vc from the inside - a techie's perspective - adrian colyer
TRANSCRIPT
Idealized Startup Lifecycle
Remember the Waterfall Model?Requirements
Design
Implementation
Verification
Maintenance
● Doesn’t work well in the face of changing requirements and uncertainty.
● What’s true for software projects is also true for building companies...
Launch CustomerValidationvision
foundingteam
problem/solution fit
Scaleproduct/market fit
exitevent
CustomerDiscovery
decreasing risk / increasing confidence
increasing valuation
TEAM MARKET METRICS
$ seed$$ A
$$$ B
CustomerCreation
$$$ C, D,...
repeatable, scalable sales & growth model
It all starts with the Team...
The 10x team
10x programmer?
200x shorter lead times
???x founding team
“We used this simple sentence to describe our idea of a new kind of games company that would put people front and center. We thought to ourselves: “What if you put together a games company the way you’d put together a professional sports team?” In that type of model, the sole mission of the founders and management would be to acquire the best talent FOR EVERY SINGLE POSITION, create the best possible environment for them, and then get out of the way. It would be an environment with zero bureaucracy. A place where the best people could make the biggest possible impact and nothing would stand in their way. Everything else, including financial goals, would be secondary.”
Bus Factor!
"Arriva London bus LT2 (LT61 BHT) 2011 New Bus for London, Victoria bus station, route 38, 27 February 2012 (1)" by Tom Page from London, UK (original), cropped by User:Ultra7 - Crop of File:Arriva London bus LT2 (LT61 BHT) 2011 New Bus for London, Victoria bus station, route 38, 27 February 2012 (1) uncropped.jpg. Licensed under CC BY-SA 2.0 via Commons - https://commons.wikimedia.org/wiki/File:Arriva_London_bus_LT2_(LT61_BHT)_2011_New_Bus_for_London,_Victoria_bus_station,_route_38,_27_February_2012_(1).jpg#/media/File:Arriva_London_bus_LT2_(LT61_BHT)_2011_New_Bus_for_London,_Victoria_bus_station,_route_38,_27_February_2012_(1).jpg
The Limiting Factor isn’t Money
A ~7-8 year journey
It's a marriage...
Relationships matter● You’ll most likely go through some tough times together
● Often end up becoming lifelong friends
● Significant investment of time to nurture companies
● Portfolio companies act as local ambassadors and subject-
matter experts
● Repeat entrepreneurs, and referrals from previous
entrepreneurs, are a great source of new investments too!
Partner Time is the limiting factor
General Partners
Venture Partners
Associate Partners
Your Board
The Opportunity: Go Big or Don’t Go VC
Law of Thirds
⅓ ⅓ ⅓
Actual
"Long tail" by User:Husky - Own work. Licensed under Public Domain via Commons - https://commons.wikimedia.org/wiki/File:Long_tail.svg#/media/File:Long_tail.svgUnicorn: http://discoverie.deviantart.com/art/Winged-Unicorn-400901130
Behind the curtain
Limited Partners (LPs) $$$
11 yr Partnership
Fund, e.g. $500M
3-4 years to make new investments
Reserved funds for follow-on investment
+ GPs
3-5x return over 10 years
Winners need to win Big!
$500M -> $1.5-2.5B
Market Potential
Invest $1M, best possible return $50M?
50x!Rule of thumb: potential to be worth at least $500M. TAM...
Ownership Implications
● When the company wins big, the fund needs to win big too
● Prefer to invest more money in return for meaningful
ownership stake
Reminder:
competing
for GPs
time...
20%
Worked Example
Market cap/ownership
$500M $750M $1.5B $3B
10% $50M (3.3x) $75M (5x) $150M (10x) $300M (20x)
20% $100M (6.7x) $150M (10x) $300M (20x) $600M (40x)
30% $150M (10x) $225M (15x) $450M (30x) $900M (60x)
40% $200M (13.3x) $300M (20x) $600M (40x) $1.2B (80x)
Consider an average investment of $15M
Recap:● What an investment team looks for varies by company stage
● Team and market opportunity always matter
○ The team is the most important thing
○ The market opportunity has to be big enough
○ There must be an opportunity to invest enough to end up
with a meaningful ownership percentage
● At later stages, metrics increasingly come into play
IKIWISITwo things investors fear:
● IDSI
● IDKIWISI
Combat both with a Prepared Mind...
ILC
credit: Simon Wardley
ILD
Dumb Client (web browser)
Monolithic AppLogic + Presentation
DB
presentation(HTML)
Static Deployment on-prem
6-12 month cycle
Rise of the Apps
Nativeapp
Webapp
data(json)
API
embedded library
Monolithic AppLogic Only
DB
Static Deployment cloud-hosted?
1-3 month cycle
Time tomarket
Nativeapp
Webapp
data(json)
embedded library
externalserviceAPI
API
DB DB DB
Dynamic Deployment cloud-native10x day ++
Infrastructure Prepared Mind
There are 2 sides to every (successful) story
How do you get a #1 hit single?
Think of the business as a machine
Initial contact with a human being
Profit
Metrics for Pirates Machine (Dave McClure)
Making a profit!
CustomerProfitability
ARPU
Avg. CustLifetime
Cost to Serve
No of DealsClosed
Total cost ofSales & Mktg
LTV
CAC
% Churn Rate
Level of touchrequired
Marketing program costs
Sales FunnelConversion
Metrics
Personnel costsCredit: David Skok, http://www.forentrepreneurs.com/saas-metrics/
Remember....
We’re investing in your business,
Not buying your product!
Raising Money!
Some advice shamelessly stolen from a true pro...
The Process
First call or
meeting
In-depth meeting
Partnershippresentation
30
Engagedprocess
1252501000
Term-sheetpresented &deal done
1525%
75%
50%
50%
25%
75%
50%
50%
Track...
Catawiki
Fundraising is a campaign...
Getting attention
Get Noticed!
Do Your Research
Get the Intro
Make the most of the intro...
The Pitch...● Be memorable, confident, honest, and well-prepared!
● Pitch your business… not the market or the competition
● State clearly what you do and how your business works
● Demonstrate what investors are looking for
● Know your metrics and unit economics
● Know your risks and be open about them
● Understand where you are in the process and your objectives:
○ get funded, get to the next meeting, create a relationship, detect whether likely to be a good match,
...
Congratulations to Doctolib...
Everyone starts small!
Raising is only the very beginning...
A ~7-8 year journey
There for the big things, and the little things...
The last word...
“I am sure you knew this already, but from
the CEO’s perspective you are the perfect
board member - insightful, strategic,
supportive, and responsive. I am very lucky
to have you on our board.”
- Ilka Paananen, Supercell
Lesson Summary● The Team and the Market Opportunity always matter
● The limiting factor isn't money
● Think of bringing in an investor like entering a marriage
● Winners need to win big (and generate big returns)
● There are two sides to every successful story
● Getting a meeting is just the beginning...
● Not now doesn't have to mean never
● It’s a journey, not a transaction