Navigating

The New Seed Landscape

Mar Hershenson, Managing Partner Pear VC

LAUNCH Scale 2018
Pear Pear
 Partner @

We help build companies from 0 to 1

2 LAUNCH 2019
Pear
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

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 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

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 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

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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
No product Valuable
product my
product I can
No team can
sell
customers predictably sell
Source : Nikhyl Singhal, CPO at Credit Karma

10 LAUNCH 2019
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 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

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What are valuations at
each stage?
It depends
 Source : Jason Calacanis Blog. The Valuation vs Traction Matrix

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 “Elite Status” Start-ups

Founder
Hot Market Hype Location
Background
Big investor leading Silicon Valley!
Attended top university RPA
YC
Worked at high-growth Crypto
Famous founder
company AI ….
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

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 Assumptions Forward

Average Start-up
No Bio/Deep Tech
Location: Silicon Valley

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 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).

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“0” stage, Pre-seed

19
 !20

“Typical” Pre-seed Rounds

~$100k ~$750k
Pre-seed Fund
Friends, Family & Fools
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 - Demonstrate “MVP” (does not mean you need to code)

Traction
- 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

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“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

Proof of customer “love”

1 Traction
A few customers that cannot live without your product

Core team is ready (Minimum Viable Team)

2 Team
(especially engineering/product)

3 Market Founder/CEO has ambition to build something big

* Caveat: “On average”. Some investors ma

24 LAUNCH 2019
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 Test - when you reach “0.5”

website
When you are not changing your sales ppt to acquire and retain a new customer
app

25 LAUNCH 2019
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 Specifics on traction at seed

$ 0-200k ARR
Revenue
(~10k MRR)

Product Stickiness Fanatic Customers Most Critical

Growth Organic/Viral

Clear Plan to reach

Plan
$1.5-2M ARR in 18 months

26 LAUNCH 2019
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 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…)

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 Product Market Fit Measurements
60 58%
56%

47%
45
40% benchmark
33%
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

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 Why Retention Matters

29 LAUNCH 2019
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 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
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 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
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 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

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“1” stage, Series A

34
 !35

“Typical” Series A rounds

~$8M ~$20M
Series A Fund
Seed Fund
Series B Fund
Corporate Fund

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 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
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 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

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 Growth is not Enough

38 LAUNCH Scale 2018

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 Revenue is not Enough
SaaS Series A MRR-Valuation Correlation
180

135
MRR ($M)

90

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
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 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
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 Specifics on traction at Series A
Series A Round
$0.5-4M ARR
Revenue
(~$200k MRR)

Product Stickiness Net retention 80-150%

Efficient Growth Engine Most Critical

Growth
(SE>1, LTV/CAC>3, default alive)

Plan Plan to 3-5x in 12/18 months

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 Growth Quality

(Quick Ratio – Added MRR/lost MRR)

Source: Diligence at Social Capital Part 1. Medium

43 LAUNCH Scale 2018

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 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
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 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
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 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

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Summary

47
 In Summary

Seed Round Series A Round

$ 0-200k ARR $0.5-4M ARR
Revenue
(~$10k MRR) (~$200k MRR)

Product Stickiness Fanatic Customers Net retention 80-150%

Efficient Growth Engine

Growth Organic/Viral
(SE>1, LTV/CAC>3, default alive)

Clear Plan to reach

Plan Plan to 3-5x in 12/18 months
$1.5-2M ARR in 18 months

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 “What gets measured, gets done”

Georg Rheticus, Astronomer 1514-1574

49 LAUNCH Scale 2018

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 Make an Ops Plan
Q1 Q2 Q3 Q4

Revenue $100k ARR $1M ARR

100 leads

1 Demand Gen 1 Sales 1 Customer Success 1 Sales

New Hires
3 Engineers 1 QA Engineer

Product Rev 2.0

MVP

Cash @ end 18 months 15 months 10 months 6 months

4 months

50 LAUNCH Scale 2018

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 Know your Northstar

Focus on building a large business that makes money

51 LAUNCH 2019
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 Contact: [email protected]

52 LAUNCH 2019
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