Lead to Win

Lead to Win

Venture Capital UpdateJune 23, 2009

Glenn Egan

Lead to WinSlide 2

Agenda

• Introduction

• Current VC environment & raising capital

• Evaluation criteria & getting critical issues right

Lead to Win

When you approach a VC for Investment

• You are selling your company; you are the seller, we are the buyers

• You will sell a bit now, but it is a path to selling it all

• If you want to own your company, don’t approach VCs

• If you do, sharpen your selling skills

Slide 3

Lead to Win

Traditional VC Eco-System

Slide 4

SOURCE OF CAPITAL FOR VC FUNDS

PUBLIC GOV’T PENSION FUNDS HNWI CORP

VC FUNDS

LSIF GOV’T INSTITUTIONAL STRATEGIC

VC BACKED START UPS

SEED EARLY EXPANSION MEZZ

GEOGRAPHY SECTOR

IPO M&A LIQUIDATION

Public Market Conditions Drive Appetite

Lead to Win

VC Eco-System - today

Slide 5

SOURCE OF CAPITAL FOR VC FUNDS

PUBLIC GOV’T PENSION FUNDS HNWI CORP

VC FUNDS

LSIF GOV’T INSTITUTIONAL STRATEGIC

VC BACKED START UPS

SEED EARLY EXPANSION MEZZ

GEOGRAPHY SECTOR

IPO M&A LIQUIDATION

Public Market Conditions Drive Appetite

X

X

X

X X X

X

Lead to Win

Current VC Environment

• Very weak syndicates and funds• Total focus on getting “winners” to profitability

and surviving to get to a profitable exit• Consolidation• Rebuilding will take time• Selection criteria - the bar has been raised

Slide 6

Lead to Win

As of Q2, 2008 there was hope

Slide 7

Lead to Win

Then Came Falling Investment Levels

Slide 8

Gilles Duruflé CVCA Annual Conference May 28, 2009

Lead to Win

Foreign Funds lose appetite for Cdn deals

Slide 9

Gilles Duruflé CVCA Annual Conference May 28, 2009

Lead to Win

US Domestic Investments by Stage, Q1 09

Slide 10

($ in millions)

$169.2

$682.8

$1,331.9

$819.7

$0 $1,000

Startup/Seed

Early Stage

Expansion

Later Stage

Q1 2009 Total: $3,003.7 million in 549 dealsPricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters

Lead to Win

Predictions US VC Market

Slide 11

– VC’s stop funding many portfolio companies, major triage

– More layoffs/cost cutting, unemployment up

– New Deals must be perfect

– All Deals Series A, lots of down rounds

– Fewer Deals per fund, higher reserves

– VC syndicate quality more important, mainly inside rounds

– VC’s fear capital calls produce LP defaults

– VC Fundraising problematic

– More Government regulation

PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters

Lead to Win

Traditional VC- Life Cycle

Slide 12

Customer’s Like it10-30 Employees

Customer TractionSpec/ early proto

Customer TrialsBeta Product

Successful trials Mgmt team

Shipping VolumeBig Customers

RevenuesComplete Team

Got What It TakesFounders

Full Biz PlanBuzz

Definition Product‘Beta’

Volume‘Ship’

SeedSeed Series ASeries A Series BSeries B DebtDebt

Prototype‘Alpha’

Angel $Angel $

F&FF&F

SelfSelf

Liquidity ZoneLiquidity Zone

M&AM&A

Ah-Ha!!Entrepreneur

IdeaEarly Biz Plan

Buzz

Idea /Opportu

nity

CapitalCapitalCourtesy VenGrowth

Lead to Win

Current Reality

Slide 13

Customer’s Like it10-30 Employees

Customer TractionSpec/ early proto

Customer TrialsBeta Product

Successful trials Mgmt team

Shipping VolumeBig Customers

RevenuesComplete Team

Got What It TakesFounders

Full Biz PlanBuzz

Definition Product‘Beta’

Volume‘Ship’

SeedSeed Series ASeries A Series BSeries B DebtDebt

Prototype‘Alpha’

Angel $Angel $

F&FF&F

SelfSelf

Liquidity ZoneLiquidity Zone

M&AM&A

Ah-Ha!!Entrepreneur

IdeaEarly Biz Plan

Buzz

Idea /Opportu

nity

CapitalCapitalCourtesy VenGrowth

Bootstrapped Seed to First RevenueBootstrapped Seed to First Revenue Single Syndicate fundingSingle Syndicate funding

X X X

Lead to Win

Implications for You

• Know your customer (do you think of VCs as one of your customers?)

• VCs can’t raise a new fund and co-investors are abandoning ship, they are reserving most of their money for their existing companies

• The standards of a VC grade deal are very high

Know the standards, address weaknesses, then tighten your plans and your pitch

Slide 14

Lead to Win

An all too frequent situation

Slide 15

Lead to Win

What Do VCs Seek?

Slide 16

Quadrant 1Quadrant 2

Quadrant 3Quadrant 4

Ability to Execute

Pote

nti

al R

etu

rn

Hi

Hi

Low

Low

Lead to Win

Evaluation Criteria

Slide 17

• Team (Leadership)

• Market – size of the TAM

• Value Proposition – Drive customers profits– Gross margin – the fuel for growth

• Competition - # and incumbency

• Potential Return – type, timing and ROC

• Sales/Pipeline

• Channels

• Product & Technology

We will review the first 4 (bold)

Lead to Win

Team (Leadership)

• Executive Team– Outward looking– Are all areas fully capable?– Is this a winning team?– “A” technology team– “Serial Entrepreneurs”– Relevant background, maturity– Understand what VC backing means– Open to change and open to active VCs

Is the management team aligned?

Do they have a shared vision of the company they will build?

Is anyone there for a job?

Slide 18

Lead to Win

Market Attractiveness

• TAM (The Size of the Prize!!)– Over 1$B, $500M to $1B, under

$500M

• Growth of TAM (forecast)– CAGR over 30%, 15% to 30%,

under 15%

• # of Addressable markets– More than 2, 2, or 1

Slide 19

Lead to Win

Value Proposition (B to B)

Slide 20

Profit = (TAM * Mkt Share) * ( Price – Variable Cost)

Investment• In B to B, a buyer ONLY buys from a seller if they

think their profits will increase• How significantly does your product or service, when

incorporated into what your customer makes then sells, improve their profits

• How many ways do you improve their profits• Requires a trusted intimate customer relationship

~

Customer adoption rate is driven by the value proposition

Lead to Win

Competitive Positioning

Slide 21

Why Customers

Buy

Our product

Competitor #1

Competitor #2

Most important

profit driverHow do customers see it?

2nd most important

3rd most important

Lead to Win

How are you choosing to compete & win

Slide 22

Lead to Win

Investment focus versus source of return

Slide 23

Lead to Win

In Summary

• Great opportunities get funded• Get the main things right

– Outward focussed leadership– Attractive markets– Compelling value proposition– Known customer adoption pattern– Strong competitive positioning

(based on customer profit drivers)– Proven repeatable sales process– Thoughtful business value (not just

product/technology)

Slide 24

Lead to WinSlide 25

Thank you