The 'Learnings from founding a Computer Vision Startup: Chapter 5' deck is a pedagogical resource rather than a traditional pitch deck. It outlines the 'Startup Financing Cycle' (Slide 3), moving from the 'Valley of Death' through various funding stages. The deck provides granular definitions of investor types, noting that angels typically invest in the $25k-$50k range (Slide 8) while VCs operate on 8-10 year fixed-life funds (Slide 9). Crucially, it includes real-world funding trajectories for Polar Rose, which raised $5.4M in a 2006 Series A (Slide 21), and Kooaba, which secured approximate…
Key takeaways
- The startup financing cycle is mapped against revenue and time, highlighting the 'Valley of Death' before break-even (Slide 3).
- Bootstrapping for a web product is estimated at less than $10k per year for computing and tools (Slide 4).
- Angel investors are defined as individuals providing experience and cash, typically in the $25k-$50k range (Slide 8).
- The VC business model is explicitly broken down as '2/20': 2% management fees and 20% carried interest (Slide 11).
- Pitching advice emphasizes that technology is secondary to the problem, solution, and market size (Slide 12).
- A direct comparison table shows that VCs seek 'big exits' and 'lots of control' compared to the 'fun' and 'no control' approach of angels (Slide 15).
- Polar Rose's funding history shows a jump from $300k in seed/grants to a $5.4M Series A from Nordic Venture Partners (Slide 21).
- Kooaba utilized a mix of PhD-related grants, convertible loans (CHF 700k), and additional grants to reach a CHF 1.5M pre-Series A (Slide 22).
Introduction and Financing Fundamentals
Slides 1-3: The Macro View of Startup Funding
The presentation begins by framing funding as 'Chapter 5' of a broader series on founding computer vision startups. Slide 2 sets the agenda, covering funding alternatives, the distinction between Angels and VCs, pitching tactics, and the question of how much to raise. Slide 3 introduces a standard 'Startup Financing Cycle' graph, sourced from Wikipedia. This chart is crucial for founders to understand the relationship between time and revenue. It identifies the 'Valley of Death'—the period where the company is spending capital before reaching break-even. The slide maps various funding sources to this timeline: Angels and FFF (Friends, Family, and Fools) appear in the seed stage, while VCs and strategic alliances enter during the early and later stages, leading eventually to an IPO or secondary offerings.
Slides 4-5: Bootstrapping and the Sanity Check
Slide 4 focuses on the earliest stages of a company. It suggests that a 'small fresh team' can go far with minimal investment, citing that an early-stage web product might require less than $10,000 per year for computing and tools. The slide advocates for bootstrapping through consulting work on the side—ideally work that helps build the core product—and hiring 'young, cheap, and hungry' talent. The emphasis is on building a Minimum Viable Product (MVP) and not building 'more than an absolute minimum.' Slide 5 serves as a 'Sanity Check,' asking founders if they really need external funding at all. It prompts the founder to define exactly what the money is for, noting that this is the second question investors will ask after 'how much?'
Exploring External Funding Options
Slides 6-7: Grants and Non-Dilutive Capital
Slide 7 highlights 'Grants & Research Funding' as a primary alternative to equity. It lists soft loans, regional/national grants, and EU research funding (specifically mentioning FP7). A significant warning is included: 'Beware of business plan competitions!' quoting Steve Blank's sentiment that 'No one wins in business plan competitions.' This suggests that the time spent competing for small prizes is often better spent on product or customer development.
Slides 8-11: The Mechanics of Angels and VCs
Slide 8 defines the 'Business Angel' as an experienced individual investing their own money, typically in the $25k-$50k range. It also mentions angel networks, which allow for passive investment through groups. Slide 9 shifts to Venture Capital, noting their 8-10 year fixed-life funds and the institutional sources of their capital (pensions, universities, foundations). Slide 11 provides a rare, transparent look at the 'VC business model,' often referred to as 2/20. It explains that partners receive approximately 2% of invested capital as management fees and 20% of profits as 'carried interest.' The slide explicitly states that 'most investments fail' and that the few successes must provide high multiples to compensate.
Tactical Pitching and Negotiation
Slides 12-14: The Art of the Pitch
Slide 12 provides a pitching checklist: an elevator pitch, a slide deck (which doubles as a business plan), and an optional short executive summary. It advises founders to 'forget about NDAs' and emphasizes that technology is secondary to storytelling and showing a market. Slide 13 offers specific tips for different investor types. For VCs, it suggests finding an internal 'champion' and preparing for a short, flexible partner meeting. For angels, it emphasizes chemistry, relationship, and trust. It also warns that if an angel doesn't decide quickly, it is likely a 'no.' Slide 14 points to external resources, specifically David S. Rose's TED talk on pitching to VCs.
Slides 15-17: Comparison and Negotiation
Slide 15 features a comparison table between Angels and VCs, highlighting differences in money volume, motivation (fun vs. professional), speed, and control. It includes the sobering reminder: 'you can’t fire your investors.' Slide 16 discusses negotiation, introducing the concept of BATNA (Best Alternative To a Negotiated Agreement). It argues that to get good terms, a founder needs multiple offers simultaneously. It also claims there is 'no formula for valuation,' as it is decided by 'comfort levels.' Slide 17 addresses the 'how much' question, offering three perspectives but ultimately recommending that founders raise all they need at once to avoid the distraction of constant fundraising and tranche-based deals.
Sector-Specific Insights and Case Studies
Slides 18-19: The Computer Vision Context
Slide 19 addresses what makes the 'Vision' sector unique. It notes that research grants are a 'serious option' and that visual demos are particularly effective for pitching. However, it warns of the 'here’s the solution where’s the problem' trap common in technology-heavy startups. It also observes that while consumer markets show traction, there are few strong exit cases in the space.
Slides 20-23: Real-World Examples and Resources
The deck concludes with two case studies. Slide 21 details Polar Rose’s journey: $300k in early seed/grants (2004-2006) followed by a $5.4M Series A from Nordic Venture Partners in 2006. Slide 22 covers Kooaba, which used PhD-related grants (~CHF 100k), convertible loans (~CHF 700k), and further grants to reach a CHF 1.5M total by 2009. Slide 23 provides a list of resources, including Twitter handles for Mark Suster and Fred Destin, and links to Y Combinator, Seedcamp, and AngelList.
What Works and What is Missing
What Works
Transparency on VC Economics: Explaining the 2/20 model (Slide 11) helps founders understand why VCs require massive exits. · Sector Specificity: Acknowledging the 'solution looking for a problem' risk in computer vision (Slide 19) is a vital warning for technical founders. · Comparative Analysis: The Angel vs. VC table (Slide 15) clearly illustrates the trade-offs in control and speed. · Real Data: Including the actual dollar amounts and timelines for Polar Rose and Kooaba (Slides 21-22) provides a realistic benchmark for European tech startups of that era.
What is Missing
Unit Economics: While the deck discusses fundraising, it does not touch upon the unit economics or CAC/LTV metrics that modern VCs expect to see in a pitch. · Cap Table Management: There is no mention of how to manage the cap table or the specific impact of dilution beyond a general note that 'terms are more important than valuation.' · Exit Strategy Details: Although it mentions that VCs require an exit, it doesn't provide a framework for identifying potential acquirers or exit multiples. · Modern Funding Instruments: The deck focuses on convertible loans and Series A rounds but omits modern instruments like SAFEs (Simple Agreements for Future Equity), though this may be due to the age of the presentation.
What a Founder Should Copy
The 'Sanity Check' Slide: Every founder should ask themselves 'Do you really need to raise?' and 'What is the money for?' before starting the process. · The Pitch Checklist: The focus on storytelling, problem/solution, and market over technology (Slide 12) is the correct hierarchy for a successful pitch. · The BATNA Strategy: The advice to run a parallel process with multiple investors to create leverage (Slide 16) is a fundamental fundraising best practice.
Frequently asked questions
- What are the primary funding sources identified for early-stage startups?
- The deck identifies several sources: Friends, Family, and Fools (FFF), bootstrapping through consulting work, regional and national grants, and soft loans. For computer vision specifically, research grants (such as EU FP7) are highlighted as a serious option due to the technology-heavy nature of the field. The deck advises using these to reach a Minimum Viable Product before seeking larger external capital.
- How does the deck distinguish between Angel investors and Venture Capitalists?
- Slide 15 provides a side-by-side comparison. Angels are described as investing 'for fun,' providing less money, making quicker decisions, and exerting no control. VCs are described as professional investors providing more money but acting slower and requiring 'lots of control.' Most importantly, the deck warns that VCs irreversibly set a company on a path toward a trade sale or IPO exit.
- What specific advice is given for pitching a computer vision product?
- Slide 19 notes that computer vision is 'technology heavy,' which often leads to founders presenting a 'solution looking for a problem.' To counter this, the deck suggests using visual demos to aid pitching and focusing heavily on the problem and market traction rather than the underlying tech. It notes that while consumer markets currently show traction, there are few strong exit cases in the sector.
- What was the funding trajectory for Polar Rose?
- According to Slide 21, Polar Rose began with $300k in grants, friends, and seed funding between 2004 and 2006. They then secured a $5.4M Series A in July 2006 from Nordic Venture Partners. This was followed by a smaller follow-up round from the same investor between 2009 and 2010. This illustrates a classic path from non-dilutive/early seed to institutional venture capital.
- What does the deck suggest regarding the amount of capital a founder should raise?
- Slide 17 presents three views: raising as little as possible, as much as possible against reasonable equity, or whatever is available to keep building. It warns that raising too little leads to 'constant fundraising mode,' which drains energy. The ultimate tip provided is to raise all necessary capital at once if possible and to avoid tranche-based investments that depend on meeting specific milestones.
