Three lessons learned, presented by Jeff Lynn of Seedrs at The Entrepreneur Network Check out http://theentrepreneurnetwork.org

1. A Year in the Life of a Startup
Jeff Lynn
26 October 2010
Three Lessons Learned

2. • First-ever equity crowdfunding platform
– On-line platform that allows people to invest small amounts of
money in the equity of seed-stage startups
– Think:
• Zopa, Kiva or Funding Circle, but with equity rather than debt
• Kickstarter or IndieGoGo, but with returns rather than donations
• Co-founded with Carlos Silva last year
– Started as part of a business school project
– We quickly decided to do it full-time following graduation
• Platform is developed and in private alpha testing
– Currently seeking regulatory approvals and Series A finance
– Target launch 1H 2011
• We look forward to helping many of you raise capital!
About Seedrs

3. Lesson #1
When You’re Being Disruptive,
Don’t Deal with Dinosaurs

4. Disruption and Dinosaurs:
There Are Three Types of Startup
• Doing the same thing in an already-established field
• Examples: McDonald’s franchise; high-street solicitors
firm; basic manufacturing firm using existing
tech/processes
• Can be good businesses but usually not classic startups
Non-
Innovative
• Taking a technology or business model to the next level
• Examples: HSBC, GlaxoSmithKline, Vodafone
• Tends to be where established companies have the
biggest advantage, but many startups fall into this
category as well
Incrementally
Innovative
• Fundamentally changing the way people do things
• Examples: Ford Motor (1900); IBM (1950); Amazon
(1995); Zopa (2005)
• This is where startups tend to have the most potential
Disruptively
Innovative

5. Disruption and Dinosaurs:
What We Thought
• Seedrs falls into the “disruptive innovation” category
– We will drastically change how businesses get their first funding
– We’re a big leap from what’s already out there
• When we started, we were looking for early funding and
advice, and we decided to reach out to “traditional” angels
and advisors
– Largely older, non-London-based individuals
– Most had made their money or gained experience in non-innovative
(or occasionally incrementally innovative) businesses
• We targeted this group because we thought that, as compared
with the more sophisticated, tech-savvy London crowd, they
would be:
– Easier to get meetings with early on
– More excited by something so new and different
– More “serious” and able to devote real time and energy to working
with us

6. Disruption and Dinosaurs:
How Wrong We Were
• This turned out to be a BAD IDEA: these individuals simply
couldn’t process disruptive innovation
• It wasn’t even that they thought Seedrs wouldn’t work,
but rather that they couldn’t understand it
– Overwhelmed trying to figure out exactly how each process
would work as compared to what they’re used to
– Couldn’t separate behaviour they would engage in personally
from behaviour a different type of customer would engage in
– Kept trying to find ways to make us less innovative
• This was fairly discouraging for us
– Any entrepreneur expects some people to think the business
won’t work, but we weren’t prepared for intelligent, successful
individuals not to be able to comprehend it
– Caused me to question briefly whether we’d somehow lost
touch with reality

7. Disruption and Dinosaurs:
What We’ve Done Since
• Since then, we’ve focused on people who “get”
disruptive innovation
– Largely London (and Silicon Valley) based
– Younger
– More tapped into Web 2.0, social media and other
developments of the last decade
• Some have loved the idea and some haven’t, but all
have been constructive
– Understood what we’re trying to do
– Engaged with us at some level about the substance
• Much better experience
– Helped us both get funding and refine our model
– If we’d gone to them originally, we’d have saved time and
avoided discouragement

8. Lesson #2
Truths and Myths in Seed Funding

9. Seed Finance:
Important but Often Misunderstood
• We’ve spent lots of time talking with
entrepreneurs about their views of seed-stage
funding
– First £100K or less needed to build a minimum viable
product or take another “first step”
– This is the capital that gets a startup to later-stage
finance or launch – some don’t need it, but many do
• Many misconceptions out there
– Lots is written about later-stage finance
– The first £100K is often ignored – assumption is that it
should just “appear”

10. Seed Finance:
Finance Basics, Part 1
• Two types of corporate finance: debt and equity
– Debt: contractual obligation
• Borrower repays specified amounts at specified times
• Repayment NOT contingent on business’s success
– Equity: ownership interest
• Investor has broad right to participate in business’s growth
• Repayment ONLY if the business succeeds
• Everything else is:
– Somewhere on a spectrum between debt and equity
– Irrelevant to seed-stage businesses
• A word on grants and donations
– They do exist
– Unless your business is a social enterprise, they are nearly
impossible to come by

11. • Banks
– Loans
– Overdrafts
• Credit Cards
• Friends and Family
Seed Finance:
Finance Basics, Part 2
Debt – Types of Lenders
• Institutions
– Venture capital (VCs)
– Seed incubators
• Angels
• Friends and Family
Equity – Types of Investors

12. Seed Finance:
Some Myths
• Myth #1: Banks lend to startups
– Banks almost never make non-recourse loans to startups, even
in the best of times
– Entrepreneurs who get loans do so by pledging personal assets
• Myth #2: Many VCs invest in seed-stage companies
– Most VCs are structured in a way that makes it nearly
impossible to invest small amounts
– The key exception is seed incubators like Y Combinator and
Seedcamp – these are great, but there are only a few
• Myth #3: Most angels invest in seed-stage companies
– Only 3% of UK angel deals are seed
– Many angels want to see progress before investing (dreaded
concept of “investment-readiness”)
– Finding the 3% that do invest seed capital is a random process

13. Seed Finance:
Some (Qualified) Truths
• Truth #1: Equity is better than debt (usually)
– If your business succeeds, equity will prove more expensive
– BUT…if your business fails, debt can force you into bankruptcy
whereas equity can’t
– Most startups have a meaningful risk of failure, and where possible
it’s better to share that risk
• Truth #2: Friends and family are key (if they’re rich enough)
– The vast majority of external seed finance comes from friends/family
– BUT…you generally need friends and family who can risk a minimum
of ~£10K each
• Truth #3: Mentorship matters (but it doesn’t need to be
associated with finance)
– If you can get investors who also provide mentorship, great!
– BUT…the two don’t really need to be associated, and so-called
“dumb money” is still useful if you combine it with mentorship from
non-investors

14. Lesson #3
Don’t Pay Too Much Attention to
Platitudes from People Like Me

15. • Hearing other people’s experiences in business can always help
you shape your own
– It’s the core of how business school is taught
– Startups lack infrastructure, and this kind of collaboration among peers can
be extremely useful
• BUT...every business is different
– The idea of saying there’s one right or wrong way to run a “startup” is kind
of ridiculous—every startup has different strengths, weaknesses and needs
– It can get very frustrating and distracting to put too much weight (and
action) behind one view, only to be told the next week by someone else to
do things completely differently
– This is true not only for talks by amateurs (like me) but also highly-
experienced entrepreneurs and VCs
• You know your business better than anyone else at the beginning
– So incorporate the advice where it’s useful
– But take the definitive-sounding pronouncements with a grain or two of salt
Ignore the Platitudes
Or At Least Take Them with a Grain of Salt

16. Questions?
Contact Details
E-mail: jeff.lynn@seedrs.com
Twitter: @jeffseedrs
Website: www.seedrs.com
Blog: www.seedsofthought.net