Thank you everyone for attending today's session. Um We are going to get started now that we see a few folks trickling in. So today's topic um is about fundraising in today's market.If you are actively fundraising as a seed stage founder, then you may have experienced some difficulty, not only in having conversations, but perhaps the the process and those conversations taking longer and longer. And so, um for today, we're gonna discuss sort of the, the metrics and KPIS and expectations behind that and ways to navigate it um as well as answer individual questions around your specific company. OK. So the the agenda is really just going over the state of the market where it is today. You know, there are lots of deals getting done um at very good valuation, but that's largely a function of companies that are doing, not only are they meeting at KPIS, but they, they are also in markets and industries that are, that are attractive to investors today. And there's always hot markets as, as we call them and those that are largely out of favor and will discuss the differences in that in terms of um check size valuations.

We're gonna talk about benchmarks and KPIS that we, that V CS are, are expecting um to raise a priced speed stage round and then some strategies to, to implement. And then at the end, um we have lots of time for Q and A though. I'm happy to answer any questions throughout using the um the, the Q and A function armed on Zoom. Ok, great. So a little bit about me, I'm, I'm a partner at XRC and we'll go into um exactly what XRC is and what we do in on the next slide. But I'm, I'm a two time entrepreneur. I've raised a seed stage, um a seed stage uh venture capital round, including actually for my partners at XRC, which is how II I met them. Um And then prior to my entrepreneurship career, I've invested in the sort of like end to end um in investing process. So everything from precede to series A, which is what I do now to growth equity, secondaries public markets, which is where I spent the 1st 10 years of my career. I also sit on several startup and non for profit boards currently that count is at four. But um throughout my 15, 16 year professional experience, I've sat as both observer and active board member in a total of 13. Um My areas of expertise are retail, consumer and health care, which plays nicely into what we focus on at XRC.

So XRC is one of the most active early stage venture funds in the industries in which we invest and that is retail technology and consumer. It was started in 2015, largely as um a preceed accelerator. And then in 2020 2021 we opened up other funds including a seed stage to series a venture fund focus solely on enterprise sass in retail, consumer and health care. And then as of last, when we really started getting the process together 2021 2022 we opened up a consumer focused fund where we just um where we just invest in consumer products to date, we've invested in over 100 and 20 125 companies. These on the page are just some examples of companies that we've invested in. As you can see, it's a combination of both enterprise software and direct to consumer products. Billy was our most um recent exit, um which is a razor company that's, that's sold to edge well, personal care. Great. Um So what we are focused on today is the early stage funding process in today's market. Um So if you look at what the different sort of stages are for that, the first is friends and family, then there's a, then there's angels. Um Typically those are done in a faith and convertible note format.

Um What I hear from my angel network is that the, that the benchmarks for when they get involved are also getting um the bar is being raised higher and higher. They are more in line. Um And looking for founders and companies with sort of meeting seed stage metrics, meaning it's not, it's long past ideation, you've found some form of go to market fit, there's post revenue, there's accelerators often angel um and accelerator rounds are one and the same people, especially in this, in this tough environment.

Um Our founders, I should say have been using accelerators, not only as a bridge but a way to um increase it, increase the resources and network that they have to raise that institutional seed round. But what we're really focused on today um is this last part um of this presentation which is an institutional seed round. Um So these are at least in the US. Um I I, I'm not sure where the entrepreneurs are on, on the webinar are, are from at least in the US. That's a 2 to $5 million round. Um where a lead investor is pricing that round. Um Typically with at least a million dollar check, they usually take anywhere from 25 to 50% of the round and at least what we're seeing. Um not only in with our portfolio companies that are sort of shifting from that preceed angel accelerator stage to looking at and running a price seed stage process is that this has been taking 4 to 6 months. And that's, that's, that's even for those that are like, for example, we've got a health care company that's at 2 million in a RR and his process has been taken has been taking quite some time.

I think that we, we'll talk into, we'll talk a little bit more about um why that is great. Um We can really, we'll move through this slide fairly quickly. But one of the reasons why, for example, angel investors, our and, and seed stage V CS are moving are raising those benchmarks up is because the startups are taking longer and longer to exit including enterprise software startups. Um So the the average exit for an enterprise software startup previously say five years ago was or even, yeah, 5 to 7 years ago was anywhere from five to to seven years that's prolonged as more companies are staying private longer, as more companies are um sort of steering away from, from, from IP OS on the direct to consumer product focused companies.

The average um the average life span is is eight years. And so one of the reasons why, for example, for, you know, for uh a seed stage product company, the milestone is closer to a 500,000 to a million um in revenue before they can raise the uh formal price drown is largely because of that, that time horizon that um the time horizon it takes from the initial check that these angels or you know, seed stage V CS like myself, invest to when to when they exit.

And you'll see here, obviously that the probability of exit and the time to exit increases as you raise each, each round. And yeah, Angels and V CS are skewing later and later from a revenue perspective. Ok, great. So let's talk about the topic at hand, which is what is happening um in the market today. The the first takeaway is really that, you know, deals are getting done, they're getting priced but at a much lower volume. So rather than for example, 100 companies raising successfully raising price seed rounds, there are instead 40. Um And so what that, what that has done is kept valuation levels steady, but the number of companies that are getting checks are highly concentrated. So what you'll see is some of the large, the the round sizes have gotten larger and V CS congregating towards companies um that not only have founders that have domain expertise. So if you have a health care company, for example, um you've got maybe doctors or people with um health care backgrounds that are the, that are the founders in addition to them, not only meeting but surpass surpassing seed seed stage KPIS, which will go to in, in, in detail, in, in, in a couple of slides.

So this is a the chart here was compiled by, by car. Um And you can see that the median seed stage check is has typically has, has remained fairly constant um sort of in that, you know, 2 to 5 million range um that, that I had talked about in, in, in a prior slide and at a 13 million premo now in 20 in late 2020 2021 there was at least from my perspective as a, as an institutional investor.

Um a lot of inflation happening with regards to seed stages valuation. So the the median premo was closer to to 20 at, at, at that point. Um And the, the round size was a little bit higher and the deals were super competitive. Um There were a few, there are a few rounds that I took that I took part in um that from first conversation to close would take, you know, 22 to 4 weeks. And as I stated, uh a little bit earlier, now we're looking at 4 to 4 to 6 months. So V CS are taking their time, they're doing a lot of diligence typically what happens is they issue, you know, you have a maybe like two or three conversations, you get multiple. If you're, you know, if you're a viable and attractive startup, you get 2 to 3 lead checks and then the diligence happens after you receive those term sheets. What's happening since the back half of 2022 is um the funds doing the due diligence upfront. Um Spending months asking founders for lots of data and then issuing term sheets based on the metrics. Whereas before.

Um You know, I think they were just benchmarking against what the the market was willing to, was willing to pay and what was required in order to, to win the, to win the, the, the lead, the lead investor role. Um And so the takeaway here is investors are getting picky the, the time it takes for them to issue a term sheet is much longer, but deals are getting done, particularly in um certain in certain industries and markets that are um very attractive to investors right now, which um great segue into the the next topic which is around, OK, what sectors are our VC actively um putting money towards and really Sass SAS is a perennial favorite.

Um and direct to consumer since really 2015, 2018 has been less attractive to to V CV C and we'll talk about why in a second but effectively um a gene of A I gaming data, sustainability, new forms of energy um are attractive one because they are more, there are more acquires the the tam the total addressable market of those industries are are bigger.

It's not only a perception, it is, it is true in terms of revenue dollars that these, that these um these sectors are are mandating and then better, better margins. So unlike for example, direct to consumer products or if you're a marketplace company, you can create, you know, one line of one line of code is applicable to, to multiple customers versus out of favor um out of favor industries like direct to consumer products where for every single um every single um item that a customer consumes there, there is a cost to that.

And so within consumer products, um margin expectations are higher. Um certainly post revenue, post market launch is mandated. And then within marketplaces, the issues around there is one it's by and large. Um the innovations in marketplaces happened in the early 2000 tens. And what you've got now with current marketplaces um is customer acquisition costs that not only takes time in terms of acquiring me and you as everyday consumers, but also the enterprise companies sort of the supply side um that is required in order to drive these um marketplaces to be successful.

And then lastly, crypto due to uh the most, some recent news and expectations of greater and greater regulatory hurdles um have has has has widely swung out of favor, which is why actually that's reflected in this, in this fintech, I would say outside of um outside of cry crypto vitech still receives some, some higher, some higher valuations and interest over if, if you, if you separate out the, the, the crypto, the crypto subsector and by the way, feel free to ask questions throughout.

Um I am leaving time for, for questions at the end. But if you have any specific questions, I'm happy to answer them in real time. OK, great. OK. So um we gave you a backdrop on the market, gave you a backdrop on what our um attractive markets actually, if you go, if we go back. Um So the difference between attractive sectors and out of favor ones is largely on the multiple side um with regards to revenue. So where you've got attractive sectors that are warranting high single digits um to 20 times multiples on valuation, you've got these on the bottom that are anywhere from two times revenue to maybe um 7 to 8 times 7 to 8 times revenue, two times for apparel companies, for example, um are very unattractive to most venture venture investors um with companies um like like beauty who, which tends to be um fairly um not recession proof but um but does find in, in recessionary, in environments, you'll see those on the higher end of that single digit, multiple scale 7 to 8 times at a, at a seed stage.

Ok, great. Um So a, a few caveats um about this. So every year we run at XRC a seed stage. Um Benchmark Bible, it's available on our website if you go to XRC ventures dot com. This one we published in June of 2022 and we are in the process of updating it now. But I would say that, excuse me, a lot of this largely holds um except the, the, the barrier or hurdle I should say has increased. So what we saw in 2021. If you look at, if you can see the grade out numbers, um you'll see that 2021 numbers were um less demanding and those numbers, those expectations increase in 2022 and that's largely held and even increased a little bit in 2023. Um Now these are very broad in terms of B to C, for example, covers everything from V MS, which is vitamins, minerals, supplements to beauty, to consumer hardware, um and Enterprise SAS covers everything from um work, tech, health care, um et cetera. And so these, I wouldn't take this as part in stone, but these are very good reference reference points just given the um what we're seeing in the market, but also, but also the um the survey results which um some very large funds um participated in. And so as you can see, there are monthly revenue expectations, month, over month, I would say like the, the 20% month, over month growth is um which is the, the second metric down is something that holds not only for direct to consumer product companies but also for, for um what else here is, is similar and then the the key factor or the way in which we um calculate referral or vitality is also similar for, for both sides.

And there's something to note about the report that we published. We also if these um acronyms and terminology isn't something you're as familiar with. We do break down how to calculate each of these metrics on that, on that report. Again, that report is about a year old. Um But it's still largely helpful, especially on the um terms of how, how to calculate these, these numbers. So um let's go over direct to consumer. Um I believe I understand that most people are on this call. Um And attending this conference are on the technology side. So I'll touch on D to C briefly. This includes, by the way, a tech enabled direct consumer. So um anything where you, for example, like you've got a mobile app that is specifically targeting the everyday person versus software, which targets um companies. So for every seed stage VC that I speak with and it's usually a handful or, or more every single, you know, at least every single week. Um You have to be in, in, in market to raise, to raise a, a price seed round unless you're a multi time founder or you're some or you're somewhat well known. Um This is, this will be the mandate that you have to be in market unless there's, there's IP um And then if there is no intellectual property, meaning you invent a new um proprietary serum, for example, um then there are gross expectations that need to occur on a month, over month basis.

Um And that's OK is 20%. Um But if you're starting from, from, in that first year, from, from zero to you know, a million dollars that your first year, then 50% is really more. What would ensure that you could raise a price around? Another thing that I've seen and frankly, what we look for as well is that the majority, the vast majority of your sales for your tech enabled D to C app or your direct consumer product is driven organically versus versus paid. Do the founders know something intuitively about the customers that enable them to, to acquire that, that customer without necessary, without, without paying for it. And so that struck to consumer with, with software because it is such a broad um because it is so broad, um it really, it really depends on, on the technology. Again, if there's a really high technological moat, um All you might need is a proof of concept or a code development pilot with an enterprise company and who the enterprise company is matters. So, for example, if you're, if you've got a, a company that's targeting mostly um early stage or small, smaller um brand Shopify, Shopify companies, then you'll probably need at least 100 to a dozen of those.

Um in order to prove product market fit versus um you're a supply chain company and you're code developing with Maersk um or you're code developing with, with IBM, then you just, then you just need one. So size size does matter because that plays into um your initial revenue.

If you can convert the Maersk or the IBM relationship into, um, a paid enterprise, uh, enterprise contract. And that's millions of dollars versus, you know, working with small SMB companies on Shopify, that, you know, could be as little as well basic, like 55 to 6 figures on, on an annual basis. So it does, it does matter. Um, unpaid is, is also ok. We've got a company that's, um, that's working with the largest CPG companies in the country. Um And they are paying for the cost to do the Cove, but they, they're not paying yet for the, the enterprise software subscription. So there's, there's a lot of numbers on this page.

Um And again, I'm, I'm happy to answer any specific questions around either how, how to calculate or, or how investors are thinking through these, these numbers. Now, we're also refreshing them in, you know, in just a few weeks. So if you go to our, our website, um you can be apprised on when that gets, that gets published. Ok. Um So the state of the market, the markets that are the industries that are attractive versus unattractive um the KPIS and now um the multiples and, and valuations. And so we, we touched on this a little bit, but if you're a direct to consumer business, you're really looking at single digit revenue multiples because you have to be in market. Um There's typically the, the, the way that I'm seeing um um V CS calculate the multiple on on valuation is either on the trailing 12 months or of revenue or current near revenue or forward 12 and forward 12 only if you've got sight line into, into revenues in that in those 4, 12 months.

So for example, um you're a direct consumer product company and you just signed a large wholesale contract with Target and the number of doors is outlined, your average order value. You've got a good sense of average order value. Um You can then V CS can then price it based on what they think, how, how big they think those forward numbers are versus 100% direct to consumer company. Um They may use really 12 months or 2023 forecasted revenue on a on a multiple perspective. Um So in, in, in software, um I have seen and this is, and these are anecdotes from just my more most recent conversations because I was, I I wanted to ensure that the information I was providing was, was fresh. Um If you are post revenue, I'm seeing the multiples in the, in the sort of like that mid single digit range even though in prior years, I've seen it skew much, much larger. Um I have portfolio companies that have had safe notes and convertible notes out for for over a year now where they kept that um valuation cap flat. Um largely because they don't want to raise a down a, a quote down round even though, it's, it's not a, it's not a, a safe and a note or not necessarily priced equity.

Um, but I would say if you're software company and you've got, I don't know, less than a couple 100,000, um A RR and you're raising a $10 million cap. I would say that's very high in today's market versus it was, it was market in early 22 late 2021. Um So valuations have definitely shifted significantly lower um for software companies, whereas for consumer, it's gone down as well, but not to the extent that I mean, this fintech number again is largely um reflective of the of crypto and NFTS becoming out of favor which depending on how you define NFTO and how it's applied falls into the Fintech bucket.

But um consumer internet and, and product companies have largely stayed stable in that low, single digit, multiple, multiple range. And again, in addition to these lower multiples, the KPIS that we discussed in the, in the prior slide, um the bar has, has been rained raised.

I know a lot of my VC friends that have, um that have sat on the sidelines for the past six months, um in order to make sure that there's not only that, uh are they seeing everything in, in areas that they're specifically hunting for? Um But that they, they do the work, um not only diligence thing, the company, the market, but also the founders. So for those of you in process now with a couple of VC funds, maybe, maybe they're already doing their founder, their founder channel checks. Ok. So what do we do? Um, well, there, there, there's no, there's no easy answer to it other than you have to be prepared for this fundraising process. And this timeline to be significantly longer than it was a year ago where, excuse me, price round processes took, I would say on average a month, they're now at least 3 to 6, 4 to 6 months. Um And um and then, you know, in order to run an efficient process, you just want to make sure that you have your supporting documents in place. Um We took some anecdotes from um some, some V CS. Um and these are some of the better takeaways which is planning for different for multiple scenarios. Uh margins and unit economics are even more important even at a seed stage. Whereas before top line was the focus for product companies. We look, we scrutinize those margins.

So our expectation, for example, for a product company is at least 60% margins across the board and then unit economics that are profitable on the first sale. Um And then what we're asking of our portfolio companies now or communicating to them is at least planning for 12 24 months of runway. Because you know, I I from my conversations, most institutional investors don't believe the bottom has been reached yet. Um And that the bottom will reach the back half of this year, early next year. So if you're fundraising in the next 8 to 10 months, um and you successfully do so you wanna make sure you're able to ride the wave um post recession and then just be really transparent. Um I've seen a lot of my portfolio companies write very positive um investor updates, which is, which is great, but embedded in there if you read in between the lines is we could go faster if we had, if we had more capital. I think being upfront about what you're struggling with and challenging with um then your investors are able to be informed and can jump in to support you. Ok, great.

So I'm gonna pause here for, for Q and A I think I went over my, I think I actually went over my time. Um So I'm happy to answer any questions.

Hey, Diana, um in your opinion of what makes a pitch really stand out, especially as a, a female founder. Um

I don't know if I have one that, that is specific to, to female founders, but in general, because numbers and KPIS are so scrutinized and mandated in order to raise a priced round, I would have that if you have a pitch deck, I would have that in the first 2 to 32 to 3 pages.

Um You have your title page being very clear about what you do. Typically the cadence is you outline what the problem and the solution is. But I think in today's environment, every first of all, the the volume of the number of entrepreneurs that are fundraising, fundraising has increased.

And then the number of those getting funded has decreased. So if you can, within the first, you know, two slides communicate why they should invest in you. And that's typically in the form of numbers. So instead of titled Problem Solution, in terms of order of an investor deck, I would go title traction. Um You know, this, this is who we are. The next page is this is what we've done to date. Now, let us tell you why this is such a big problem and why we are the right solution to solve this problem. Um And then on the, on the female founder piece, there are a lot of the E I initiatives and then there are a lot of um female founder funds, female fo focused found funds, excuse me, female founder focused funds um that have launched BBg is one. who else? Um There's a few of them I can, I can provide uh I can provide a list um to any of those that are that are interested.

Got it. Thanks.

I think we have a minute left. Um Any last questions? Great. So I'm going to, we've got one minute left. So while I wait for a potential um question, um you can find me on, on our website and more about our fund um XRC ventures dot com. Again, we're a precede to series a fund. We focus on commerce enablement. Um sort of like the end to end consumer journey. So everything from the product itself to how it gets to the end consumer to how it gets built, how it gets marketed, how it gets sold. Um And so it really does cover AAA swath of um of industries. Um You can also feel free to email me. I'm a Diana at cds dot com. It's, it's very easy. And for those of you, uh you know, I I'm not sure what stage um you are, if you are more in the sort of like precede um pre revenue stage, we do have an accelerator and our applications open at the end of this month. So you can go onto our website and hit apply. Um We look at every single application and that cohort starts the, the end of the summer. Ok, great. Well, I hope that was helpful um that benchmark Bible that I laid out um is also on our website for publishing our 2023 findings, but a lot of what we covered on the webinar today, um a sort of headline um for that the 2023 benchmark Bible is really that a lot of the struggles that or the sort of challenges that we saw in late 2022 is gonna carry on into 2023.

So to the extent that you can lower your burn, to the extent that you can raise for and manage for longer runways is really the takeaway and to lead with your Kpis with your Kpis first.