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Day 4 Afternoon - Egan
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Transcript of Day 4 Afternoon - Egan
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