A report published Tuesday by international law firm Dorsey and Whitney LLP details findings of a survey of 363 startup CEOs over a four-week period on how CEOs select investors, expectations when raising funds, and actual fundraising outcomes. Among the survey’s findings are reports from CEOs that investor brand, prestige, and global presence are not as important as one might imagine. 75% of CEO respondents said that a top tier “brand name” VC is “somewhat important” or “not important,” and 70% of CEOs ranked an investor’s global presence as “somewhat” and “not important.”
Of the total respondents, a full 42% were from California’s Bay Area and 34.1% described their company as a consumer internet business, with cloud computing, mobile, and “other” coming in close behind. The results of the survey, titled “Calling All CEOs: 2010 Fundraising Survey,” finds that of respondents who have raised funds within the last 12 months, the majority raised under $150,000 while 19% raised between $1 million and $5 million. Who was investing? The majority of CEO respondents (59%) said that most of their financing came from angel investors, and 32.4% said family and friends contributed. Just 17.1% raised funds from a traditional VC firm.
Among those who intended to raise funds in a subsequent round, 68% expected funds to come from angel investors (individual or several), 39% expected funds to come from early stage VC firms, and 37% expected to raise funds from super angel funds. Additionally, with more options available, only 26% said they planned to raise money from family and friends.
So if CEOs don’t really care all that much about prestige, brand name, and global presence, what exactly do they look for in investors? Almost all CEO respondents said that they look for two things: 1) the speed at which the deal can be made, and 2) whether the investor truly understands the startup’s financing requirements. 91% of CEOs rated speed as “somewhat” to “very important”, and 92% rated investor knowledge of funding needs as “somewhat” or “very important.” Additionally, most CEOs reported looking for investors who “wanted the deal,” with 87% of respondents rating investor enthusiasm as “somewhat” or “very important.”
Surprisingly, prior relationships with investors were not given as much weight, with a full 48% of respondents ranking prior relationships as “not that important.” And while traditional VC firms have a leg up on other investors in their ability to invest in future rounds, only 33% of CEOs saw this as “somewhat important.”
“In light of the broad changes unfolding in the investment landscape, we believe these findings are both timely and relevant,” said Ted Hollifield, partner at Dorsey & Whitney, in a prepared statement. “There will be several hundred deals funded over the next year, and in this hyper-competitive funding environment, it’s imperative for investors to know what really matters to startup CEOs.”
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