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)

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


STAGE 1 STAGE 2 STAGE 3


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


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


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

•  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

3F (aka “Love Capital”)

•  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

•  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

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

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

•  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

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

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.

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


•  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


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

[email protected]

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

Nuvolab seminar for Accelmed 2014: "Approaching investors"

Economy & Finance

Transcript of Nuvolab seminar for Accelmed 2014: "Approaching investors"