A Call to Action on Important Seed Capital Matters!

Frequent readers of this blog know that I prefer to write on topics of interest to entrepreneurs that seem somewhat removed from the practice of law (e.g. musical theatre, my travels, Shark Tank and even the occasional comic strip). Yes, it’s true, I also sometimes post on “mundane” legal topics like Regulation Crowdfunding.

This time, I’m asking for your action on a couple of important matters. The good news is that it won’t involve attending any political rallies or making you dig in your pockets for extra cash (something entrepreneurs often don’t have anyway). 

Here are two places where your help is needed:

Hot Off the Yule Log: Latest Seed Capital reVIEW Report Just Published

There are plenty of traditions this time of year—lighting candles and eating potato latkes, hanging lights and wrapping gifts, readying confetti and champagne to welcome in the new year, and of course the arrival of the new edition of our Seed Capital reVIEW report, this time analyzing seed and angel capital raised by early-stage companies in Minnesota during the first half of 2015.

Since it has been on the “bestseller” list of reports regarding seed and angel capital raised in Minnesota for two years now (of course, it’s a short list, since there aren’t any other reports like it), I’m sure you know that Seed Capital reVIEW is our compilation of data regarding what types of companies are raising early-stage capital in Minnesota (typically between $100,000 and $2,000,000) and the terms relating to that fundraising activity during the period surveyed.

Seed Capital reVIEW—It’s Survey Time (again)!

Having our Seed Capital reVIEW report for the second half of 2014 (which analyzes seed and angel capital raised by early-stage companies in Minnesota) in the rear view mirror can only mean one thing—it’s time for us to start collecting data on deals completed during the first half of this year.

As you may recall, Seed Capital reVIEW is our compilation of data regarding what types of companies are raising early-stage capital in Minnesota (typically between $100,000 and $2,000,000) and the terms relating to that fundraising activity. I know, it isn’t quite as fun as taking a survey to find out which character from the movie Inside Out you are (easily the best movie of the summer, if you ask me). For the record: according to the survey, I’m Joy and I’m living with Anger and Disgust.

We did add a few new questions to the survey to try to gauge emerging trends like crowdfunding
(including equity crowdfunding, which is almost legal in Minnesota). Of course, the key to making the data meaningful is to have broad-based participation to ensure the data provides an accurate reflection of seed capital activity. 

With that in mind, please CLICK HERE NOW to help us out. Please also send this link to others who you know were involved in seed and angel capital raising in the first half of the year. 

As added incentive to respond to our survey, the Gray Plant Mooty Foundation has pledged to make a $10 donation to MEDA, the Minnesota Economic Development Association, for each survey completed. MEDA is an organization that provides business development services, business financing, and access to market opportunities to support entrepreneurs of color.

Thanks for helping us collect some data of interest to entrepreneurs and investors.

Hot Off The Press—Seed Capital reVIEW for 2nd half of 2014

We just released our Seed Capital reVIEW report analyzing seed and angel capital raised by early-stage companies in Minnesota during the second half of 2014.

I know, the first half of 2015 is already over—what took us so long? You may or may not be surprised to learn that, for a bunch of lawyers trying to get information about financings from a bunch of busy CEOs and CFOs, it takes some time.

As you may recall, Seed Capital reVIEW is our attempt to compile data regarding what types of companies are raising early-stage capital in Minnesota (typically between $100,000 and $2,000,000) and the terms relating to that fundraising activity.

While it is riveting reading (think “50 Shades of Grey,” but actually well written) and you’ll undoubtedly want to read the whole thing here, a few highlights from the survey include:

• Not surprisingly, as in past survey responses, most of the companies raising capital identified themselves as being in the Medical/Healthcare (with 30% of respondents indicating they are involved in the sub-category of healthcare IT), Cleantech/Biotech, or Technology spaces.

• Only 24% of respondents utilized MN Angel Tax Credit, likely a reflection of the limited available credits during the second half of last year.

• Two-thirds of respondents reported offerings structured using equity (60% common equity and 40% preferred equity), with debt securities comprising the remaining third.

• Consistent with prior surveys, the most frequent rights received by equity investors were:

• Participation rights in future investment rounds.
• In preferred equity deals, 80 percent reported a 1x liquidation preference.
• A board seat or board observation right.

• Debt offerings:

• Almost all respondents again reported debt with an initial term of at least one year.
• A majority of respondents reported receiving rights to participate in future financings.
• Almost 82% of debt-structured offerings were convertible to company equity.

Please look for our call for survey responses for capital raised during the first half of 2015 soon.  If we can get our act together (no promises) and get quicker responses, we may even be able to publish the next report before Santa hitches up his sleigh this winter!

MN Cup: Second Annual Women in Entrepreneurship Conference

Last week, I attended the second annual Women in Entrepreneurship Conference hosted by the MN Cup. I found the panel on financing to be the most inspiring. There were two panelists who shared their path to fundraising with the group. Maia Haag, the co-founder and president of I See Me!, self-funded her company through bank loans and a small inheritance that she had received. Katie Jasper, the co-founder and CEO of Prescribe Nutrition, used crowdfunding (indieagogo.com) to raise $40,000. The other panelist, Chris Mahai, a partner at Aveus, shared insights into her experience within the angel investment community.

As the three panelists discussed their experience in the capital raising world, a few themes became clear:

• Be purposeful in your decision to raise funds. Make sure your company is ready for outside investors. Be certain that you have a proven concept before you take too much money from investors.
• Be tenacious. Whether you are pursuing bank financing, crowdfunding, or seed/angel investments, dive into it. Once you decide that financing is necessary, be ready to work to get others to invest. 
• Be honest with yourself and with others. Be realistic and don’t overpromise to investors, especially if they are family members. 
• Seek good advice. Find mentors that will be brutally honest with you.

Ann Winblad, the keynote speaker and the co-founder and managing director of Hummer Winblad Venture Partners, reiterated the importance of finding mentors that will support and challenge you. She noted that if you find a mentor that is going to be brutally honest with you, it’s better for them to be brutally honest in the beginning of your capital raising process. 
As you consider fundraising options, know what terms are standard for raising funds in Minnesota. Avid readers of the entreVIEW blog may know that Gray Plant Mooty’s Entrepreneurial Services Group has published two reports that analyze seed and angel capital that has been raised by Minnesota start-up and early-stage companies. Information like this can be extremely helpful to determine what terms investors expect to receive in a financing deal. Click here to review the report that covers financings in the first half of 2014.

Of course, you’re always welcome to contact your friendly, neighborhood member of the Gray Plant Mooty Entrepreneurial Services Group. We’re always glad to share our knowledge and help out however we can.  

In the meantime, happy capital raising!

Seed Capital reVIEW—it’s Survey Time!

It’s Survey time again and we need your help!

Our Seed Capital reVIEW survey for the second half of 2014 is now open! 

Click here for the survey.

In case you haven’t already seen the announcement, Gray Plant Mooty’s Entrepreneurial Services Practice Group has launched its third semi-annual survey regarding seed and angel capital being raised by Minnesota’s start-up and early-stage companies (typically financings between $100,000 and $2 million). Investors and entrepreneurs are being asked to complete this survey regarding deal terms of seed/angel investments during the second half of 2014. Past surveys have revealed relevant and useful information regarding trends in the angel capital community. 

The most recent release of the Seed Capital reVIEW report analyzed seed and angel capital raised by 84 early-stage companies in Minnesota during the first six months of 2014. Please complete the survey by February 28, 2015 to help make sure the data is meaningful. The survey will only take a few minutes per deal to complete! Click here to respond to the survey. 

The next edition of Seed Capital reVIEW report is due sometime late in the second quarter of this year.

Seed Capital reVIEW—1st Half of 2014

We just released our Seed Capital reVIEW report analyzing seed and angel capital being raised by early-stage companies in Minnesota during the first six months of 2014. For this report, we analyzed survey responses relating to 84 separate deals completed during the first half of this year. The majority of deal investors were individual angels or angel groups. The sample encompassed a broad range of industries, with a particular concentration in the medical/healthcare, technology, and cleantech/biotechnology industries. 

A few highlights from the survey include:

• A significant majority of the deals utilized the Minnesota 
   Angel Tax Credit.

• Approximately 72 percent of respondents reported offerings structured using equity
   (68 percent common equity and 4 percent preferred equity), with debt securities 
    comprising the remainder.

• The most frequent rights received by equity investors were:

         o Participation rights in future investment rounds.

         o In preferred equity deals, 80 percent reported a 1x liquidation preference.

         o One board seat or board observation right.

• For debt-structured offerings:

        o Almost all respondents reported debt with an initial term of at least one year.

        o A majority of respondents reported receiving rights to participate in 
           future financings.

        o Almost 70 percent of debt-structured offerings were convertible 
           to company equity.

To review the complete survey, click here. 

We hope you enjoy the second publication of the Seed Capital reVIEW and look forward to your support as we collect data for the second half of 2014 (not long after the ball drops on 2015).

Happy capital raising!

SEED CAPITAL ReVIEW: Fall 2013 Survey of Angel Financings

If you’ve been following the activities of the Entrepreneurial Services Group at Gray Plant Mooty, you may know that we just completed the first ever installment of our SEED CAPITAL ReVIEW report. We created this report, and the survey underlying the findings detailed in it, to try and help companies and investors who are raising seed capital to have a better handle on what’s “market” in early stage private financings in Minnesota.

Earlier this year, we surveyed investors and companies about private financing activity completed in the second half of 2013. We didn’t know exactly what kind of response to expect, given that we were launching this completely new initiative. We were pleasantly surprised to have received responses relating to 126 separate early-stage capital financings from the second half of last year in Minnesota—probably a pretty representative sample. Either everyone really wanted to be entered in the drawing for the $250 Amazon gift card we were offering for participation or, more likely, investors and companies raising capital agreed with us that there could be real value in this type of information.

If you’re interested in the full report (and who wouldn’t be—it’s at least as fascinating as the most recent posts by all of your “friends” on Facebook), you can find it here. If you’re too busy trying to raise capital to even click on that link, here are a few of the interesting findings:

• In an era when generating revenue seems to be more frequently required by investors in deals, 46% of the deals reported in the survey were pre-revenue.

• Not surprisingly, having revenues correlated strongly with higher valuations—17% of pre-revenue companies reported pre-money valuations of over $5 million, while 42% of companies generating revenues had valuations in this range.

• 68% of the reported financings involved sales of equity, with the remaining 32% being debt.

• Over 70% of the equity financings were common equity, maybe not a surprise given that so many of these financings are early stage.

• The Minnesota Angel Tax Credit was utilized in over half of the financings. While the popularity of the program doesn’t make this seem surprising, it is a little surprising because the credit had run out in early May

It was great to see such robust participation in our first survey. We plan to circulate our second survey (for the first half of 2014) in July for a report to follow later this year.

While we hope the initial data is useful to those involved in early-stage financings, we anticipate that comparative analysis of future surveys will help us identify trends as they develop in the market for private capital.

In case you were curious, the survey respondent who won the Amazon gift card was a Cleantech/Biotechnology company and Angel Fund Investor.

SEED CAPITAL ReVIEW: Fall 2013 Survey of Angel Financings

If you’ve been following the activities of the Entrepreneurial Services Group at Gray Plant Mooty, you may know that we just completed the first ever installment of our SEED CAPITAL ReVIEW report. We created this report, and the survey underlying the findings detailed in it, to try and help companies and investors who are raising seed capital to have a better handle on what’s “market” in early stage private financings in Minnesota.

Earlier this year, we surveyed investors and companies about private financing activity completed in the second half of 2013. We didn’t know exactly what kind of response to expect, given that we were launching this completely new initiative. We were pleasantly surprised to have received responses relating to 126 separate early-stage capital financings from the second half of last year in Minnesota—probably a pretty representative sample. Either everyone really wanted to be entered in the drawing for the $250 Amazon gift card we were offering for participation or, more likely, investors and companies raising capital agreed with us that there could be real value in this type of information. 

If you’re interested in the full report (and who wouldn’t be—it’s at least as fascinating as the most recent posts by all of your “friends” on Facebook), you can find it here. If you’re too busy trying to raise capital to even click on that link, here are a few of the interesting findings:

• In an era when generating revenue seems to be more frequently required by investors in deals, 46% of the deals reported in the survey were pre-revenue. 

• Not surprisingly, having revenues correlated strongly with higher valuations—17% of pre-revenue companies reported pre-money valuations of over $5 million, while 42% of companies generating revenues had valuations in this range.

• 68% of the reported financings involved sales of equity, with the remaining 32% being debt. 

• Over 70% of the equity financings were common equity, maybe not a surprise given that so many of these financings are early stage.

• The Minnesota Angel Tax Credit was utilized in over half of the financings. While the popularity of the program doesn’t make this seem surprising, it is a little surprising because the credit had run out in early May last year.

It was great to see such robust participation in our first survey. We plan to circulate our second survey (for the first half of 2014) in July for a report to follow later this year. 

While we hope the initial data is useful to those involved in early-stage financings, we anticipate that comparative analysis of future surveys will help us identify trends as they develop in the market for private capital.

In case you were curious, the survey respondent who won the Amazon gift card was a Angel investor who invested in a cleantech/biotechnology company durign the second half of last year.