Results of the Dorsey CEO Fundraising Survey on Investors

Reprinted from Matt Bartus’s blog, A View From The Valley. Posted there on October 12, 2010.

Today the Palo Alto office of Dorsey & Whitney released the results of a survey we conducted of startup founders and CEOs about the criteria they use to select investors. The full survey can be downloaded here and a press release about the survey’s key findings was released today here.

Many people have asked us why we conducted the survey. First and foremost, we wanted to get a snapshot of the early stage financing market to determine if the trends we are seeing in our own practice of representing startup companies and investors matches up with broader trends in the market (and it did).

Second, a lot of the talk in blogs and popular press about the different types of investors and the purported competition of Angels vs. Super Angels vs. VCs has focused on how investors define themselves. We wanted to give entrepreneurs a voice to express what is important to them and how they view investors. We think the results speak loud and clear.

First, some information about the survey:

• The survey was conducted online over a 4-week period. We had 363 respondents that completed the survey. Participants were automatically registered to win an iPad, which went to Hiten Shah of KISSmetrics (congratulations Hiten!).
• 42% of survey respondents were based in the San Francisco Bay Area/Silicon Valley region, with 20% international and the rest distributed throughout the U.S. All respondents had either raised funds over the past 12 months and/or were planning to raise funds within the next 12 months.
• Respondents represented a range of sectors, spanning IT infrastructure, software, gaming, life sciences/biotech, and green tech/energy. However the majority of startups participating in the survey were in the consumer Internet, cloud computing/SaaS or mobile sectors, 34%, 17% and 13%, respectively.

We encourage people to read the full survey because it produced some interesting results, some of which are highlighted below.

While CEOs still find traditional deal terms like valuation, dilution, liquidation preferences and board control as very important elements in completing a deal, the survey illustrated the importance of other criteria. Following are some of the findings:

• 91% ranked the speed at which the deal can get done as “somewhat important” to “very important.” >tweet this stat<
• 92% ranked whether the investor understands the startup’s funding requirements and encourages them to not take more or less than what the business requires as “somewhat important” to “very important.” >tweet this stat<
• While valuation rated important, a full 32% of CEOs said that this factor was only “somewhat important” to “not important.” >tweet this stat<

• 64% of the respondents are seeking $1 million or less in funding, underscoring the new funding requirements of today’s tech startups. >tweet this stat<
• 48% of respondents ranked prior relationships with an investor as “not important.” >tweet this stat<

• The perception of the investor’s brand does not appear to carry the same prestige and value with today’s entrepreneurs. Approximately 75% thought that a tier-one “brand name” VC was only “somewhat important” to “not important.” >tweet this stat<

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We hope that people find the survey results informative. It’s an interesting time to be working with early-stage startups and the technology industry in general. We think the survey provided a helpful overview of what early-stage startups founders and CEOs are looking for from investors and where those needs are being met.

We welcome any feedback or input people have so please drop us a line or note.

– Matt Bartus & Ted Hollifield