1 a return to fundamentals: from hype to hard facts christine comaford lynch managing director...
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A Return to Fundamentals: A Return to Fundamentals: From Hype to Hard FactsFrom Hype to Hard Facts
Christine Comaford LynchChristine Comaford Lynch
Managing DirectorManaging Director
Artemis VenturesArtemis Ventures
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Agenda – Short and Sweet!Agenda – Short and Sweet!
• Facts/guidelines successful VCs and Facts/guidelines successful VCs and startup companies must embracestartup companies must embrace
• Tips to thrive, not just survive, in today’s Tips to thrive, not just survive, in today’s turbulent timesturbulent times
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VCs “Returning to Earth”VCs “Returning to Earth”
• 2 new deals/partner/year2 new deals/partner/year• 6 board seats, maximum6 board seats, maximum• Active board participation, proactive Active board participation, proactive
corporate governancecorporate governance• Get profitable fastGet profitable fast• Small can be beautifulSmall can be beautiful• Burn rate metrics (headcount x $10-20k Burn rate metrics (headcount x $10-20k
= monthly = monthly grossgross burn) burn)
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Financing GuidelinesFinancing Guidelines
• Make the $ last until you have significant Make the $ last until you have significant business traction & can get morebusiness traction & can get more
• Expect 9-12+ months fundraising Expect 9-12+ months fundraising processprocess
• Best case: pre-money valuation and Best case: pre-money valuation and round size are the same amountround size are the same amount
• Worst case: convert all previous Worst case: convert all previous investors to common stock, start again investors to common stock, start again with new capital structurewith new capital structure
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The Financing Net-NetThe Financing Net-Net
• Enough “dry powder” for lifecycle investing Enough “dry powder” for lifecycle investing • Aim for breakeven/slight profitability on first Aim for breakeven/slight profitability on first
roundround• Expansion capital is a luxuryExpansion capital is a luxury• Hard ROI: Cost savings & Revenue GenerationHard ROI: Cost savings & Revenue Generation• Less competitionLess competition• Better critique, Better ventures, Better critique, Better ventures,
Higher BarHigher Bar• Longer Term View/HorizonLonger Term View/Horizon
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A Generic Early 90’s ModelA Generic Early 90’s Model
Round Type Date
Amount Raised (MM)
Pre-Money Valuation
(MM) IRR Multiple
1 Seed Jan-90 $ 0.50 $ 2 101% 32.53
2 1st Jan-91 $ 3.00 $ 10 70% 8.13
3 2nd Jan-92 $ 8.00 $ 32 50% 3.30
4 3rd Jan-94 $ 13.50 $ 100 32% 1.32
5 IPO Jan-95 $ 150
Total Private Capital $25 Million
Today: get profitable with < $25 million and time rounds with business traction
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The Startup Net-NetThe Startup Net-Net
• Get customers fast and scale accountsGet customers fast and scale accounts– Creative pricing strategies (70% maintenance, pre-pay, Creative pricing strategies (70% maintenance, pre-pay,
multi-year)multi-year)
• Marketing is only relevant to drive SalesMarketing is only relevant to drive Sales• Outsource whatever you canOutsource whatever you can
– Engineering (some)Engineering (some)– Finance (most)Finance (most)– Telemarketing/campaigns/”bursty” activitiesTelemarketing/campaigns/”bursty” activities
• Keep burn super low, gross margins highKeep burn super low, gross margins high• Headcount increases only with “net positive” salesHeadcount increases only with “net positive” sales
– COGS must be LOWCOGS must be LOW
• Have best, worst, expected case plansHave best, worst, expected case plans• Under promise, over communicate, over deliverUnder promise, over communicate, over deliver
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IT Issues We’re FacingIT Issues We’re Facing
• Skills shortageSkills shortage• Budget shortageBudget shortage• Legacy architectures & “islands of info” vs. Legacy architectures & “islands of info” vs.
dynamic decentralized architecture dynamic decentralized architecture • Expensive, deployment- intensive applications Expensive, deployment- intensive applications
that have multi-year ROIthat have multi-year ROI• Low systematic productivity : batch vs. real-timeLow systematic productivity : batch vs. real-time• Random acts of productivity: everyday Random acts of productivity: everyday
processes are sloppy/cumbersome/archaicprocesses are sloppy/cumbersome/archaic
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Market OpportunitiesMarket Opportunities
• Outsourcing & growth => a new (datacenter) infrastructureOutsourcing & growth => a new (datacenter) infrastructure
• Value-added services => new programmable network, Value-added services => new programmable network,
IBM’s vision of “utilities”IBM’s vision of “utilities”
• Operations cost & complexity => Managed services, Operations cost & complexity => Managed services,
Business performance optimization etc.Business performance optimization etc.
• A more decentralized IT architecture => “Real Time” A more decentralized IT architecture => “Real Time”
enterprises, business continuity/risk managemententerprises, business continuity/risk management
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More Market OpportunitiesMore Market Opportunities
• Skills shortage & technology complexity => ASPs, Skills shortage & technology complexity => ASPs,
technologies to reduce maintenance, Web technologies to reduce maintenance, Web
services/management/integration/orchestrationservices/management/integration/orchestration
• Dynamic demand => Compute utilities, dynamic Dynamic demand => Compute utilities, dynamic
bandwidth, virtual server farms, Grid computing / bandwidth, virtual server farms, Grid computing /
distributed computingdistributed computing
• IT going from 0.5% to 3.5% to ?% of a company’s IT going from 0.5% to 3.5% to ?% of a company’s
salessales
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Lessons from Charles SchwabLessons from Charles Schwab
• Great book by John Kador coming out late September via Great book by John Kador coming out late September via Wiley BooksWiley Books
• Only subversive questions create new wealth. Entertain Only subversive questions create new wealth. Entertain these questions and have the guts to act upon them.these questions and have the guts to act upon them.
• 4 phases of an organization: Form, Storm, Norm, 4 phases of an organization: Form, Storm, Norm, Perform. They will repeat in cycles as an organization Perform. They will repeat in cycles as an organization evolves.evolves.
• Don’t let the power of intuition be an excuse for laziness Don’t let the power of intuition be an excuse for laziness in doing analysis.in doing analysis.
• Eat/kill your young. Eat/kill your young.
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Culture ShiftCulture Shift
• Workplace:Workplace:– SatisfactionSatisfaction– Making a difference & feeling valuedMaking a difference & feeling valued– Liking, bonding with our colleaguesLiking, bonding with our colleagues– Work/Life balanceWork/Life balance
• Personal life:Personal life:– Family & FriendsFamily & Friends– Giving back/volunteeringGiving back/volunteering– Values & beliefsValues & beliefs– High quality of life with a lower burn rateHigh quality of life with a lower burn rate
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How to SucceedHow to Succeed
• Find things that are broken and fix themFind things that are broken and fix them• Do it Do it anywayanyway• Be “adequate”, “on par”Be “adequate”, “on par”• Have positive target fixationHave positive target fixation• Focus on things you can change or Focus on things you can change or
improve, let the rest goimprove, let the rest go• Think of the worst case scenario – is it Think of the worst case scenario – is it
so bad?so bad?• Accelerate failureAccelerate failure
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ResourcesResources
• Go to our site (artemisventures.com): Go to our site (artemisventures.com): news & events, resources, etcnews & events, resources, etc
• Volunteermatch.org: find a cause you Volunteermatch.org: find a cause you care about and volunteercare about and volunteer
• Books: The Monk Who Sold His Ferrari Books: The Monk Who Sold His Ferrari (Sharma), Tuesdays with Morrie, (Sharma), Tuesdays with Morrie, anything by Brian Tracy anything by Brian Tracy (business/motivation), Burn Rate (Wolff)(business/motivation), Burn Rate (Wolff)
