reducing the time and
energy drain from your time wasters.

(OK, back to the list)

Anatomy of Seed Brendan Baker

Startups

5
With investors, there are leaders and followers.
Youll have higher conversion after getting a
committed investor or two.

Anatomy of Seed Brendan Baker

Startups

6
There are tools that can help.
Use them when it makes sense.

AngelList, Techcrunch Disrupt, Venture Hacks, Founders Institute, Y Combinator,

Launch.is, University competitions, Angel Groups General Assembly, AngelPad,
Bootup, i/o Ventures, Hackers and Founders, NYCSeed, Founders Den, Seedcamp,
General Assembly, Founders Roundtable, VC open house days, 160 Vark, Sunfire,
Meetup groups, AVC.com, TheFunded.com, 500 Startups, Bothsidesofthetable.com,
LinkedIn groups, chrisdixon.org, Techstars, steveblank.com and many more.

Anatomy of Seed Brendan Baker

Startups

7
Information is becoming more public
Startups can now build more with less
Get used to being open about your
traction and raise details.

Anatomy of Seed Brendan Baker

Investors

1
The market for early stage capital is
becoming more efficient. How does that
affect your own approach?

Anatomy of Seed Brendan Baker

Investors

2
Proprietary dealflow quantity and quality
will decline as a driver of returns.

Anatomy of Seed Brendan Baker

Investors

3
Market intermediaries (i.e. new startup tools)
are gaining importance. More will come.
How can you exploit these?
(e.g. Start Fund)

Anatomy of Seed Brendan Baker

Investors

4
Advisory will become more important
than connective.

Old school: we can make introductions for you.

New school: we can help you understand how to
scale to 3M users on X platform.

Anatomy of Seed Brendan Baker

Investors

5
Reputation is gold.
It will continue to gain importance in the near
term as information becomes more public.

Anatomy of Seed Brendan Baker

Thanks
Startups: for building kickass companies.
Investors: for helping them get there.
Daniel Odio: for access to his email and story.
Marc Ventresca: for guidance and a deep understanding of market
formation.
@mingyeow, @naval, @michaelaiello, @cjwake for feedback on ideas
and first drafts.

Anatomy of Seed Brendan Baker

*
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1
This is only one data point.

The next 10 startups we map will confirm or

refute the first findings.

Anatomy of Seed Brendan Baker

Is post-hoc email tracking accurate enough?

I think so. Even if the meeting is by phone or in
person, there is rarely a meeting that isnt set
up or followed up by email these days.

Anatomy of Seed Brendan Baker

3
Definitions are imperfect.

So is the mapping. Judgments had to be made

about what is VC v seed fund, what were
really intros, engagement start and end, etc.

Anatomy of Seed Brendan Baker

What about existing networks?

It would be fascinating to overlay this onto a
map of existing relationships (ex: investor X
made 5 of 30 potential intros). If anyone
wants to do this, get in touch.
Anatomy of Seed Brendan Baker