Seed Capital reVIEW

Seed Capital reVIEW is a response to inquiries we frequently get from clients. As advisors to companies and investors involved in early stage financings, we are regularly asked to assess whether proposed deal terms are standard or typical or, more colloquially, “market.” Our clients want to know whether early stage investments are typically structured as debt or equity; if equity, whether the investors typically receive preferred or common stock; if preferred stock, they want to know typical terms like liquidation preference (one times or two times the invested amount; participating or non-participating), governance rights, and other similar things. We have our own experience and anecdotal evidence that we think is useful to our clients, but we’ve always thought it would be helpful to have objective data to support our experience, shape our advice to clients, and guide negotiations. We are hopeful that this survey will provide that objective data.

The results that follow are reflective of seed financings completed during the second half of 2013. In early 2014, we sent out a survey to investors and companies that we believed may have been involved in financings during that time. We identified some of the companies raising capital through Form D’s filed with the SEC and from various news reports. The investors were identified through our own research efforts, our contact lists, and those of others active in the entrepreneurial community (e.g., Minnesota Department of Economic Development and the now phased out Minnesota Angel Network).

When we circulated the survey, we were unsure as to how robust the response would be. We know how hard it is to get a high participation rate in surveys (we ourselves are not always so eager to participate in surveys), especially from a group as time constrained as entrepreneurs and seed investors. Given that, we were more than a little surprised, and quite happy, to receive responses from parties involved in 126 separate early stage capital financings. This level of participation suggests that there is great demand for the information contained in this report. It also provides us with great insight into the types of early-stage financings being consummated and the terms on which they are closing.

Thank you for your participation. We hope this information becomes a useful tool for Minnesota’s entrepreneurs and seed investors. We welcome any comments or feedback you may have.

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