expara accelerator program
TRANSCRIPT
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About the lecturer
Wharton MBA
JP Morgan – Vice President IB Technology, GM Internet Marketing
Parallax Capital Mgmt – Co-founder and MD Private Equity
Extream Ventures – Co-founder and MD S$20 million seed fund
Expara – Founder and MD IDM Ventures Incubator, advisory, training
NUS – Adjunct Associate Professor, Business School, Entrepreneurship
Sasin – Visiting Professor, Venture Capital
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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Go big or go home
Introduction to scalable entrepreneurship
Understanding risk and return
Let’s fail
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What is an entrepreneur?
A person who organizes, operates, and assumes the risk for a business venture.
From Old French, from entreprendre, to undertake.
Enterprise: An undertaking, especially one of some scope, complication, and risk.
Enterprising: Willingness to undertake new ventures; initiative: "Through want of enterprise and faith men are where they are, buying and selling, and spending their lives like serfs" (Henry David Thoreau).
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What is a scalable business?
Small business: limited scope, complication and risk. Slow growth.
Scalable business: significant scope, complication, and risk. Rapid growth.
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Present to investor to raise money
How to build a scalable business?
Identify idea and write business plan
The new venture creation process
Form a start-up company team
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What are the qualities that make a successful entrepreneur?
Intelligent
Creative problem-solving skills
Self-starting
Committed
Motivated
Risk taking
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Is entrepreneurship important to the country?
The development of a thriving entrepreneurial sector is not just an economic "nice-to-have." In the knowledge- and innovation-driven globalized economy of the 21st century it is a competitive necessity.
In one year alone, the small number of venture-backed companies in the US generated $736 billion in revenues, created 4.3 million new jobs, accounting for 3.3% of total jobs in the US and 7.4% of GDP.
The more than 4,000 companies started by MIT grads employ more than 1.1 MM people and generate more than $232 B in revenue p.a.
Innovative entrepreneurs drive long-term economic growth – creative destruction
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Why is entrepreneurship important to you?
What type of life do you want to have? – An average life or an extraordinary life?
What do you want to do with your life? – Create something of value from nothing or just make money?
Do you want to: – Make a difference? – Change the world in some way? – Leave something of value after you are gone?
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As an entrepreneur, you can:
Have an extraordinary life
Create something of value from nothing
Become rich
Do something meaningful
Make a difference
Change the world in a positive way
Leave something of value behind after you are gone
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Obstacles to entrepreneurship
Lack of entrepreneurial skills
Attitudes toward risk
Cultural attitudes toward failure
Entrepreneurial success is difficult
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This could be you - iTwin
BMA5108 – “Cable-less cable” remote access device based on A-Star technology
Selected for TechCrunch 50 2009 in Silicon Valley
Spin-off company launched in 2010
Raised S$2 MM Series A funding in July 2010
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This could be you - Sparefoot
2007 – Chuck Gordon takes TR3002
2008 –Co-founds Ikatoo – Winner, IDM Prize S@S and i.JAM recipient
2008 – Returns to US and resumes work on Sparefoot
2010 – Sparefoot raises US$3 MM VC
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This could be you: Facebook
Feb 2004: Mark Zuckerberg, 19, launches The Facebook from his Harvard dorm room, with ~10K investment. Half of Harvard signs up in the first month
June 2004: Facebook receives $500K funding from Peter Thiel
Mid 2005: Accel partners invests $12.7MM and Greylock $27.5MM
Oct 2007: Microsoft buys 1.6% of Facebook for $246MM
Nov 2007: Li Ka-shing invests $60MM
2009-10: Elevation partners invests $210MM at valuation $12 - 23B
2011: Goldman Sachs buys shares in the secondary market at an implied valuation of $50B
2012: Goes IPO at valuation ~$100B (now $67B)
“The youngest billionaire on earth” - Forbes
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This could be you: Instagram
2010 - Kevin Systrom and Mike Krieger focus their multi-featured HTML5 check-in project Burbn on mobile photography
Mar 2010 – Close $500K seed funding round from Baseline Ventures and Andreessen Horowitz; est. val. $5 MM
Oct 2010 – Product launches on Apple App Store
Feb 2012 – Raise $7MM Series A funding; valuation $25 MM
Apr 2012 – Raise $50 MM at $500 MM valuation; sold to Facebook, val $1 B
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101520253035
Millions of Users
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This could be you: Google
1995: Sergey Brin and Larry Page, two Stanford University graduate students develop the technology that will become the Google search engine.
1998: Sergey and Larry raise $1 million in funding from family, friends, and angel investors to start Google in a friend's Menlo Park, Calif. garage with four employees.
1999: Google raises $25MM from VCs and angel investors
2004: Google goes IPO at a valuation of US$23.1 billion. Sells 7% to public for $1.67 billion. Market cap Jan 2007 US$149 billion.
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This could be you: YouTube
Feb 2005: Chad Hurley, Steve Chen, and Jawed Karim found YouTube, Inc.
Nov 2005: YouTube receives funding from Sequoia Capital
Dec 2005: YouTube service is officially launched
Nov 2006: Google acquires YouTube for US$1.65 billion, 20 months after the company was founded
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Founded by undergrads: Dell and Microsoft
Michael Dell, who founded Dell in 1984 with $1,000 when he was 19 years old. The company now employs approximately 41,800 people worldwide and reported revenues of $38.2 billion for the past four quarters.
Bill Gates, who founded Microsoft in 1975 while still an undergraduate at Harvard. Microsoft had revenues of US$32.19 billion for the fiscal year ending June 2003, and employs more than 54,000 people in 85 countries and regions.
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SEA exit markets at an inflection point
Exit activity in SEA, especially in Singapore, has exploded • Increased investment in startups since 2007 is beginning to yield results
• Number of exits increased from 5 or less pre-2011 to 60 in last three years
• Singapore alone has had 40 exits since 2007
• Value of exits increased from 51 MM in 2010 to 1.2 B in 2014
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Some recent exits Company Country Acquiror Price Year
ZopIM Singapore Zendesk US$29.8MM 2014 Non-Stop Games Singapore King US$ 100MM 2014 sgCarMart Singapore SPH S$60 MM 2013 DS3 Singapore Gemalto S$50 MM est. 2013 Asian Food Channel Singapore Scripps Networks Undisclosed 2013
Reebonz Singapore MediaCorp and Existing investors S$250MM 2013
Yfind Singapore Ruckus Wireless Undisclosed 2013 Techsailor Singapore TO THE NEW Undisclosed 2013 travelmob Singapore HomeAway Undisclosed 2013 Catcha Digital Media Singapore Opt Inc Undisclosed 2013
GridBlaze Singapore Undisclosed Silicon Valley Startup Undisclosed 2013
Viki Singapore Rakuten US$200MM 2013 SGE Singapore Tech In Asia Undisclosed 2013 ThoughtBuzz India To The New Undisclosed 2013 AyoPay Indonesia MOL AccessPortal Undisclosed 2013 Tongue in Chic Malaysia PopDigital Undisclosed 2013 Ocision Malaysia Star Publication US$ 4.36MM 2013 Glamybox Vietnam VanityTrove Undisclosed 2013 PaymentLink Singapore Wirecard US$41.2MM 2013 Dealguru Singapore iBuy S$34.28 MM 2013 Buy Together Hong Kong iBuy S$21 MM 2013 Dealmates Malaysia iBuy S$10 MM 2013 PropertyGuru.com Singapore ImmobilienScout24 S$60 MM 2012 HungryGoWhere Singapore Singtel S$12 MM 2012 AdMax Network Singapore Komli Media Undisclosed 2012 TheMobileGamer Singapore Singtel US$1.5 MM 2012
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Go big or go home
Introduction to scalable entrepreneurship
Understanding risk and return
Let’s fail
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What is the relationship between risk and return?
Risk and return are highly correlated
You cannot increase return without taking more risk
Return
Risk
Potential outcomes
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Go big or go home
Introduction to scalable entrepreneurship
Understanding risk and return
Let’s fail
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3 key elements for success
Do something you love to do – something meaningful
Create opportunities – don’t wait for them
Don’t give up – stay the course
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What about luck?
Luck by definition is random
In the long run, luck should even out for most
Luck plays an important role in initial conditions but after that much less than you imagine
Don’t wait to get lucky; make your own luck
Chance favors the prepared mind
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Evolving cultural attitudes toward failure
Failure is bad; avoid at all costs
Failure is acceptable; leads to learning
Traditional Current
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Evolving cultural attitudes toward failure
Failure is bad; avoid at all costs
Failure is acceptable; leads to learning
Failure is desirable; necessary for innovation
Traditional Current Future
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Why is failure desirable?
Willingness to fail – allows risk-taking and innovation
Risk and return – high risk ventures means they are likely to fail
Innovation – key to scalable ventures – innovators will fail
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Rate of tech change is increasing exponentially
1 10 100 1,000 10,000 100,000 1,000,000 10,000,000100,000,00
0
First Humanoids
Language
Agriculture
Abacus
Calculating machine
Telegraph
Stock Ticker
Light Bulb
Recording sound
Television
General purpose computer
Stored program computer
Integrated circuit
Mini computer
Microprocessor
Personal computer
IBM PC
Pentium
World Wide Web
Deep Blue defeats Kasparov
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Ever-shorter product cycles = more innovation
Phonograph - invented in 1877 by Thomas Edison
33 rpm/45 rpm discs - 1948 (71 years)
Cassette tapes - 1966 (18 years)
Compact disc - 1982 (16 years)
MP3 files - 1991 (9 years)
MP4 files - 1998 (7 years)
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Sometimes failure itself is innovation
Post-It notes - failed glue
Scotchgard - spilled on shoes
Combat - failed additive for cattle feed
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Why are people afraid to risk failure?
Fear of the unknown - “Why take a chance?”
Fear of looking stupid - “What will they think?”
Judging too quickly - “That will never work”
Attachment to the old - “We have always done it this way”
Attachment to past successes - “This approach got us here”
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Do not let fear stop you
Why are you afraid to try?
The outcome must be important to you; otherwise no fear
This makes you afraid to fail
If you do not try, then you have already failed
“You miss 100% of the shots you do not take” - Wayne Gretzky
Fear causes you to fail at the things that are most important to you
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Why fear?
Fear is good when it helps us stay alive
It is rational to be risk-averse in life-and-death situations
Most investment decisions are not life-and-death situations
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Conquering your fear
Everyone is afraid
It is OK to be afraid
Don’t try to eliminate your fear
Work through your fear
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If you don’t fail, you are not trying hard enough
Most learning and progress are achieved through failure
The top scientists in the world fail more than average scientists
Everyone who is now highly successful took significant risk to get there
We don't regret the things that we do and fail at; we regret the things that we fail to do.
A life lived in fear is a life half lived
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Product failures – from Apple III to Apple Newton
1980 - Apple III - 75k units sold
1983 – Apple Lisa - 40K units sold in 1984 vs. 80K forecast
1986 – Pixar Image Computer - < 300 units sold
1990 – NeXT workstation – 50K units sold
1993 – Newton – 100MM spent on development – 80K units sold
Apple clones, NeXT software
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Competitive failure – Apple vs. Microsoft
1980 – Apple’s share of PC market 15%
1996 – 4%
2005 – 2.2%
2011 – Microsoft Windows still has 92% share of operating system market
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Steve Jobs career timeline
Success - 1977 • Apple II
Failure – 1980 • Apple III
Failure – 1983 • Lisa
Success – 1984 • Macintosh
Failure – 1985 • Ousted from Apple
Failure – 1988 • Pixar Image Computer
Failure – 1990 • NeXT Workstation
Failure – 1993 • NeXT discontinues HW
Success – 1995 • Toy Story; Pixar IPO
Success – 1996 • Apple buys NeXT
Success – 1997 • Return to Apple
Success – 1998 • Apple profitable
Success 2001 • IPod
Success 2007 • Iphone
Success 2010 • iPad
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Success from failure
Pixar animated films – 1995 (Toy Story) – 26 Oscars, 7 Golden Globes, 3 Grammies – Films have earned > $6.3 billion worldwide
iPod - 2001 – 300 MM units sold – 90% market share
iPhone – 2007 – > 75 MM units sold – 50% of profits from global mobile phone sales
iPad – > 15 MM units sold, more than all other tablets combined – 83% market share
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What makes Silicon Valley different?
A different attitude toward failure
Many Silicon Valley VCs will only invest in entrepreneurs who have already failed
“I got my education on the mean streets of Silicon Valley, where I got to see how huge mistakes are made. Knowing what doesn’t work is perhaps more valuable than knowing what should work. Failure is just tuition. If you are in a failing start-up, take notes.” - successful start-up founder
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Only do things that are difficult to do
Everything that is worth doing is difficult
If it is easy, it is probably not worth doing
Therefore, you should never hesitate to do something difficult
Start-up entrepreneur is one of the most difficult jobs in the world
The more difficult it is to do, the greater the return when you succeed (risk/return correlation)
Returns to successful start-up entrepreneurs are the highest in the world
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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Investment: why and how
Why entrepreneurs raise money
Why investors invest in startups
How to raise venture funding
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Why should companies raise investment?
Lifestyle or scalable?
Paycheck or payout?
A big piece of a small pie?
A small piece of a big pie?
Founder
Investors
Investors
Founder
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Cost, control, growth and risk
Internal
Debt
Equity
Source of funds
Cost Lose Control Growth $ Risk
Impact of funding
Low Somewhat High
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Investment: why and how
Why entrepreneurs raise money
Why investors invest in startups
How to raise venture funding
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Why invest in venture capital?
As of 31-Dec 2014 The Cambridge Associates LLC U.S. Venture Capital Index® is an end-to-end calculation based on data compiled from 1,569 U.S. venture capital funds (1,002 early stage, 175 late & expansion stage, 386 multi-stage and 6 venture debt funds), including fully liquidated partnerships, formed between 1981 and 2014. 1Pooled end-to-end return, net of fees, expenses, and carried interest. Sources: Cambridge Associates LLC, Barclays, Dow Jones Indexes, Frank Russell Company, Standard & Poor's, Thomson Reuters Datastream, and Wilshire Associates, Inc. *Capital change only
Case Shiller Real Estate Index 4.1
Expara IDM Ventures (2) 43.03
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Impact of VC on a diversified portfolio
Private Equity and Strategic Asset Allocation. 2007 Ibbotson Associates
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How does early-stage out-perform?
10 years after investment. Data from Sand Hill Road Econometrics. Companies received first financing before 1 January 1999. First non-seed round investment. Returns are gross - before fees and carry
Gross value multiples at all stages of investment
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65% of the portfolio will deliver less than 1x Gross value multiples for losers
10 years after investment. Data from Sand Hill Road Econometrics. Companies received first financing before 1 January 1999. First non-seed round investment. Returns are gross - before fees and carry
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Early-stage winners will have more home-runs Gross value multiples for winners
10 years after investment. Data from Sand Hill Road Econometrics. Companies received first financing before 1 January 1999. First non-seed round investment. Returns are gross - before fees and carry
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Early-stage has 450% more 50x and 800% more 100x than later rounds Gross value multiples for home runs
10 years after investment. Data from Sand Hill Road Econometrics. Companies received first financing before 1 January 1999. First non-seed round investment. Returns are gross - before fees and carry
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How does a venture capital fund work?
Fund Investors
VC
8
$ 10 mm
2
$ 10 mm
$ 58 mm
25%
75%
Fund size 10,000,000$ Life of the fund 7Management fee 2.5%Investable 8,250,000$ Investment size 1,031,250$ Companies 8Fail 4 50%Break even 2 25%Exit 2 25%
Investor's required ROI 35%Fund multiple return 5.76Fund size at exit 57,600,000$ Carry @ 20% 9,520,000 Distribution 48,080,000$ Fund return multiple 4.81Fund ROI 35%Required return per exit 28 times
Equity per company F/D 15%Required value of equity at exit 28,800,000$ Required co value at exit 192,000,000$
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GVMs for all first-round investments
10 years after investment. Data from Sand Hill Road Econometrics. Companies received first financing before 1 January 1999. First non-seed round investment. Returns are gross - before fees and carry
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How do VCs make money?
Trade sale – sell to another company
IPO – sell to the public through listing on an exchange
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Investment: why and how
Why entrepreneurs raise money
Why investors invest in startups
How to raise venture funding
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The investor’s decision tree
Innovative?
Yes
Value proposition?
Yes
Fast-growing market?
Yes
Exit
No
No
No
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Product or service: which scales better?
Product-based start-ups – Value proposition is delivered
via product
Service-based start-ups – Value proposition is delivered
via people
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Getting to gatekeepers
It’s not what you know; it’s who you know
Network, network, network
Strong ties and loose ties
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Connecting to my network
My company websites: www.expara.com
My blog: www.douglasabrams.com
E-mail: [email protected]; [email protected]
Facebook: [email protected]
Linked-In: [email protected]
Twitter: twitter.com/douglaskabrams
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and
plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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Key elements for success
Develop an innovative product – Innovation
Solve a problem for customers – Value proposition
Identify your customers – Market identification and analysis
Reach your customers – Marketing strategy
Compete when others enter - Sustainable competitive advantage
Make money – Business model and financial plan
Team – A team or B team
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Problem Solution
Key Metrics
Cost drivers Revenue model
Innovation and value proposition
Sustainable competitive advantage
Channels
Customer segments
Market size
Customer archetype
High concept
Existing solutions
Top 1-3 customer problems
How are these problems solved today?
Your solutions to customer problems
Key numbers that tell if you are succeeding
What is innovative about your solution? Why are you better than existing solutions?
One sentence that says it all
How will you create barriers to entry for followers?
How will you get your product to customers?
Who are your target customers?
How big is your market and how fast is it growing?
Characteristics of your key customers
How do you generate revenue?
What are your key cost drivers?
Expara Business Model Canvas
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Writing a model business plan
1. Executive summary
2. Value proposition and innovation
3. Market identification and analysis
4. Marketing and sales strategy
5. Sustainable competitive advantage
Overview, innovation, market
6. Company products and services
7. Team
8. Expansion plan
9. Operational plan
10. Finances – Revenue and cash flow, valuation, funding required, equity offered, ROI
Execution and financials
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition
• Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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Innovation and value proposition
Sources of innovation – Trend-driven: forces, trends and mega-trends – Technological, macro, social, demographic, political
Types of innovation – Technology, product, process, positioning, paradigm,
operational, cost, customer experience, management, business model, industry, attribute-driven (Blue Ocean)
Degrees of innovation – Incremental, disruptive
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Types of innovation
Trend-driven: forces, trends and mega-trends – Technological, macro, social, demographic, political
Business model: changing market and industry structures & needs – Market inefficiencies
Attribute-driven – Blue Ocean strategy
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Generating innovations
Alternative approaches to existing innovations – Second mover advantage
Personal experience, hobbies and pastimes, personal passions, annoyances
De-commoditize a commodity – Starbucks
Drive an innovation down-market – Spinbrush
Import geographically isolated innovations, cross regional, discipline or industry
– Red Bull, Starbucks
Identify small companies with niche products with broader market appeal potential
– Gyration and Nintendo
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Value propositions
• What value do we deliver to customers?
• Which one of our customer’s problems are we helping to solve?
• What bundles of products and services are we offering to each Customer Segment?
• Which customer needs are we satisfying?
Key questions
• Newness
• Performance
• Customization
• Getting the job done
• Design
• Brand/status
• Price
• Cost reduction
• Risk reduction
• Accessibility
• Convenience/usability
Types of values
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Value proposition – degrees of recognition
Latent problem – they have a problem but don’t know it
Passive problem – they know they have a problem but not looking for a solution yet
Active or urgent problem – they know they have a problem, are actively looking for a solution but no serious work done yet to solve
A vision – they have an idea for solving the problem and a home-grown solution but are prepared to pay for a better solution
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Disruptive business model or disruptive tech
Diamond is the first mover in portable MP3 in 1998
Apple enters in 2003 and captures 90% of the market
Business model innovation – hardware + software + service
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Disruptive models from Gillette to Google
Gillette – razor and blade
Southwest Airlines – budget airlines
Dell Computer – mass customization
Charles Schwab – on-line broker
Amazon – ecommerce
eBay – peer to peer marketplace
Google – search-based advertising
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Innovation and value proposition
1. What is your product and what is innovative about it?
2. What is the painful problem you are solving for customers?
3. What are the shortfalls of the current solutions?
4. How do you solve this problem and can you quantify your benefit?
5. How does your innovation enable you to accomplish this?
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and
analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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Choose an industry favorable to start-ups
Increasing returns business: up-front costs are high relative to marginal costs
Network externalities
Complementary technologies are important to use
Producer learning is strong, switching costs are high
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Look for fast-growing, segmented markets
The cost gap between new and established firms is smaller in larger markets
In fast-growing markets, new firms can serve new customers rather than customers of existing firms
Segmented market provide niches for new firms to enter and reduce retaliation by existing firms
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Market timing – entering at the inflection point
Measure of performance
Measure of effort invested
The technology adoption S curve
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Industry life cycles and structures
Choose a young industry – more demand and less competition
Enter before a dominant design has been adopted
Labor intensive rather than capital intensive
Advertising and branding less important
Less concentrated industries – smaller competitors
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Market identification and analysis
1. What is your market type?
2. How big is your market and how fast is it growing? – Top-down approach – Bottom-up approach
3. What are trends in your market are favourable for you? – Technological, social, demographic, regulatory
4. Who are your direct and indirect competitors?
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Types of markets
Existing markets
Re-segmented markets/niche market
New market
Clone market
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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The customer discovery process
Phase 1 State Hypothesis Draw Business model canvas
Phase 2 Test the problem
Phase 4 Verify or pivot
Phase 3 Test the solution
Customer validation
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Phase 1: Business model hypothesis
Market size hypothesis
Value proposition hypothesis – Product vision – Product features and benefits – Minimum viable product
Value proposition 1: low fidelity MVP – Do customers care about the problem? – Write a user story
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and
strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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What are the elements of marketing strategy?
Differentiation – how is your product different from competition – Product - superior customer value – better, faster closer – Cost leadership
Positioning – market selection + differentiation – Image for the product that embodies its values
Marketing Execution – the 4 Ps – Product, pricing, place, promotion
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Marketing strategy
1. How is your product differentiated from your competitors’ product? Use a comparison matrix to illustrate.
2. What is your position in the market? Use a positioning map or Blue Ocean Strategy canvas to illustrate
3. What are your price, place, product, promotion and initial sales plans
4. What is your tagline?
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Comparison matrix
Competitor 1
Competitor 2
Competitor 3
Competitor4
Your company
Benefit 1
Benefit 2
Benefit 3
Benefit 4
Benefit 5
Benefit 6
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Positioning map
Portability
Value
Competitor 2
Your company
Competitor 1
Competitor 3
Competitor 4
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Value innovation – reduce costs & increase value
Costs
Buyer value
Value innovation
www.blueoceanstrategy.com
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Develop a tagline
Clear, strong, authentic
Describes your unique offering to customers
Provides focus and differentiation
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Elements of the 4 Ps
Product – Name, functionality, styling, quality, safety, packaging, repairs and
support, warranty, accessories and service
Price – Pricing strategy, MSRP, volume discounts and wholesale pricing, cash
and early payment discounts, seasonal pricing, bundling, flexibility
Place – Distribution channels, market coverage, specific channel members,
inventory management, logistics
Promotion – Push/pull, advertising, selling and sales force, sales promotions, PR
and publicity, budget. – How will you make your first sale?
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Competitors will enter
How to compete with followers?
How to compete with existing companies?
Sustainability of technological lead – Competitors cannot duplicate the technology – Firm can innovate as fast or faster than competitors
First-mover disadvantages
Last-mover advantage
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Competitive advantage – barriers to entry
Proprietary intellectual property
Network effects or externalities
Customer lock-in/switching costs
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Creating last-mover advantage
Reputation
Preempting positioning
Switching costs/Lock-in/Network effects
Unique channel access
Move down learning curve
Favorable access to inputs
Definition of standards
Institutional barriers – IP protection
First Mover Advantages
Pioneering costs
Demand uncertainty
Changes in buyer needs
Specificity of investments to early generations
Technological discontinuities
Low-cost imitation
Disadvantages
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Strategies to create last-mover advantage
IP strategy – patents, copyrights, trademarks, trade secrets
Create barriers to entry – Network effects and externalities – Lock-in effects
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Established company strengths and weaknesses
Learning curve
Reputation effect
Cash flow
Economies of scale
Complementary assets
Advantages
Difficult to innovate
They need to satisfy existing customers, partners and supply chain
Existing organizational structure is appropriate to current tasks
Risk aversion
Weaknesses
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Opportunities that favor new firms
Existing firms frozen in the headlights
Disruptive technologies and business models
Uncertainty: existing firms’ advantages in market research are neutralized; risk propensity
Technologies: Discrete versus systemic technologies, based on human capital, general purpose rather than specific
Bad customers: Enter market that is unattractive to existing competitors due to established cost structure
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and
archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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Customer segments
• For whom are we creating value?
• Who are our most important customers?
Key questions
• Mass market
• Niche market
• Segmented
• Diversified
• Multi-sided platform or market
Types of customer segments
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Customer segments: who/problem
Customer problem – Latent – Passive – Active or urgent – Vision
Customer types – End user – Influencer – Recommender – Economic buyer – Decision maker
Customer archetype
A day in the life of a customer
Organizational/influence maps
Consumer/web influence map
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Customer relationships
• What type of relationships does each of our customer segments expect us to establish and maintain with them?
• Which ones have we established?
• How are they integrated with the rest of our business model?
• How costly are they?
Key questions
• Personal assistance
• Dedicated Personal Assistance
• Self-Service
• Automated Services
• Communities
• Co-creation
Examples
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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Sales and distribution
Great sales and distribution vs great product
Best sales is hidden
Products don’t sell themselves
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Metrics for effective distribution
CLV: total net profit earned over the course of relationship with customer
CAC: cost to acquire a new customer
CLV>CAC
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Complex sales
Seven figure deals
CEO must sell
50-100% YoY growth over 10 years
Enterprise sales must start small
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Personal sales
10K-100K
Sales team can sell
Need to establish a process so sales team can move to mass
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Sales dead-zone
Product needs a personal sales effort
Resources are not available or too expensive
Underserved SME markets
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Marketing and advertising
Work for products with mass appeal but not viral – FMCG
Can work for start-ups but
Only when CLV-CAC make all other channels uneconomical
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Viral marketing
Core functionality encourages users to invite their friends
Move first to dominate most important segment of market with viral potential
Get the most valuable users first
Paypal – initial focus on 20K Ebay PowerSellers
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Power law of distribution
Select one - one distribution channel will be more powerful than all others combined
Most businesses get zero distribution channels to work
Poor sales rather than bad product is most common cause of failure
Sell your company to the media
Everyone sells
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Channels
• Through which channels do our customer segments want to be reached?
• How are we reaching them now?
• How are our channels integrated?
• Which ones work best?
• Which ones are most cost-efficient?
• How are we integrating them with customer routines?
Key questions
• Awareness: How do we raise awareness about our company’s products and services?
• Evaluation: How do we help customers evaluate our organization’s Value Proposition?
• Purchase: How do we allow customers to purchase specific products and services?
• Delivery: How do we deliver a Value Proposition to customers?
• After sales: How do we provide post-purchase customer support?
Channel phases
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Channel hypothesis – physical products
Does your product fit the channel?
Physical channel choices – Direct sales – Independent sales rep firms – SI/VAR – Distributors/resellers – Dealers/Retailers – Mass merchandisers – OEMs
Which channel should I use?
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Channel hypothesis – web/mobile
Pick one distribution channel – use tests to choose
Web/mobile channel choices – Dedicated e-commerce – your website – Two-step e-distribution - Amazon – Aggregators - Lendingtree – Platform app store – Apple – Social commerce - Facebook – Flash sales - Groupon – Free-to-paid channel
Multi-sided markets need unique channel plans
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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Get customers strategy
Who is your audience and where are they?
What content will they like?
Make sure your content works in location
Participate in their communities
Create content that people want to link to
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Get customers tactics
Earned or free – Public relations – Viral marketing – SEO – Social networking
Paid – Pay-per-click advertising – Online or traditional media advertising – Affiliate marketing – Online lead generation; permission-based emailing
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Keep customers
Interact, retain
Customization
User groups
Blogs
Online help
Product tips/bulletins
Outreach, affiliates
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Grow customers
Get current customers to spend more – Cross-sell – Up-sell – Next selling – Unbundling
Get customers to send more customers – Encourage likes – Discounts or free trials to share – Enable email to friends to create mailing lists – Contests or incentives for viral activities – Highlight social networking action buttons – Encourage bloggers to write about the product
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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Revenue models
• For what value are our customers really willing to pay?
• For what do they currently pay?
• How are they currently paying?
• How would they prefer to pay?
• How much does each Revenue Stream contribute to overall revenues?
Key questions
• Asset sale
• Usage fee
• Subscription Fees
• Lending/Renting/Leasing
• Licensing
• Brokerage fees
• Advertising
Types
• List price
• Product feature dependent
• Customer segment
• dependent
• Volume dependent
Fixed pricing
• Negotiation (bargaining)
• Yield Management
• Real-time-Market
Dynamic pricing
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Key revenue model issues
Subscription/membership
Volume or unit-based sales
Advertising-based
Licensing & syndication
Transaction fee
Pay-per-use
Referrals
Affiliate/revenue sharing
Selling data
Back-end offers
Revenue models
Single stream
Multiple streams
Interdependent
Loss leader
Revenue streams
Value pricing
Competitive
Volume
Portfolio
Razor/blade
Subscription
Leasing
Product based
Pricing models
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Other revenue model issues
Total cost of ownership (TCO)
Return on investment (ROI)
Multi-sided markets have multiple revenue models
Distribution channel affects revenue streams
Consider lifetime value
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Revenue diagram – Grateful Dead
From Note on Business Model Analysis for the Entrepreneur – HBS Publishing
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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Cost structure
• What are the most important costs inherent in our business model?
• Which Key Resources are most expensive?
• Which Key Activities are most expensive?
Key questions
• Cost Driven (leanest cost structure, low price value proposition, maximum automation, extensive outsourcing)
• Value Driven (focused on value creation, premium value proposition)
Is your business more
• Fixed Costs (salaries, rents, utilities)
• Variable costs
• Economies of scale
• Economies of scope
Sample characteristics
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Cost drivers
Payroll-centered (Direct)
Payroll-centered (Support)
Inventory
Space/Rent
Marketing/advertising
Cost structures
Fixed
Semi-variable
Variable
Non-recurring
Types of cost drivers
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Costs diagram – 7-11 Japan
From Note on Business Model Analysis for the Entrepreneur – HBS Publishing
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
164
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
165
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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Key roles in a start-up company team
Position Skills 1 CEO (Chief Executive Officer) Leadership, vision, presentation
2 CFO (Chief Finance Officer) Financial 3 COO (Chief Operating Officer) Operations and HR
4 CTO (Chief Technology Officer) Technical/product background
5 CMO (Chief Marketing Officer) Sales and marketing
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Key partnerships
• Who are our key partners?
• Who are our key suppliers?
• Which key resources are we acquiring from partners?
• Which key activities do partners perform
Key questions
• Optimization and economy
• Reduction of risk and uncertainty
• Acquisition of particular resources and activities
Motivations for partnership
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Partners hypothesis
Strategic alliances
Cooperation with competitors
Joint business development efforts
Key supplier relationships
Traffic partners (web/mobile)
Other partners – app stores, payment providers
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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Patents
Technical inventions
Novelty, inventiveness & industrial application
Registration system – national & PCT systems
Novelty & infringement searches
20 years, if continuously renewed
Exclusive monopoly
Business methods & computer programs, algorithms, ideas
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Copyrights
Exists on creation, no registration procedures
Searches are therefore not available
Expression not ideas – words, music, art, film, sound, broadcast, cable, publishing, live performance
Life or author/ creator+ 50 years; or 50 years
Copy, publish, perform, broadcast, cable, adapt
Software, databases, GUI, multimedia
International protection e.g.., Berne, TRIPs
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Trade Marks
Registration system – national, CTM & Madrid treaties
Capable of distinguishing & earlier marks
Substantive examination
Searches? – national or CTM
10 years, renewable indefinitely
Right to use in the course of trade
Domain names, marketing, web partnerships
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Design registration
National registration system
Novelty and mass-produced articles
Formal examination only
15 years / 25 years protection, if continuously renewed
Exclusive monopoly
Computer icons
Register or almost no protection, not even copyright
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Trade Secrets
Formula (e.g. Coca Cola formula)
Pattern, Plan, Customer Lists, etc
Process, R&D Data
Device, Apparatus, Machinery etc
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Advantage of Trade Secrets
No fees
No time limits
Information not available to competitor for improvements
No blocking patents
Freedom to operate
Proprietary position
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Forms of organization
Sole proprietorship
Partnership
Limited Liability Partnership
Companies – Private Limited companies – Public companies – Listed public companies
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Key agreements
Shareholder agreement
Employment agreement
Director’s responsibilities
Investment agreement
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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Who are the players?
Entrepreneurs – Lifestyle entrepreneurs - limited scope, complication and
risk. Slow growth. – High-growth entrepreneurs (scalable business)
Significant scope, complication, and risk. Rapid growth.
Venture investors – Venture capitalists (VCs) – Seed investors/incubators – Angel investors – Corporate VCs and investors – Banks, government
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What roles do they play?
Identify opportunities
Provide funding
Oversee finances
Assist with growth
Generate returns for themselves or their investors
Venture investors
Create opportunities
Raise funding
Manage finances
Increase value
Generate returns for investors
Entrepreneurs
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VCs invest at multiple stages
Founder’s Capital
Seed/Angel
Series A, B, C
Mezzanine Pre-Exit Exit
VC hurdle rates 60-100% 40-60% 20%
OM F,F&F
Incubators corporations government
Customers, suppliers, strategic partnersVCs, Banks for VC loans
R&D Establishment GTM/Rollout Accelerated Expansion MaturityEnablement growth
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How much funding is required?
What are sources of funds – debt, equity, retained earnings
How much money do you need to raise and how much equity will the investor receive?
You should generally be raising around $0.6MM to $1.5MM at this stage.
Remember that if you are raising less than $1MM, you will likely be seeking investment from Angel investors rather than from VCs.
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Equity offered – how much do you need?
What percentage does the company want to sell? – Often too much or too little – This is the wrong question
Set performance and fund-raising milestones – How much money do you need to achieve the next milestone? – Divide defensible firm value by funds needed to determine
percentage to sell
Equity offered in the seed stage should usually be in the range of 15-30%
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Use the funds to fuel company growth
How are you going to use the money you are raising?
Show a detailed breakdown
Minimize investment in fixed assets
No big salaries for founders
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Exit strategy and ROI
How will your investors make money and how much will they make?
The most likely exit strategies are IPOs (sell to the public) and trade sale (sell to another company), with trade sale the first choice in most cases.
For VCs, ROI should be at least 10 times and preferably 30-100 times over 5 years.
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How do VCs make money?
Trade sale – sell to another company
IPO – sell to the public through listing on an exchange
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Exit markets at an inflection point
Exit activity in SEA, especially in Singapore, exploded in 2013 • Increased investment in startups since 2007 is beginning to yield results
• Number of exits increased from 6 in 2010 to 20 in 2013
• Singapore alone has had 30 exits since 2007, 13 in 2013
• Value of exits increased from 51 MM in 2010 to 400 MM in 2013
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Recent exits in SEA Company Country Acquiror Price Year
ZopIM Singapore Zendesk US$29.8MM 2014 Non-Stop Games Singapore King US$ 100MM 2014 sgCarMart Singapore SPH S$60 MM 2013 DS3 Singapore Gemalto S$50 MM est. 2013 Asian Food Channel Singapore Scripps Networks Undisclosed 2013
Reebonz Singapore MediaCorp and Existing investors S$250MM 2013
Yfind Singapore Ruckus Wireless Undisclosed 2013 Techsailor Singapore TO THE NEW Undisclosed 2013 travelmob Singapore HomeAway Undisclosed 2013 Catcha Digital Media Singapore Opt Inc Undisclosed 2013
GridBlaze Singapore Undisclosed Silicon Valley Startup Undisclosed 2013
Viki Singapore Rakuten US$200MM 2013 SGE Singapore Tech In Asia Undisclosed 2013 ThoughtBuzz India To The New Undisclosed 2013 AyoPay Indonesia MOL AccessPortal Undisclosed 2013 Tongue in Chic Malaysia PopDigital Undisclosed 2013 Ocision Malaysia Star Publication US$ 4.36MM 2013 Glamybox Vietnam VanityTrove Undisclosed 2013 PaymentLink Singapore Wirecard US$41.2MM 2013 Dealguru Singapore iBuy S$34.28 MM 2013 Buy Together Hong Kong iBuy S$21 MM 2013 Dealmates Malaysia iBuy S$10 MM 2013 PropertyGuru.com Singapore ImmobilienScout24 S$60 MM 2012 HungryGoWhere Singapore Singtel S$12 MM 2012 AdMax Network Singapore Komli Media Undisclosed 2012 TheMobileGamer Singapore Singtel US$1.5 MM 2012
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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In the financial section of the business plan
Business model
Financial projections
Valuation
Funding required and equity offered
Use of Proceeds
Exit Strategy and ROI
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Create financial projections
3-5 years of projected balance sheet, income statement and cash flow statements.
Project from bottom up and top down
Sales growth and market share are key
Project cash requirements using a detailed budget
Yr 1 Yr 2 Yr 3 Yr 4
Gross Revenues
Operating Expenses
EBITDA
Metric: Ex: Units sold/leased
Scalability necessary for VC investment - $50MM in annual rev
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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Company valuation methods
Price to earnings (p/e)
Dividend yield
Multiple of book value
Comparables
Discounted Cash Flow (DCF)
VC method
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Valuation – how much is your business worth?
How much is your business worth, based on comparables and a DCF valuation of your projected cash flows at an 80% discount rate?
Make sure that you can explain how you arrived at this valuation.
For seed stage companies, this should generally be in the range of $2-4 MM.
Pre-money valuation - worth of the business before VC investment
Post-money valuation – after VC investment
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VC method of valuation
Variation on NPV/IRR method
Founders expect to sell company for $25 MM in 4 years
Need to raise $3MM; investors require 50% return (discount rate)
Post-money valuation = $4.9 MM ($25MM/(1.54)
Pre-money valuation = $1.9MM ($4.9MM-$3MM)
Equity required = $3MM/$4.9MM = 60.75%
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How much equity does the investor receive?
Pre-money valuation – Amount invested by VC ÷ (Agreed pre-money value of business
+ Amount invested by VC) – $3MM pre + 1 MM VC = 25% VC equity
Post-money valuation – Amount invested by VC ÷ post-money valuation – $4MM post = 25% VC equity
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term
sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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Key elements of the deal
Board of directors
Protective provisions
Drag-along agreement
Conversion
Control
Price-per-share
Valuation
Amount of financing
Liquidation preference
Vesting
Options pool
Anti-dilution
Pay-to-play
Economics
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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VC vs. entrepreneur - interests
Solve sorting problem
Minimize agency costs/problems
Maximize financial returns
Maintain option to abandon
Be able to force entrepreneur to exit and distribute proceeds
Maintain reputation
VC
Get outside capital
Maximize financial gains from equity stake
Retain control, minimize constraints on behavior and decision making
Build successful firm
Build reputation
Get outside expertise and contacts
Entrepreneur
From Venture Capital Negotiations: VC versus Entrepreneur – HBS Publishing
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VC versus entrepreneur
Entrepreneur compensation increases when value of VC's stake increases
Vesting of entrepreneur's stake
Key-person agreements
Ability to fire managers
Ways to align incentives
Due diligence
Repeated relationships
Monitoring/information rights
Ways to reduce information asymmetries
From Venture Capital Negotiations: VC versus Entrepreneur – HBS Publishing
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VC versus entrepreneur
Equity stake senior to that of entrepreneur
Option to abandon through staging of investments across financing rounds
Forcing exit through decision-making control
Convertible debt
Puts rights and anti-dilution provisions
Ways for VC to protect downside
Seat on board of directors
Covenants in agreement limiting entrepreneur's ability to use capital in undesirable ways
Involvement in operations
Super-majority rights
Ways for VC to control decision making
From Venture Capital Negotiations: VC versus Entrepreneur – HBS Publishing
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Entrepreneur versus investor
Maximize financial returns
Maintain option to abandon
Be able to force entrepreneur to exit and distribute proceeds
Maintain reputation
VC
Get outside capital
Maximize financial gains from equity stake
Retain control, minimize constraints on behavior and decision making
Build successful firm
Build reputation
Get outside expertise and contacts
Entrepreneur
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation
materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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Communicating with investors
Business plan
Executive summary
Investor presentation
Formal and informal presentations
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Use meaningful titles
The title of each slide should communicate the key message for that slide.
For example, if you have a slide that shows projected sales, do not make the title "Projected Sales."
Instead, make the title something like, "Projected Sales in 2003 are $3 Million."
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Less is more
Your message needs to be clear and concise
Clean visual design – avoid chart junk and “design-itis”
On presentation slides, less is more – slides, bullet points, text
If you can't explain your message simply, you need to re-formulate your message.
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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How long does it take to make a first impression?
First impressions are critical
You make yours in the first 7 seconds of your presentation
How long to feel someone is trust-worthy? 0.1 second
How can people decide so quickly? Appearance and body language.
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You can’t judge a book by its cover, can you?
Appearance counts
Attractive people are viewed as more interesting, credible, trustworthy and persuasive
Good looking people get better jobs, tall men perceived as powerful
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Which one is more likely to be the CEO?
In the U.S. population, about 14.5 percent of all men are six feet or over
Among CEOs of Fortune 500 companies, that number is 58 percent
3.9 percent of adult men are 6'2" or taller
Among CEOs, 30 percent were 6'2" or taller
An inch of height is worth $789 a year in salary
From Blink – Malcolm Gladwell
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You can’t judge a book by its cover: Part III
You can’t judge a book by its cover; appearance doesn’t matter
Everyone judges books by their cover; appearance matters a lot
We can be seriously misled by this approach – Susan Boyle
So why does everyone judge a book by its cover?
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All stereotypes are wrong, aren’t they?
Beauty is not in the eye of the beholder – standards of beauty are innate
One-week old babies look longer at attractive faces
Beauty is not only skin-deep
Bi-lateral symmetrical and composite appearance are correlated with genetic and developmental fitness
Tall and strong men were more successful in our ancestral environment
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Presentation dos and don'ts
Rock back and forth - nervous
Fidget - nervous
Shake leg while sitting – bored, nervous
Too many um and uh
Voice too soft – shy; too loud – overbearing
Rubbing back of the neck – bored
Don’t
Stand up straight, open body language – nothing crossed
Arms at side - relaxed and proper gesticulation – hands below chin and within shoulder ranger
Be aware of hands and feet
Face smiling and inviting
Silent pause – thoughtful and confident
Do
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Maintain proper eye contact
Too little eye contact – lying
Too much eye contact – stalker stare
Look directly at the audience for emphasis or conviction
Sweep and click to create connections
Handshake – strong and confident. Pump 2-3 times, then release. Don’t use two hands
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Getting past gatekeepers
Why are presentations important?
Understand gatekeepers’ incentives
Avoid raising red flags
Attention to detail
Get it right the first time
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What causes choking?
Top performance under pressure requires focus and relaxation
Too much focus on performance causes skill to break down
Forget about your bad shots; remember your good shots
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Create takeaway messages
People remember the first or last things that you say, so start and end the presentation strong
Communicate your important points clearly, concisely and memorably.
People remember stories more easily than lists of facts, so if you can make any of your key points in story form, that can be helpful.
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Do not read your slides
Do not just stand and read your presentation slides.
Makes your presentation redundant and therefore uninteresting, since the audience can just then read the slides.
Try to pick out one or two important points on each slide to discuss in more detail.
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Practice and test
Analyze the details of your presentation, then master those details by practice, practice, practice.
Arrive early and if you are using any technology, test it
If you can not get in early, try to test the night before
It is OK to be nervous before you begin
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Q&A is the most important part
Audience has a chance to ask you about what is on their mind.
Q&A is do or die time.
Prepare for Q&A by studying your material in-depth
Anticipate likely difficult questions and formulate answers
Note questions you are asked and if you did not have a good answer to a specific question, formulate one for next time.
Don’t disagree - agree
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Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation
workshop • Demo Day
Financing and fundraising
238
6XXXX
Expara Accelerator Program
• Go big or go home • Investment: why and how • Business model canvas and plan
Understanding the big picture
• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and
activation workshop • Low fidelity MVP demo
Key elements for success: product/market fit
• Team, team and team • Legal and regulatory issues
Key elements for success: business
• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation
workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day
Financing and fundraising
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The customer discovery process
Phase 1 State Hypothesis Draw Business model canvas
Phase 2 Test the problem
Phase 4 Verify or pivot
Phase 3 Test the solution
Customer validation
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Testing the problem
• Do we really understand the customers problem?
• Do enough people care about the problem for the business to scale?
• Will they care enough to tell their friends?
Key questions
• Designing experiments for customer tests
• Preparing for customer contacts and engagements
• Testing customers understanding of the problem and assessing its importance to customers
• Gaining understanding of customers
• Capturing competitive and market knowledge
Key steps
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Prepare for customer contacts – physical
Start with 50 target customers
Develop a reference story
Start the appointment setting process
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Build low-fidelity MVP – web/mobile
Makes sure the problem or need is an urgent one
Presents the problem
Asks for a response
Can use multiple MVPs
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Test understanding of problem and assess its importance - physical
Develop a problem presentation
The problem meeting
Understand how they solve the problem today
Collect information on everything
Amalgamate and score customer data
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Low fidelity MVP problem test – web/mobile
Push – push contacts need referral sources
Pull – pull strategies
Pay – pay for contacts
Drive traffic and start counting
Consider scalability
Use traffic measurement tools
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Gain customer understanding
Participate in their culture
Get to know real customers
Internalize customer experience
Understand how they discover new ways to spend their time
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Contact us
Douglas Abrams
Expara Pte. Ltd.
www.expara.com
65-6323-3084, 65-9780-5381 (hp)
Block 71 Ayer Rajah Crescent, #02-10/11 Singapore 139951