Uncategorized


Compilation of fundraising resources and insights for entrepreneurs

There is an abundance of great content available to entrepreneurs on the fundraising process. However, a lot of the utility of that content isn’t fully realized as time strapped entrepreneurs often do not have bandwidth to go searching for it. Additionally, it can be tough to tell whats out there and what sub-catagories to consider, and as a result a lot of great content goes overlooked. The intent of A&O series is to simplify the entrepreneur’s research process through aggregating great content and organizing it by category.

So.. Below, organized by category, is a curated list of links to great fundraising content. It is likely a fraction of whats out there, but it covers the major staples of the fundraising process. Of course nothing below should be taken as gospel, it is merely outline of the factors to consider.

Feel free to comment with any links that you think belong below. The post will be updated often to include new content and reader recommendations.

Why Fundraise from Venture Investors?
Understanding the costs and benefits of venture fundraising

http://blog.eladgil.com/2010/08/20-questions-to-ask-yourself-before.html

http://hunterwalk.com/2014/03/04/youre-either-venture-backed-or-a-lifestyle-business-the-big-lie/

http://avc.com/2015/04/lifestyle-businesses/

Economics of a VC firm
Understanding your current or potential appeal to their model

http://cdixon.org/2015/06/07/the-babe-ruth-effect-in-venture-capital/

https://blog.wealthfront.com/venture-capital-economics/

http://avc.com/2008/08/venture-fund-ec/

http://www.saastr.com/why-vcs-need-unicorns-just-to-survive/

Fundraising Strategy
Creating demand for your startup

http://paulgraham.com/fr.html (Must read — could fit into any category)

http://www.bothsidesofthetable.com/2012/01/16/how-to-develop-your-fund-raising-strategy/

Business Plan and Pitch Decks
Templates and Best Practices

http://www.sequoiacap.com/grove/posts/6bzx/writing-a-business-plan

http://www.slideshare.net/nextviewvc/startup-pitch-deck-template-2-next-view-ventures-slideshare

http://onstartups.com/tabid/3339/bid/98034/The-Pitch-Deck-We-Used-To-Raise-500-000-For-Our-Startup.aspx

Reaching out to and Interacting with VCs
Demystifying the process

http://www.bothsidesofthetable.com/2009/06/19/getting-access-to-the-old-boys-club-how-to-approach-a-vc/

http://robgo.org/2015/02/05/pitch-decks/

http://www.quora.com/What-are-the-best-ways-to-manage-relationships-with-VC-contacts-prior-to-fundraising

Seed Fundraising
Your first raise

http://nextviewventures.com/blog/how-to-raise-seed-capital/

http://cdixon.org/2011/06/09/notes-on-raising-seed-financing/

https://docsend.com/view/p8jxsqr

http://startupljackson.com/post/114347589480/open-letter-to-yc-founders-on-fundraising

http://tomtunguz.com/three-most-important-trends-in-seed-market/

Series A Fundraising
Capital to Scale

http://nextviewventures.com/blog/how-many-vcs-should-you-pitch/

http://firstround.com/review/what-the-seed-funding-boom-means-for-raising-a-series-a/

http://www.launch-capital.com/venture-capital/can-i-get-you-to-series-a

https://www.linkedin.com/pulse/20131015161834-1213-what-i-wish-i-knew-before-pitching-linkedin-to-vcs

Corporate + Strategic Investors
Nuances and Motivations

http://avc.com/2013/06/on-corporate-vcs/

http://micahjay1.com/2014/10/01/strategic-investors-youll-have-sold-your-company-you-just-wont-know-it/

https://www.cbinsights.com/blog/corporate-venture-capital-report-2014-q1/

Picking the right investor
Criteria to consider

http://blog.eladgil.com/2012/11/how-to-choose-right-vc-partner-for-you.html

http://cdixon.org/2009/11/03/how-to-select-your-angel-investors/

http://www.ventureblog.com/2013/01/pick-your-angel-investors-wisely.html

How Much to Raise
Obvious and Non-Obvious Considerations

http://cdixon.org/2009/12/28/whats-the-right-amount-of-seed-money-to-raise/

http://correlatedcausation.com/how-much-to-raise-using-crunchbase-data/

http://www.paulgraham.com/equity.html

http://venturebeat.com/2015/05/13/billion-dollar-startups-everywhere-but-no-billion-dollar-entrepreneurs-yet/

http://www.foundersworkbench.com/capital-calculator/

Valuations
Understanding your sweet spot

http://codingvc.com/an-algorithm-for-seed-round-valuations

http://techcrunch.com/2015/04/13/big-valuations-come-with-dangerous-small-print/

http://avc.com/2015/05/what-can-it-be-worth/

https://www.linkedin.com/pulse/angel-investing-todays-market-rates-losing-proposition-david-shen

Convertible Note versus Equity
Pros and Cons

http://www.sethlevine.com/wp/2010/08/has-convertible-debt-won-and-if-it-has-is-that-a-good-thing

http://techcrunch.com/2012/04/07/convertible-note-seed-financings/

http://techcrunch.com/2012/04/21/convertible-note-seed-financings-econ-101/

http://techcrunch.com/2012/05/13/convertible-note-seed-financings-part-3/

http://siliconhillslawyer.com/2015/04/29/capped-convertible-notes-liquidation-overhang/

SAFE docs
Emerging Standards

http://techcrunch.com/2013/12/06/yc-safe/

http://www.ycombinator.com/documents/

Pro-Rata
Why is this right so important to investors

http://www.inc.com/mark-suster/the-authoritative-guide-to-prorata-rights.html

http://blog.semilshah.com/2014/08/01/another-angle-on-the-shifting-pro-rata-debate/

http://gothamgal.com/2012/06/pro-rata-rights/

http://avc.com/2014/07/the-pro-rata-opportunity/

http://www.aaronkharris.com/the-importance-of-honoring-pro-rata-agreements

Party Rounds
Don’t believe the hype

http://blog.samaltman.com/party-rounds

http://www.bothsidesofthetable.com/2011/09/01/the-problem-with-collecting-logos-at-startups/

http://www.aaronkharris.com/party-all-the-time

https://www.cbinsights.com/blog/party-rounds-seed-vc/

Participation of a Lifecycle VC
Implications for the future

https://www.cbinsights.com/blog/seed-venture-capital-funds/

http://cdixon.org/2009/08/14/the-problem-with-taking-seed-money-from-big-vcs/

http://www.ventureblog.com/2013/01/pick-your-angel-investors-wisely.html

What time of year to fundraise
Seasonality matters

http://blog.semilshah.com/2015/02/04/brief-field-notes-from-the-seed-world/

http://tomtunguz.com/what-time-of-year-to-raise/

Incubators + Accelerators
Understand the landscape

https://medium.com/@milanthakor/y-combinator-and-500-startups-a-founders-comparison-ae47bf218c0e

http://pando.com/2013/02/16/dear-awesome-startups-dont-join-an-accelerator-unless-y-combinator/

http://venturebeat.com/2015/01/16/accelerators-claim-they-are-in-it-for-the-long-hall-i-call-bullshit/

Angelist as a Fundraising Platform
Not to be overlooked

https://medium.com/@kevingibbon/how-we-built-shyp-on-angellist-and-raised-2-1m-1c723714f713

https://angel.co/2014

http://blog.semilshah.com/2013/09/24/the-big-angellist-deal-is-important/

Fundraising Stories from Entrepreneurs
Candid and Valuable Insights from the Trenches

http://reidhoffman.org/linkedin-pitch-to-greylock/ (longer post)

https://open.bufferapp.com/raising-3-5m-funding-valuation-term-sheet/

https://medium.com/@joshm/building-branch-fundraising-29c6081e7803

http://blog.foundersnetwork.com/2012/07/fundraising-post-mortem/

http://bostinno.streetwise.co/2011/07/05/6-pieces-of-generic-fundraising-advice-i-didnt-follow/

http://adespresso.com/academy/blog/want-1m-anatomy-of-an-angellist-fundraising/

http://venturebeat.com/2012/09/02/how-to-do-fundraising-right-on-a-seed-round/

Hi all,

We’ve moved our blog to our company website! Visit our new blog at Launch Capital.

Very recently, one of our portfolio company CEOs experienced a horrible tragedy; one in which there is no reaction or response that can substantiate what has happened.  This tragedy has hit very close to home personally – and has rocked our organization all the way up to our LPs – Karen Pritzker and Michael Vlock – as we try to see if there is anything as a collective that we can do to support them during this time.

To this person and his family, please know that the entire LaunchCapital team – and entrepreneurial ecosystem is here to support them when they are ready.

To everyone else out there (entrepreneurs, VCs, angels, mom’s, dad’s, brothers, sisters, etc), go home tonight, turn all of your devices off, have dinner with your family and spend a few minutes reconnecting with them.  Talk about something silly.  Laugh about something stupid.  Don’t take yourself too seriously.  These are the moments in life that matter most.

The physical and digital worlds are colliding. The most exciting recent mobile innovation has been the product of the growing inclusion of the physical world.  Accelerometers, GPS and NFC tags have enabled mobile devices to expand beyond being merely one-way portals to the digital world. From activity trackers to location-based deals, mobile devices have demonstrated the numerous opportunities that arise from the interplay of the physical and digital world. While once the domain of only large corporations, technology has enabled businesses of any scale to participate in the awesome opportunity that is building connected hardware.

Design/Prototyping

Previously CAD software required prohibitively expensive specialty computers and an engineering degree to operate. Now through Google Sketchup and Autodesk, the process of designing a product is significantly easier and accessible. The current open sourced environment of CAD designs, also allows for the leveraging of existing designs. The process of turning digital designs into physical prototype is now seamless as well, through 3D printers and other personal fabrication tools.

Another major hurdle that previously encumbered small hardware producers was the inability to produce and acquire critical hardware tech.

Now that a lot of hardware technology has been commoditized, individuals can acquire prefabricated kits and chipsets cheaply, not to mention custom chips can now be manufactured inexpensively as well.

Production

The go to market strategy has radically changed for hardware startups.  Kickstarter and Etsy have democratized the means of reaching consumers, and Kickstarter in particular has been an excellent channel for market validation and early customer acquisition.

Added to the ease for startups, Foreign manufacturing is becoming increasingly accessible to smaller firms. Small Firms can also pursue domestic contract manufacturing, an opportunity previously not available. 3D printing and other fabricating tools are also laying the foundation for truly scale free manufacturing.

Community

The DIY hardware community, called the Maker subculture, is a major driver of the larger hardware movement.  The increased availability of common platforms, easy-to-use tools, Web-based collaboration, and low cost technology has facilitated participation in the maker movement. Many contend that the current state of maker movement is reminiscent of the early personal computing movement that consisted mainly of hobbyists and tech enthusiasts. Whether one agrees with that comparison or not, the potential hardware innovation that can occur in garages all across the world is an incredibly exciting prospect.

Paul Graham, in his blog post on the Hardware Renaissance, perfectly explains the appeal of hardware from a consumer standpoint: “physical things are great”. Tangible tech is just plain cool. Hardware companies on Kickstarter have surged in popularity, to the point where Kickstarter had to change its policy to require physical prototypes in order to curtail some of the irrational exuberance of consumers.

What’s Next

We have already seen the rise of hardware startups through companies that we have screened, seen on Kickstarter or watched graduate from the most recent Y-Combinator class.  Most of these companies are still in their infancy, so questions of sustainability still remain, but their initial success is a positive indicator.

The underlying question for hardware startups is scalability. Could the next Kickstarter project eventually compete with a major hardware producer? Some on Wall Street seem to think so, as 3D printing startup Form Labs was flooded with calls from Wall Street Analysts asking about the future of the company, during their Kickstarter campaign. Some even contended that drops in 3D Systems (DDD) stock price were attributable to Form Labs Kickstarter campaign. 3D Systems seemed to take notice as well, they recently filed a lawsuit against the fledging startup. As 3D Systems demonstrated, large corporations will staunchly defend their market share, which could be dangerous for future hardware startups.

Another issue facing hardware startups is the ubiquity of the mobile device. The perverseness of the mobile device is leading a lot of new hardware to become focused on its interaction with the mobile device rather than it own platform. While mobile accessories are an exciting field, focusing on mobile as a platform rather than a channel is limiting for future hardware innovation.

Its not all bad news though, startups have the benefit of building hardware for niche markets, or other markets that larger companies would deem too small or too risky.  Apple demonstrated  both with the personal computer and the iPhone, that products can define the scalability of the market rather scalability determining the viability of the product.

Lawsuits aside, it is an exciting time to be a hardware startup.

Are you dreaming about a white picket fence and two-car garage? Want the newest Rolex or gas guzzling Range Rover? While the 1990s and 2000s saw the rise of McMansions, MTV Cribs, and “Bling, Bling”, more recently we’ve seen a shift in consumer patterns from owning things to “experiencing” things. The movement, which we are calling “The Experience Economy”, is being driven by young people who have come of age during one of the worst periods of recession in our history. Frugality and value have begun to supplant overspending and excess in the U.S. Even while student loan debt has exploded, individuals have continued to deleverage themselves. The savings rate, which plummeted from its 12%+ peak in the 70’s to slightly north of 1% just before the recession, now hovers around 4.6%. The demonization of the 1% during the Presidential Election further illustrates this changing social construct. 

Evidence of this trend is widespread. Dramatic population shifts are occurring back to urban centers, as people want to be closer to the action. Young people are more likely to spend their money on travel instead of purchasing durable goods. Individuals are shifting their focus from consuming mass produced products to a more customized experience. It would make sense that Apple, the fastest growing company over the last few years, is obsessed with user experience and the design of their products. Social media has become a major catalyst for the Experience Economy. Not only do we share our experiences with the people around us, but also with our closest 1000 friends!

Rise of the Humblebrag

Image

Bragging is an innate behavior. According to Harvard psychological studies, researchers estimate that we spend 30-40% of what we say in life to telling others about our own experiences. In what shouldn’t come as a surprise, they found self-disclosure “activates parts of the brain that form the mesolimbic dopamine system, widely associated with our desire and reward mechanisms”. The amplification of social media has given people the megaphone to shout these experiences to a much larger audience. In fact, 91% of people that use photo-sharing sites have posted photos of their vacations.

So how is all of this connected? Where buying luxury brands once conveyed a message of wealth and allowed you to show off to the people that you came in contact with, social media has allowed you to show off your experiences to a much larger audience, in real-time. But shouldn’t that just mean that people would continue to show off their luxury goods to others via social media? Experiences offer a much higher utility for consumers, meaning those experiences are much more memorable and offer more satisfaction than goods purchases.

Luxury Experiences Trump Goods

Speaking of luxury goods, according to the Boston Consulting Group, the Global Luxury Market is a $1.4T industry. The experiential luxury category made up grew to 55% of the total market last year. This segment is not only made up of traditional luxury experiences like exotic African safaris, but also includes experiences like deluxe hospital rooms with specialty chefs or high-rise luxury apartment buildings offering virtual golf-facilities.  Experiential luxury is actually growing 50% faster than the luxury goods segment.  According to a study by Unity Marketing, consumers were three times more satisfied with purchasing luxury experiences than goods. The report chalks this up to a number of factors including an aging, affluent population that have reached an age where experiences are much more valuable than goods, a younger generation who define themselves by what they’ve done and not what they have, backlash from the recession, and consumers seeking a greater sense of purpose and satisfaction.

Flight to Cities

Another phenomenon is the flight to cities and urban areas back from the suburbs. In the nine months between July 1st, 2011 and April 1st, 2012, 27 of the nation’s 51 largest metropolitan areas exceeded their suburbs in population growth, according to census data. This is the first time this has happened since the 1920s! Many factors have contributed to this shift, which is largely perpetuated by young adults. Sustained high unemployment the continued search for jobs has certainly attributed to the flock to cities and an affinity for renting apartments over buying homes, but there are a number of other factors including the downtown revitalization efforts, reduced crime rates, reliable public transportation, and the growth of cultural amenities. Young adults are also delaying marriage and having children later, another impetus for a flight to the suburbs. Work locations also shifting back to more urban areas away from corporate campuses, drawing adults back to cities.

ImageImageImage

The revitalization on former industrial areas has also attributed to this shift. The Wall Street Journal notes:

“… A decades-long migration of factories to the suburbs and rural America has rid cities of the heavy industry that used to make them smoky, loud, and smelly. Take New York: In the 1940s, freight traffic ran on an elevated rail line on the city’s west side. Today, that line is now the High Line, an elevated public park.”

Participating in the Story: Mass Customization and Crowdfunding

Two major consumption shifts are fueled by the experience economy: Mass Customization and Crowdfunding. Mass customization gives people more tailored options. Consumers are demanding products that fit their own needs and are willing to pay more for a customized experience. Starbucks is probably the best example of this, turning the standard $1 coffee into $4-5 personalized coffee drinks. Other companies like Nike and Coca-Cola are investing millions in mass customization. Nike ID allows customers to customize their shoe choices (and is now a ~$100m portion of their business) and Coca-Cola has invested over $100m in their new Freestyle vending machines that offer literally thousands of potential soda combinations of their beverage portfolio. Startups like Cafepress and Zazzle have jumped on the opportunity to offer customized products for their customers.

                                          ImageImage

Crowdfunding is also a phenomenon related to the experience economy. People are willing to fund projects with no guarantee that it will ever get manufactured! It’s the ability to participate in the story of the product and the experience of bringing a cool consumer product to life. According to Kickstarter, over $336m has been pledged to over 33k projects in 2012.

Image

 

The Asset-Light Generation

In her most recent Internet trends presentation, Mary Meeker identifies the Asset-Light generation as digitalization and technology’s affect on all the “stuff” that people own. Think about how much space all the VHS tapes, video games, CDs, DVDs, filing cabinets, and books took up in your house. All of these things have been digitalized, allowing people to live in smaller apartments/houses in urban areas. Why own an “asset-heavy” vehicle that sits 90% of the time in a garage when car-sharing sites like Zipcar allow “on-demand” options? Why own expensive textbooks when book rental sites like Chegg offer cheaper options to rent? New startups and enabling technology has allowed people to downsize their assets to save space, money, and inefficiency.

Conclusion

Many different trends have affected consumer patterns. From the impact of social media shifting our focus to “brag” about experiences to technology enabling the downsizing of our lives, consumers are much more focused experience than physical goods. The Experience Economy will affect how companies target and market consumers, manufacturing goods, and raise money for new projects. No longer does one size fits all. Consumers are their own individual market. Consumers are demanding unique and personalized items that may challenge traditional supply chains. Both major companies and startups will have to tailor their experience individual users. Because good or bad, you know they will be Tweeting about it!

Launch Capital portfolio companies benefitting from the “Experience Economy”:

  • Zozi – Literally a marketplace for experiences!
  • Fashion Playtes – Lets young girls customize their clothing.
  • Custom MadeMarketplace for local furniture artisans for those who are sick of IKEA
  • Daily Grommet – New product discovery, “experience” eCommerce.
  • QuincyTailored fit for women’s business attire with an online shopping experience.

Over the past couple months the Launch Capital Research Team has been working to update our annual Megatrends predictions. Part of this process is to consider some of the more diffuse determinants of economic development: resource scarcity (both human and material), environmental conditions, geography and inevitably politics. Although the causational relationship between the economy and political policy is often debated, it should nevertheless be accounted for.

With an enormous Federal debt and a lagging economy, the 2012 election could have major market implications. Due to the cloud of uncertainty surrounding the future of the American economy, many private investors, from large institutions to individuals, anxiously wait on the sideline; with a high premium on stability and long-term holdings. Families are embracing a similarly risk averse ideology through the deleveraging of their balance sheets, exemplified by declining average household debt (with the exception of student loans).

The indecisiveness of Congress and its inability to revive the economy continues to fuel uncertainty from Wall Street to Main Street, resulting in a “wait and see” mentality in regards to investment and new hires. Understanding the economic policies of each Presidential candidate is invaluable when attempting to predict future economic attitudes.  Based on our findings below we have concluded that neither candidate offers a strategy that is likely to gain bi-partisan support or radically change the path of the nation. Without the prospect of successful or implementable policy we believe the 2012 election is unlikely to shift individual uneasiness about their economic future.

Image

Image

Image

Data and excerpts from Tax Policy Center Analysis of Romney Tax Plan:

http://taxpolicycenter.org/taxtopics/romney-plan.cfm

Romney Policy Summary:

The full implementation of Romney’s tax policy (expected to occur in 2015[1]) would decrease Federal revenue by 900 billion or roughly 24 percent of projected revenue. In relation to current policy baseline, assuming the extension of the Bush Era tax cuts, indexing of AMT, elimination of payroll tax cuts, and the extension of all existing temporary tax policy, Romney tax policy decrease Federal revenue by $480 billion in 2015.

Romney states that the lost tax revenue will be recovered through closing corporate and individual tax loopholes, and the broadening of the tax base. Specifically, Romney claims that all tax cuts will be revenue neutral, a feat that the TPC argues to be impossible without increasing the taxes of individuals making less than $200K.[2] More specifically, the TPC argues that Romney’s plan to reduce the marginal income tax rates, eliminate the estate tax, eliminate the ATM cannot be revenue neutral with increasing tax for some individuals making less than 200K.

Romney also has yet to specify what loopholes he would target and the extent to which loopholes would recover revenue. Romney recently hinted at one such reform, which would be the capping of the amount of deductions a taxpayer could claim.

Romney promises austerity, proposing capping federal spending at 20 percent of GDP, which we assume will be gradually phased in over fiscal 2013 through 2016.

Romney’s supports the “cut, cap and balance” strategy that has been a fixture of the Republican party.

Miscellaneous:

  • Romney has stated that he will cut back on many of the regulatory measures of the Dodd Frank Act, but not abandon the act entirely.

http://www.csmonitor.com/USA/DC-Decoder/2012/0828/Obama-vs.-Romney-101-3-ways-they-differ-on-regulation/Dodd-Frank-Wall-Street-Reform-and-Consumer-Protection-Act

In the most recent debate Romney suggested he would repeal and replace the Dodd Frank Act

  • Plans on declaring China a currency manipulator, and generally more aggressive in the treatment of China

Data and Excerpts from Congressional Budget Office Analysis of Obama 2013 Budget Proposal

http://www.cbo.gov/sites/default/files/cbofiles/attachments/04-20-Economic_Budget.pdf

Obama Policy Summary:

Individual Impact of Obama’s tax policy (According to TPC):

  • Relative to current law, the entire package of proposals would reduce taxes in 2013 for nearly three-quarters of all households and raise taxes for about 6 percent.
  • Individuals at either end of the economic spectrum would be less likely to see their taxes decline
    • 30 percent of both those in the bottom quintile (20 percent of tax units) and those in the top 1 percent would see their taxes go down.
    • 71 percent of those in the top 1 percent would face a tax increase, compared with just 1 percent of those in the next-to-top quintile (60th through 80th percentiles)

By CBO’s estimate, those policy changes would, on net, add about $2.9 trillion to projected deficits over the 2013–2022 period and necessitate $0.6 trillion in additional interest payments (because of increased federal borrowing). Most of the net budgetary impact would come from changes in tax policies, but changes in spending policies would also play a role.

  • In 2013, the deficit would decline to $977 billion (or 6.1 percent of GDP)
  • The deficit would decline further relative to GDP in subsequent years, reaching 2.5 percent by 2017, but then would increase again, reaching 3.0 percent of GDP in 2022.

The CBO develops a yearly budget baseline, “CBO’s baseline projections largely reflect the assumption that current tax and spending laws will remain unchanged, so as to provide a benchmark against which potential legislation can be measured”. In comparison, Obama’s plan is projected to add $82 billion more in debt over the baseline projections

 

The American Jobs Act

  • Initially proposed in September 2011 as a $447 billion package of household and business tax cuts, public investments, safety-net spending, and aid to state and local governments
  • After the release of the president’s 2013 budget, Congress enacted scaled-back versions of two major AJA proposals for the remainder of 2012: a 2 percentage-point employee-side payroll tax holiday (AJA proposed 3.1 percentage points) and a reduced extension of the emergency unemployment compensation (EUC) program.
  • The president continues to support passage of the AJA provisions that Congress has not acted

Beyond the Policies:

Due to the current polarizing nature of politics and a divided congress, the policies proposed by both candidates face a difficult future.

Despite the political gridlock, two policies are coming to a vote following the election regardless of the politics of the presidential winner.

Fiscal Cliff 

The overarching issue is the fiscal cliff, as series of spending cuts and tax increases (including the expiration Bush Tax Cuts) as outlined by the Budget Control act of 2011 if there is no consensus on reducing the deficit. Without a consensus, based on estimations J.P. Morgan economist Michael Feroli, there would be an automatic tax increase of $405 billion and automatic spending cuts totaling $98 billion.

 

Bush Era Tax Cuts

The Bush Era Tax Cuts have been extended to the end of 2012 at which point they either expire, be extended, or permanently adopted.

Tax Rate Changes if Congress doesn’t act

  • Long-term capital gains rate raises
  • Dividend tax rates rise to 15%-39.6%
  • Child tax credit falls to $500
  • Estate tax exemption falls to $1M
  • Payroll tax rises

The biggest tax cuts in the 2003 law applied to dividends and long-term capital gains. Dividends used to be taxed at the same rate as normal earned income. The 2003 law taxed dividends at a flat 15 percent across all tax brackets. As for income earned from selling investments stocks, bonds, investment real estate — the rate fell from 20 percent to 15 percent for those in higher tax brackets, and from 10 percent to 5 percent (and to zero by 2009) for those in the 15 percent tax bracket and below.

Romney supports the permanent adoption of the Bush Era Tax cuts.

Obama’s stance, based upon his 2013 budget and his opinion in 2010 when the cuts were initially going to expire, is to continue the cuts except for high income taxpayers.

Conclusion:

Based on our assessment of both candidates proposed economic policies, we believe a drastic jumpstart to the economy due to policy is unlikely. Obama is focused on more of the same policy implemented during his first term, which added over a trillion dollars to the deficit without major job or GDP growth. Romney hopes to facilitate economic recovery through supply side economics, a strategy that currently and historically has been met with significant controversy. Regardless of the impact of tax cuts, Romney’s policy is unlikely to get Congressional approval.

Neither candidate provides an effective roadmap for reducing the deficit. Obama’s current 2013 budget proposal is expected to increase the deficit. Romney’s current tax policy significantly reduces federal revenue, and without a definitive (or fully explained) means of recovering that lost revenue reducing the deficit is doubtful.

The bigger piece of the puzzle, however, is how each candidate will impact the current congressional gridlock. Obama has failed to bridge the ideological divide, and in some cases further polarized congress. Romney’s policies represent a further continuation of the conservative Republican ideology. Romney plan of cutting taxes and spending is likely to further polarize congress. In addition, Romney’s signing of the tax pledge is also a symbolic gesture of a future unwillingness to compromise.

We do believe that the business community and the stock market will respond more positively to a Romney victory. Corporate optimism is likely to follow a vocal pro-business candidate. Romney’s policies also favor the private sector, with a significant focus on incentivizing private sector growth. We are unsure, however, how long this optimism will sustain itself due to the difficulty Romney’s will face passing partisan policy though a divided congress. Obama is unlikely to elicit the same optimism if he wins a second term. In addition, the perception of Obama as anti-business has fueled Wall Street’s unease, a trend likely to continue with a second term.

The 2012 election will provide greater certainty in who will be our next President, but we do not believe the election will lead to any fundamental changes will shift the risk adverse attitude of most Americans. While the election may provide temporary certainty on the immediate future of the Bush Era tax cuts or Fiscal Cliff, we contend that uncertainty regarding the long-term future of the American economy and government will remain.

 

 


[1]  2015 is chosen to allow for the time required to turn policy into law and the point at which temporary tax policy Romney does not wish to continue will expire.

LaunchCapital sees a lot of deal flow. In 2011, our team saw over 2,500 deals, 285 of which made it to some sort of diligence phase. With 2 (now 3) Analysts/Associates spending the 65 – 75% of our time on diligence, deals tend to bottleneck and efficiency is essential. While “social proof” is an efficient way for VC’s to screen companies, it’s only one piece to the puzzle and the herd mentality is often misleading/dangerous. The influx of money into the seed and early stage markets is also creating an adverse selection problem. As more companies get funded, metrics that were once attractive aren’t so attractive anymore. Raising a Series A has become more difficult and performing deep diligence in order to make smarter investment decisions is crucial. We also realize that the time entrepreneurs spend fundraising takes away from building awesome products, so turnaround time on a decision (includes a “no”) is very important to us. So overall:

 Lots of deals + lots of diligence + a quick turnaround/decision = Research Efficiency.

 To better understand how we research, it’s probably helpful to know what we research. For the most part, a deep diligence dive consists of 6 major parts with some general questions we want to answer: 

  • Market Research/Sizing – Is the market big enough? Do we understand it?
  • Competitive Diligence – What does the competitive landscape look like?
  • Financial Analysis – Do the company’s assumptions make sense? Cost of Customer Acquisition too high? Breakeven? Runway?
  • Customer Calls – Do potential customers need this product? What problem is this company addressing?
  • Previous/Interested Investor Calls – Social proof? Lead investor? Will the round come together?
  • Entrepreneur/Team Background Check – Is this an A+ team? Previous experience? Excellent advisors?

After going through this same process many times, I’ve developed a few research techniques that I think will be helpful to most. The two diligence segments I’ll focus on are Market Research and Competitive Diligence because the last four are pretty straightforward (financial modeling, phone calls, and in-person meetings). So here goes nothing:

Market Research

  • When starting market research there are a few good phrases to Google to give you a jumping off point.  For example, if you are performing diligence on the mobile space, good phrases are “mobile industry report”, “mobile statistics”, “mobile market size”, “mobile industry data”, “mobile industry trends”, etc.
  • Most industries have trade associations or industry groups that provide statistics and research on their industry. Usually they’ll provide a “fast facts” page with good information or sources to do more digging on. 
  • Research companies produce a wide variety of industry reports, but they are costly.  If you come across a report that looks like it would include the data you are looking for, try to find blogs or articles that mention it by name.  Authors of these blogs usually have access to the data and may pull certain statistics or charts from the report.  Also, press releases of these reports may give summaries, overall data, or other information that may be useful. If you perform a PDF advanced search on Google, I’ve found that you sometimes get lucky (~10% of the time) and someone has uploaded en entire report.
  • Searching Google images is also a great way to pull relevant charts/graphs. If you find a chart that’s appropriate, check out the article it came from because it’s usually relevant to what you’re looking for.
  • Another problem is finding the most up to date data.  In some industries (especially the technology industry), data may significantly change year over year.  Try searching Google News for the most up to date articles or include “2011” or “2012” following your search query. Keep macro events in mind when using older data. A 2009 retail report produced during the recession might have very different outlook and projections than a more current report.
  • Digging into Quora questions and responses is another great place to find market info.

Competitive Analysis

  • The first step in putting together a competitive landscape is searching a couple market keywords and adding “companies” or “products” to the end of the search.
  •  Usually the biggest players will bubble to the top. If the company is public, the first place I look for information in the 10-k annual report. Companies give good information on their market, recent trends, business risks (great for identifying potential challenges), and a list of competitors to build on.
  • It might be obvious, but once I’ve developed a list of potential competitors I check out the company website! The about us, product, and pricing sections usually have good information. Also, I tend to find more in depth pricing and revenue model information buried in the FAQ’s. Lastly, check out the press section to lead you to articles about the company. Most articles highlighting a company talks about what they do, how much it costs, how many customers/users they have, revenue growth, and other nuggets of information that could be useful in an analysis.
  • One of the unintended consequences of Angel List is that it’s made researching early stage competitors much easier to research! Pretty easy to use keywords and market filters to give an overview of competitive companies that are currently fundraising.

Additional points from our Boston Associate, Tom Egan:

  • A key part of competitive diligence is reading into how the company positions their product.  You can gain a ton of insight into how they view the ‘problem’, their customers and how they think their product solves the ‘problem’.  Founder/CEO blog posts are also great sources of info for this section.  I usually like to temper those will reviews by people outside of the company – if it’s an app, look at reviews on iTunes to find out how the customer is using it (e.g for Runkeeper – “I love using this one my bike!”) and whether or not it solves the problem (“I hated having to map my runs out after running.  I always forgot.  I already carry my phone for music, so this is perfect.”).  If it’s a SaaS product, look for industry articles, press coverage, or reviews in other marketplaces (Google, Salesforce, etc).  Try to think about the decision making process that a customer would go through when they decide to buy this product or a competitive product.  Figure out what are the fluff features vs. the features that matter.  Figure out if there is a non-traditional use case.   
  • For private companies it may be very tough to find market performance data, especially something that is consistent across all of the companies.  One good tactic is to understand the metrics that drive the particular business model and key in one those.  If it’s a consumer facing company, look at web traffic from compete, Qunatcast or Doubleclick ad planner.  If it’s a SaaS company, look for PR/Blog Posts about number of users or some other metric that is put out to indicate that the company is doing well designed to be found by potential customers.

As Fred Wilson mentioned on his blog, in today’s world the information is out there, you just need to know where to look.

List of Other Useful Websites/Resources

  • Docstoc
  • Slideshare
  • U.S. Census Data
  • U.S. Labor Bureau
  • Google News
  • U.S. Department of Commerce
  • Business Week
  • Angel List
  • TechCrunch
  • Crunchbase
  • Pandodaily
  • Quora

Next Page »