Nuvolab seminar for Accelmed 2014: "Approaching investors"
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Transcript of Nuvolab seminar for Accelmed 2014: "Approaching investors"
APPROACHING INVESTORS
Accelmed Accelera6on Programme July 29 2014
Summary
¨ Overview ¨ An inconvenient truth ¨ Finding funding: different sources ¨ How to approach investors ¨ Conclusions
Nuvolab is a business accelerator and a catalyst of change dedicated to all the reali=es in the (Italian) entrepreneurial ecosystem.
What is Nuvolab?
What is a startup?
What is a startup?
An innova=ve company
A startup is temporary organiza6on in search of a repeatable, scalable business model (Steve Blank, The Startup Owner’s Manual) 1. Temporary organiza6on 2. In search 3. Of a business model 4. Repeatable 5. Scalable
A good defini6on
A startup has a well defined lifecycle that ends with the valida=on of its (repeatable and scalable) business model. Done that, it becomes a real “company”. It’s a journey.
Temporary organiza6on…
A startup is a “?” and not a “!” (more appropriate for successful company) beside the word “business model”.
Credits: Steve Blank, The Startup Owner’s Manual
Credits: Eric Ries, The Lean Startup
?
..in search...
A business model describes the ra=onale of “how an organiza+on creates, delivers, and captures value” (A. Osterwalder, 2010). In other words is about how a firm will make money and sustain its profit stream over =me.
..of a business model...
A repeatable business model, is a business model, which will generate cash-‐flow more than once. This sounds very obvious, because as it seems every business is repeatable. But this is not true. When you sell your house: this is not a repeatable business model. But of course it is a repeatable business model to sell houses of other people. Repeatability of your business model is strongly related to a specific ques=on: if your business will growth or not in the future.
..repeatable...
Scalability is the ability of a system, network, or process to handle a growing amount of work in a capable manner or its ability to be enlarged to accommodate that growth. Meaning for a business: when your revenues grow, your profits grow (more than) propor=onally (economy of scale). Scalability of your business model is strongly related to a specific ques=on: how your business will growth in the future.
..and scalable!
• Not every (new) company is a (scalable) startup. • A startup is not a younger/smaller version of an “old”
tradi=onal company. • Startup (=“?”): a temporary organiza=on in search of a
repeatable, scalable business model . • Company (=“!”): a permanent organiza=on designed
to execute a repeatable and scalable business model • So startups have (some) different needs compared to
tradi=onal companies à i.e. financial needs and funding sources:
– Since they need =me (and money) in order to find an answer about their business model (“?”) à specific funding needs (especially when their business is capital intensive)
– Since they are high-‐poten=al (scalable) companies (“!”) à specific (some6me exclusive) sources of finding / investors
So what?
The startup journey: a lifecycle perspec6ve (metaphor)
The startup journey: a lifecycle perspec6ve (metaphor)
STAGE 1 STAGE 2 STAGE 3
CONSERVATION SUSTAIN SCALE EFFICIENCY VALIDATION DISCOVERY IDEA
STAGE 4 STAGE 5 STAGE 6 STAGE 7
REVE
NUES
TIME
Start Launch
Build
Chasm
Scale
Maturity
Source: Four Step To Epiphany (S. Blank), Startup Compass (Stanford) e Startup Lifecycle (F. Des=n)
The startup journey: a lifecycle perspec6ve (product PoV)
Summary
¨ Overview ¨ An inconvenient truth ¨ Finding funding: different sources ¨ How to approach investors ¨ Conclusions
STAGE 1 STAGE 2 STAGE 3
CONSERVATION SUSTAIN SCALE EFFICIENCY VALIDATION DISCOVERY IDEA
STAGE 4 STAGE 5 STAGE 6 STAGE 7
REVE
NUES
TIME
Start Launch
Build
Chasm
Scale
Maturity
Source: Four Step To Epiphany (S. Blank), Startup Compass (Stanford) e Startup Lifecycle (F. Des=n)
Startup lifecycle: take the product PoV..
FINANCIAL NEEDS
7 STAGES
CASH FLOW
EXPANSION MATURITY
Financial needs
Revenues
Cumula6ve cash flow
..and combine it with the financial PoV..
FINANCIAL NEEDS
7 STAGES
CASH FLOW
EXPANSION MATURITY
Financial needs
Revenues
Cumula6ve cash flow
..where the financial need is evident!
FASE 1 FASE 2 FASE 3
CONSERVATION SUSTAIN SCALE EFFICIENCY VALIDATION DISCOVERY IDEA
FASE 4 FASE 5 FASE 6 FASE 7
Note: overlapping product and financial perspec=ve has only didac=c purpose
FINANCIAL NEEDS
7 STAGES
CASH FLOW
EXPANSION MATURITY
Financial needs
Revenues
Cumula6ve cash flow
Start
Launch
Build
Chasm
Scale
Maturity
It will persist 6ll your business model is validated or..
FINANCIAL NEEDS
7 STAGES
CASH FLOW
EXPANSION MATURITY
Financial needs
Revenues
Cumula6ve cash flow
“The valley of death”
..6ll you will exit from the market prematurely
Source: The Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By
HBS (2011): • Failure = liquida=ng all
assets, with investors losing most or all the money they put into the company à the failure rate for start-‐ups is 30-‐40%.
• Failure = failing to see the projected return on investment à failure rate is 70-‐80%.
• Failure = declaring a projec6on and then falling short of mee=ng it à failure rate is a whopping 90-‐95%.
Classic company
Tech Startup
The Valley of Death
Failure rate by industry
6 Copyright © 2011 Nuvolab - All Rights Reserved
Fonte: http://www.chubbybrain.com/blog/top-reasons-startups-fail-analyzing-startup-failure-post-mortem/
Le 20 principali cause di “morte prematura” per una startup (secondo ChubbyBrain, database VC e BA)
Source: h_p://www.chubbybrain.com/blog/top-‐reasons-‐ startups-‐fail-‐analyzing-‐startup-‐failure-‐post-‐mortem/
The top 20 Reasons Startups Fail
1. Being inflexible and not ac=vely seeking or using customer feedback à 45%
2. Building a solu=on looking for a problem, i.e., not targe=ng a “market need” à 30%
3. Not the right team à 30% 4. Poor Marke=ng à 28% 5. Ran out of cash à 25% 6. I got this product. Now I just need a business model à 25%
7. Release product at the wrong =me à 20%
8. Lack Passion and Exper=se à 19% 9. Do not cut your losses a la Pivot at the right =me à 19%
10. A “User Un-‐Friendly” Product à16%
11. Pricing Issues à 16% 12. Do not use your connec=ons à 16% 13. Disharmony with Investors/Co-‐founders à 12% 14. Lose Focus – Distracted by Shiny Objects à 12% 15. Burn Out à 12% 16. Get outcompeted à 10% 17. Be unable to A_ract Investors à 6% 18. Loca=on, Loca=on, Loca=on à 6% 19. Not working on it full =me à 6% 20. Start the company at the wrong =me à 6%
The top 20 Reasons Startups Fail
So.. Startup life is a very hard thing!
SMART MONEY
Competences Funding What is missing?
Verve Capital Partners (2011): what is the VC spent per capita in European countries (USA $ 67 pc) à 5 groups • Group 1 ($70-‐60): Switzerland ($69 pc), the
Netherlands ($ 62 pc) • Group 2 ($60-‐50): Sweden, Finland ($ 59
pc), Denmark ($ 53 pc)… over European average ($ 35 pc).
• Group 3 ($40-‐30): UK, Ireland ($39 pc), Belgium ($33 pc), France ($31 pc)
• Group 4 ($30-‐20): Norway ($27 pc) Spain ($24 pc), Germany ($21 pc)
• Group 5 ($10-‐0): Austria ($10 pc), Portugal ($ 7 pc), Greece ($ 3 pc) and…last… Italy ($ 1 pc)
An inconvenient truth
Summary
¨ Overview ¨ An inconvenient truth ¨ Finding funding: different sources ¨ How to approach investors ¨ Conclusions
h_p://www.youtube.com/watch?v=U470xXKfDyE
Let’s start with a brief overview (by Kauffman Founda6on)
“3 F” BA VC/CV IPO
FINANCIAL NEEDS
7 STAGES
CASH FLOW
EXPANSION MATURITY
Financial needs
Revenues
Cumula6ve cash flow
Grant Customers Crowdfunding Prizes
Funding your startup: (un)conven6onal sources
Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes
Funding sources: short list
• Where to spend – Team! Engineers, Product
Management – Product & usability – Good lawyers
• Where NOT to spend: – Big management teams – Marke=ng & adver=sing – Big outsourcing projects – Bonuses (with some
excep=ons…) – Travel (again, with some
excep=ons…) – Outside sales forces
• Common spending pitalls – Hiring too many people – Hiring the wrong people – Doing too many things – Goldpla=ng – Not geung short-‐term, hard
returns
Especially when is your money: cash is king so..
Financing growth from previous cashflow and personal fund (obviously need to have cashflows J) Most good bootstrapped companies emerge from a service or consul=ng companies that are “produc=sing” their offering Pros
– Bootstrapped companies almost always spend cash more effec=vely than equity financed companies
– Already being close to exis=ng customers, give excellent ability to understand problems and define good solu=ons
Cons – Resources for product and market dev constrained by cashflows – May miss a big opportunity if other players raise finance and invest heavily
Self financing / bootstrapping
• Rela=vely limited funds will be available for startup; likely to want collaterals anyway
• Banks only lend to predictable businesses they can understand (be_er being a “!” rather than a “?”)
• If your capital requirements are limited and your business is following a well trodden path, can be a useful source of finance
• Not par=cularly useful web or high growth tech industries • Some (public) facilita=on for startups in some Countries à
i.e. in Italy Fondo di Garanzia will provide (innova=ve) startups with a (public) collateral on 80% of your debt up to €2,5M (100+ startups already asked for it)
Debt/ bank finance
Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes
Funding sources: short list
• Not all startups require external funding • Cash flow comes ul=mately and most importantly from
customers, NOT from investors • Bootstrapping in business means star=ng a business without
external help or capital. Such startups fund the development of their company through internal cash flow and are cau=ous with their expenses. Generally at the start of a venture, a small amount of money will be set aside for the bootstrap process
Customers / bootstrapping
Focus: bootstrapping
h_p://bit.ly/bootstrapbible
Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes
Funding sources: short list
3F (aka “Love Capital”)
Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes
Funding sources: short list
• An angel investor or angel (also known as a business angel or informal investor or angel funder) is an affluent individual who provides capital for a business start-‐up, usually in exchange for equity.
• A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital, as well as to provide advice to their portolio companies.
• Unlike the VC the Angel invests their own money • Hands on approach: geographical or industrial “proximity” • The Angel approach is to invest small amounts at a very early stage / low valua=on
– €50-‐€250k at valua=ons of €500k-‐€4m • Two “exits” for angel
– Firm might be sold quickly for €5-‐10m or less where the Angel can make 2-‐5x money – Firm raises VC money, ayer which Angel typically becomes more passive but has built up
exposure very cheaply to a venture backed enterprise • The key thing when selec=ng an Angel therefore is whether they can help you raise VC
finance – See which Angel investors have invested with which VCs
Business angels
Digital BAN
Business Angels
Business angels (categories with Italian examples)
Lone Business Angels
Regional mul6sectoral BAN
Na6onalwide BAN sectoral focus General BAN
Example: BAN in Italy
www.iban.it
Business angels (network): map
www.eban.org
Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes
Funding sources: short list
• A venture capital fund refers to a pooled investment vehicle that primarily invests the financial capital of third-‐party investors in startup, that are too risky for the standard capital markets or bank loans.
• These funds are typically managed by a venture capital firm, which oyen employs individuals with technology backgrounds (scien=sts, researchers), business training and/or deep industry experience.
• Receive 1000s of business plans each year • Read 100s of plans • Meet with dozens of companies • Fund a handful (1-‐2%) • Portolio expecta=ons:
– 60% die or go nowhere (living dead) – 30% yield 2-‐4x in 4-‐7 years – 10% (hopefully 20%) are tremendous successes (e.g., 10x, 100x, 1000x!)
Venture capital
The Venture Capital inves6ng process
Structure of a (generic) VC fund
Example: VCs in Italy (Who is Who map)
www.italiastartup.it
Venture capital: map
www.evca.eu
Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes
Funding sources: short list
Corporate Venture Capital Defini=on: a Venture Capital firm, independent or cap=ve, which manages at least on VC Fund with the following characteris=cs: • A Corporate is a cornerstone investor in the
VC Fund • The firm is following the PE model (exit
strategy and mid to long term investment horizon)
• The VC Fund invests mainly in companies opera=ng in the core business area of the Corporate
• The Venture Capital Firm uses extensively the experience, technologies and/or market contacts of the Corporate to manage the portolio of the VC Fund
Source: EVCA (2013)
Corporate VC Investment
Source: Boston Consul=ng Group (2012)
Corporate Venture Capital: map by deals
Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes
Funding sources: short list
REWARD-‐BASED
DONATION-‐BASED
LENDING-‐BASED
EQUITY-‐BASED
CROWDF
UNDING M
ODE
LS
Logic: Proponent à Idea à Crowd à Reward Target: crea=ve projects (music, cinema, design, hardware, etc.). Examples: KickStarter (USA/UK) / Eppela (ITA)
Logic: Proponent à Cause à Crowd à Altruism Target : social / cultural ini=a=ves (not for profit) Examples: Causes (USA) / Rete del Dono (ITA)
Logic: Proponent à Financial need à Crowd à Interests Target: consumer finance needs Examples: Zopa (UK) / Pres=amoci (ITA)
Logic: Proponent à Financial need à Crowd à Equity Target: startups Examples: AngeList (USA) / GrowVC (UK) / SiamoSoci (ITA)
Crowdfunding Crowdfunding is the prac=ce of funding a project or venture by raising monetary contribu6ons from a large number of people, typically via the Internet.
• 453 ac=ve platorms (2012)
• 1 Million project funded
• $ 0,89 Billion raised in 2010
• $1,47 Billion raised in 2011
• $2,66 Billion raised in 2012
• $5,1 Billion raised in 2013 (es=mate)
Source: Google Trends -‐ Search Volume Index: “crowdfunding”
Crowdfunding numbers
h_p://bit.ly/thecrowdfundingbible
Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes
Funding sources: short list
• Seed accelerators are fixed-‐term, cohort-‐based programs aimed at developing new startups.
• The accelerator programmes key elements are: - Funding, typically to the seed level (<€40k) vs equity (5-‐10%) - Company founders are small teams (2-‐3 people) with technical backgrounds
- Each cohort is supported for a defined period of 6me (3-‐6 month)
- Educa6on programme focusing on business advice and product advice
- Networking programme to meet and/or contact other investors and advisors
• Programmes may or may not include: – Office space, whether free or subsidized – A Demo Day for funded companies
Seed accelerator programmes
Source: Chris=ansen, Jed D. Copying Y Combinator: a framework for developing seed accelerator programmes.
Prendiamo esempio da casi di successo esteri
Settembre 2011 (C) 2011 - TTAdvisor S.r.l. 8
network settoriale
network investitori
visione manageriale
completamento team
sviluppo business model
Impresa «non accelerata»
impresa «accelerata»
tempo →
dim
ensi
one →
Apparently sprinters reach their higher speed right out of the blocks, and spend the rest of the race slowing down. The winners slow down the least.
Jessica Livingston - Founders at Work
L’accelerazione agisce quando l’impresa è solo un’ idea, apportando in un periodo di tempo molto breve una spinta forte alla crescita
aumenta la crescita iniziale
la crescita rimane elevata più a lungo
L’esperienza estera di accelerazione di impresa ci dice che questo è uno strumento efficace per aumentare la crescita e le probabilità di successo delle startup
Seed accelerator programmes maps
www.startupfactories.eu h_p://www.seed-‐db.com/accelerators
Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes
Funding sources: short list
Business Incubators • Business incubators are private or public
organiza6on specialized in crea6ng and suppor6ng other companies.
• According to NBIA (USA Na=onal Business Incuba=on Associa=on) there are 10.000+ incubators worldwide.
• Incubators nurture young (startup) firms during their early months or years, by usually providing them with: - affordable/shared offices and G&A
services - mentoring/hands-‐on management
training / networking - Oyen marke=ng support, access to some
form of financing
Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes
Funding sources: short list
Public Grants • Grants are non-‐repayable funds disbursed by one party
(grant makers), oyen a government department, corpora6on, founda6on or trust, to a recipient, oyen (but not always) a nonprofit en=ty, educa=onal ins=tu=on, business or an individual.
• For example, the European Commission provides financing through numerous specific calls for project proposals. These may be within Framework Programmes. FP8 à Horizon 2020: the programme runs from 2014 –2020 and provides an es=mated €80 billion of funding.
• Although there are many 7 year programmes that are renewed that provide money for various purposes.
• There are also occasional one off grants to deal with unforeseen aspects or special projects and themes. Most of these are administered through what are called Na=onal Agencies, but some are administered directly through the EU Commission in Brussels.
Founders (and their bank accounts) Customers Friends & Family (& Fools) Business angels Venture Capital Corporate Venture Crowdfunding Seed accelerator programmes Business incubators Public grants Prizes
Funding sources: short list
Prizes • There are a lot of different ini=a=ves
worldwide aimed at suppor=ng / celebra=ng / funding brilliant business ideas and high-‐poten=al startups.
• There are hundreds startup/business plan compe==ons running in Europe, promoted by public organiza=ons, corpora=ons, founda=ons and so on.
• They can provide you with network, coaching, visibility, “in kind” prizes and.. some=me money!
Summary
¨ Overview ¨ An inconvenient truth ¨ Finding funding: different sources ¨ How to approach investors ¨ Conclusions
• Network to gains access to VCs • Don’t get hung-‐up on confiden=ality • Be persistent • Be humble yet confident, and always courteous and professional
• Embrace and learn from rejec=on • Be greedy in the long-‐run (any % of something > 100% of nothing!)
How to approach investors
Large Poten6al Market
Opportunity
Unique Product Or Concept
Passionate Founding Team
Pre-‐requisites
Intense compe66on
likely
Need to move rapidly
Implica6ons…
Hiring
Infrastructure
VC funding supports
Rapid Product Development
Interna6onalisa6on
Partnerships
Commercialisa6on
Good reasons to raise equity finance
Applica6on is a feature not a product
Market size is too small
Motivation is not financial
Risk is not that you waste =me unsuccessfully trying to raise finance … … real danger is that you do succeed in raising VC funds
– Lose opportunity for small exit which could be personally lucra=ve
– Lose opportunity to run lifestyle business – Get bound in to 3+ yrs work you may not enjoy
When NOT to raise VC
Technology Trac6on
• Can evaluate each as – Excep=onal – Good / credible – Mediocre / incomplete
• Misconcep=on that being good / credible across the board is what VCs look for – Can always add credible a_ributes to the mix later
• VCs focus on finding opportuni=es which rate as excep=onal in one a_ribute
Team
What does an investor look for
Has funds to invest
Match of Size/Stage/ Geography
Relevant Portolio
No directly compe66ve investments
Excellent track record
Shortlist
• Do create a shortlist • Rifle is a be_er weapon
than a shotgun • Similar process for
iden=fying angels, look at VC funding press releases to iden=fy prior Angel investors
Iden6fy relevant VC partners
• Out of the blue email is a long shot • Try to build context
– Analyse portolio companies – are there any links there? – Analyse contact network and advisors – Analyse press coverage – Par=cipate in blog conversa=ons – A_end events and conferences – Relevant PR around product also helps
• VCs spend their =me looking for businesses with momentum
Geung on radar screens
Useful sources of informa6on and inspira6on
h_p://fundersandfounders.com h_ps://www.techcrunch.com h_p://startupdigest.com/
Summary
¨ Overview ¨ An inconvenient truth ¨ Finding funding: different sources ¨ How to approach investors ¨ Conclusions
Crisis: risk or opportunity?
…half empty, half full.. It’s just a maver of point of view (and awareness). (At least) now you know where is the liquid(ity)!
Conclusions
Thanks for your 6me & aven6on
@francingu @nuvolab
www.nuvolab.com ivysoul2000
Ref: Francesco Inguscio
Summary
¨ Overview ¨ An inconvenient truth ¨ Finding funding: different sources ¨ How to approach investors ¨ Conclusions ¨ (Hidden) bonus track: startup pitch
• Pitch: What?
• Pitch: Why?
• Pitch: For whom?
• Pitch: How? • Pitch: some examples à h_p://www.pitchenvy.com
Introduc6on
Overview
• Problem • Solu=on • Team • Achievements • Market • Compe==on • Business model • Economics • Investment proposi=on
Problem
• Analysis of exis6ng and emergent customer needs; • Analysis of exis6ng solu6ons and their weaknesses.
Solu6on / Value Proposi6on
• Descrip=on of the offering (product features/ value proposi=on)
• Descrip=on of benefits provided and problems solved
• Descrip=on of sustainable compe==ve advantages (in terms of technology, product features and market needs)
• If it is possible, show a product image or provide examples
Team
• Name, posi=on • Relevant experience (max 2 raws)
• Name, posi=on • Relevant experience (max 2 raws)
• Organisa=onal chart
• Cap Table (% equity stake)
Achievements
• Product development milestones • Incorpora=on date • Personnel • Revenues • Metrics (web/mobile) • Main customers • Partnerships • Funding from founders and funders • Patents and trademarks • Compe66ve advantages achieved
Market
• Iden=fica=on of target market and of relevant segments
• Size (in terms of €/$ and number of poten=al customers)
• Growth rate (%)
Compe66on
• Main compe6tors;
• Main market dynamics;
• Main bases of compe66on;
• Compe66ve benchmarking.
• What is your business model? (How do you make money?)
• Highlights on sourcing, produc=on and go-‐to-‐market strategy
• Posi6oning vis-‐à-‐vis compe==on (in terms of product features, price, clients, channels)
Business Model
Economics € (Euro) 2012 2013 (E) 2014 (E) 2015 (E) 2016 (E) 2017 (E)
Revenues
Personnel cost Marke=ng Other OPEX
EBITDA
EBIT
Investment proposi6on
• What is your financial need? What do you exactly want from your investor? Is there any chance for a co-‐investment? With whom?
• Use of Proceeds (how are you going to allocate new funds?) • Ac=vity 1 (%) • Ac=vity 2 (%) • Ac=vity 3 (%)
• Possible Exit (op+onal)
Contact name E-‐mail Mobile phone number Website
Contacts
Pitch Examples (see www.pitchenvy.com) AirBnB
Mint (Intuit $170m)
Square