Venture Capital, Funding & Pitching Zubin Chagpar, Venture Capital Business Development, Amazon Web Services @phylosopher
Why do we talk about this? Work with many startups & EMEA s leading VC s Discuss many startups with VC s & get feedback on pitches Not biased, no agenda, helping AWS startup customers succeed We win when you win and only when you win
Venture Capital Overview Impact of Cloud on Venture Capital What is a good pitch?
Venture Capital Overview Impact of Cloud on Venture Capital What is a good pitch?
Venture Capital Startups!
Venture Capital Limited Partners Institutional, Government & High Net Worth Individuals VC Fund General Partners, Principals, VP s, Associates, etc. Startups Need for Capital Growth Potential
Two-sided Platform model Limited Partners Institutional, Government & High Net Worth Individuals Risk & Return Reduce Risk & deliver Financial Returns Startups With need for capital and growth potential Capital & Value Creation connections, biz \ dev, GTM, mentoring, etc
So how does a VC make money? 2 and 20
2 and 20 2% 20% Management Fee. VC raises a fund of e.g. $100M and gets $2M per year to operate the fund (staff, expenses, etc.) Performance Fee. VC returns the profits from the fund to the LP s but gets to keep 20% of these profits
Venture Funding
100% of nothing is a lot less than 17% of a Big Company
AUG-08 Nathan, Brian, and Joe JAN-09 $20K Accelerator Y Combinator APR-09 $600K Seed Round Sequoia Y Ventures NOV-10 $7.2M Series A: Sequoia Greylock SV Angel & others JUL-11 $112M Series B Andreessen Horowitz General Catalyst & others
idea MVP scale monetize 01 02 03 04 Product Risk Market Risk Financial Risk
idea MVP scale monetize 01 02 03 04 Product Risk Market Risk Financial Risk $1M-$5M, or more $250-$1M Series A, B, C, etc. $0-250K Seed Round Incubator / Angel
What caused the evolution towards the Lean Investor?
Venture Capital Overview Impact of Cloud on Venture Capital What is a good pitch?
Amazon changed the VC industry. This is mind boggling. That online book company. Not or anybody else. Amazon. 100% of the credit. Mark Suster, serial entrepreneur and MD at GRP Partners
1995.com Technology Startups require physical hardware and proprietary software to build their business Typical Series A Spent on Innovation 5-10M $2.5: marketing, sales, etc. $2.5M on infrastructure Not a lot, since experimentation was costly \ 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
2000: Rise of Open Source Open source software drove technology costs down by 90%, which spurred innovation in technology Typical Series A Spent on Innovation 3-5M Less on Software LAMP More on development Still on infrastructure A lot more, as experimentation is less costly now \ 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
2005: Enter the Cloud Pioneered by Amazon drove total operating costs down significantly Typical Series A Spent on Innovation 500K- 3M Staff the battle for talent Customer Acquisition Explosion in experimentation, innovation, and Startups \ 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
2007: Micro VC / Seed Public Cloud led to explosion in the number of Startups and the emerging of micro VCs Angels Incubators VC s Angels unite in Super Angels for Seed investments thru VC-like setup Boom in incubator programs, with micro investments, mentoring, etc. Venture funds that back early-stage startups with <$1M \ 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Why do VC s care? More deals Shorter time to scale Faster time to revenue Lower burn rate Higher valuation at exit
Venture Capital Overview Impact of Cloud on Venture Capital What is a good pitch?
Why is your pitch important? Because it shows you have a PLAN
What is a good pitch?
Intro Team Opportunity Solution Competition Business Model The Ask
What s always there? Product Lots of product, product, product Rosy Forecast The infamous hockey stick
What s always missing? Business Model not just WHAT, also HOW Metrics not just traction, also unit economics Strategy What will you DO? How will you GROW? Execution
Pitch Outline 1.Problem 2.Solution 3.Business Model 10 / 20 / 30 Rule 4.Business Model Metrics 5.Growth Strategy 6.Status / Traction 7.Team 8.Competition 9.Roadmap / Forecast 10.ASK
1. Problem Problem Impact Market Define the problem clearly Explain the impact. Why bother? What s the opportunity? Market size?
2. Solution
3. Business Model Business Model Pricing \
4. Business Model Metrics I look for signs in a pitch that the founders understand the mechanics of the business. Phil Morle, Pollenizer
4. Business Model Metrics???? \
4. Business Model Metrics Advertising CTR???? Avg Time on Site Average Price Basket \
4. Business Model Metrics Metric / KPI Now Comp A Comp B Comp C Goal Advertising CTR 1.5% 3% 6% 2.5% 5% Average time on site 4 9 6 5 10 Average Basket Price $18 $75 $118 $45 $73 Metric 4 Metric N
5. Growth Strategy Metric / KPI Now Goal Growth Strategy & Actions 1. Advertising CTR 6% 8% 1. A/B test creatives 2. Continuously optimize campaign settings for CTR 3. Hire 1 marketing specialist 2. Website Conversion 5% 10% 1. A/B testing of landing pages 2. A/B testing signup flows 3. Run Marketing campaigns (marketing budget) 3. Conversion to Active Y% 70% 1. Automate email addition for known hosts 2. A/B testing of email account addition UX (UI and flow) 3. Hire UX/UI Designer 4. Conversion to Paid Z% 25% 1. Optimize the product package of Free and Paid 2. Make it easier to pay/transact 3. Develop the product to add new features to paid users 4. Deploy payment gateways & get PCI compliant 5. Hire 3 developers
10. ASK Metric / KPI Now Goal Growth Strategy & Actions Costs 1. Advertising CTR 6% 8% 1. A/B test creatives 2. Continuously optimize campaign settings for CTR 3. Hire 1 marketing specialist 2. Website Conversion 5% 10% 1. A/B testing of landing pages 2. A/B testing signup flows 3. Run Marketing campaigns (marketing budget) 3. Conversion to Active Y% 70% 1. Automate email addition for known hosts 2. A/B testing of email account addition UX (UI and flow) 3. Hire UX/UI Designer 4. Conversion to Paid Z% 25% 1. Optimize the product package of Free and Paid 2. Make it easier to pay/transact 3. Develop the product to add new features to paid users 4. Deploy payment gateways & get PCI compliant 5. Hire 3 developers 75K 150K 75K 180K My ASK for funding = $480K
WHEN do you need to have WHAT?
idea MVP scale monetize 01 02 03 04 Pitch for Series A Pitch for Seed Round Pitch for Angel Money Series A Seed Round Bootstrap / Angel
Angel Pitch 1.Problem 2.Solution Show me a great idea! 3.Business Model 4.Business Model Metrics 5.Growth Strategy 6.Status / Traction 7.Team 8.Competition 9.Roadmap / Forecast 10.ASK
Seed Round Pitch 1.Problem 2.Solution Show me traction! 3.Business Model 4.Business Model Metrics 5.Growth Strategy 6.Status / Traction 7.Team 8.Competition 9.Roadmap / Forecast 10.ASK
Ash Fontana, Founder of AngelList
Series A Pitch 1.Problem Show me a business & show me returns! 2.Solution 3.Business Model 4.Business Model Metrics 5.Growth Strategy 6.Status / Traction 7.Team 8.Competition 9.Roadmap / Forecast 10.ASK
So before you pitch Ask some important questions Where is my startup in its lifecycle? Do I understand my business model, metrics? Can I explain my growth strategy and justify my ask? Which TYPE of investor should I target?
So before you pitch And do your homework Decide what you look for in an investor Easy vs Hard, Dumb vs Smart Investigate who you want to marry Which firm? Which Partner? Speak with people that know them Business partners (e.g. AWS), CEO s in portfolio
Questions?