s parring p artners c apital august 17, 2015 stanford university data mining and e-business
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SPARRING PARTNERS CAPITAL
April 19, 2023
Stanford UniversityData Mining and E-Business
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WARREN H SPAR 20+ Years on Wall Street: Capital Markets & Corporate Finance
Partner at Lehman Brothers
Managing Director at Bankers Trust/Alex Brown/Deutsche Bank
Experience with a variety of industries including Software, Marketing Services, Financial Services, and
Business Services
Closed over $100 billion dollars worth of transactions
M.B.A. from University of Chicago
SPARRING PARTNERS Boutique investment bank with special focus on advising privately-held growth companies in the
software & technology-enabled businesses sectors
Licensed broker-dealer; Member FINRA / SIPC
Sell-Side Advisory: Strong access to senior management of leading global strategic buyers
Equity Capital Raising: Well-connected to the top venture capital and private equity firms in the U.S.
Debt Capital Raising: Strong relationships with global debt lenders, traditional and non-traditional
Private Equity Fundraising: Relationships with U.S. endowments, foundations, pension funds, family
offices, and advisors/consultants
INTRODUCTION
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VC Misses – Bessemer Venture Partners’ Anti-Portfolio
eBay"Stamps? Coins? Comic books? You've GOT to be kidding," thought Cowan. "No-brainer pass.”
Apple ComputerBVP had the opportunity to invest in pre-IPO secondary stock in Apple at a $60M valuation. BVP's Neill Brownstein called it "outrageously expensive."
GoogleCowan’s college friend rented her garage to Sergey and Larry for their first year. In 1999 and 2000 she tried to introduce Cowan to “these two really smart Stanford students writing a search engine”. Students? A new search engine? In the most important moment ever for Bessemer’s anti-portfolio, Cowan asked her, “How can I get out of this house without going anywhere near your garage?”
IntelBVP's Pete Bancroft never quite settled on terms with Bob Noyce, who instead took venture financing from a guy named Arthur Rock
IntuitAlong with every venture capitalist on Sand Hill Road, Neill Brownstein turned down Intuit founder Scott Cook. Scott managed to scrape together only $225K from friends, including HBS classmate and Sierra Ventures founder Peter Wendell, who personally invested $25K to get Scott off his back.
PaypalDavid Cowan passed on the Series A round. Rookie team, regulatory nightmare, and, 4 years later, a $1.5 billion acquisition by eBay.
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Don’t Get Discouraged!
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Most Popular Websites: August 2001 vs. August 2007Ranked By Monthly Attention
Rank SiteAttention
(2001)Attention
(2007)Change Rank Site
Attention(2001)
Attention(2007)
Change
1 msn.com 10.94% 4.96% -55% 16 audiogalaxy.com 0.40% 0.00% -100%
2 yahoo.com 10.69% 6.65% -38% 17 microsoft.com 0.40% 0.18% -55%
3 ebay.com 2.77% 2.50% -10% 18 altavista.com 0.39% 0.02% -95%
4 neopets.com 0.95% 0.22% -77% 19 monster.com 0.38% 0.12% -68%
5 goto.com 0.88% 20 weather.com 0.34% 0.07% -79%
6 aol.com 0.88% 0.94% 7% 21 pogo.com 0.34% 1.69% 397%
7 go.com 0.86% 0.53% -38% 22 amazon.com 0.34% 0.27% -21%
8 passport.com 0.83% 23 blackplanet.com 0.32% 0.10% -69%
9 excite.com 0.82% 0.06% -93% 24 iwin.com 0.31% 0.01% -97%
10 geocities.com 0.58% 0.02% -97% 25 reliaquote.com 0.27%
11 netscape.com 0.57% 0.02% -96% 26 expedia.com 0.26% 0.09% -65%
12 google.com 0.54% 2.60% 381% 27 cartoonnetwork.com 0.25% 0.08% -68%
13 nytimes.com 0.51% 0.07% -86% 28 cnet.com 0.25% 0.01% -96%
14 lycos.com 0.41% 0.03% -93% 29 half.com 0.25%
15 iwon.com 0.41% 0.07% -83% 30 bizrate.com 0.23% 0.02% -91%
Acquired
Acquired
Acquired
Acquired
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On The Internet, There Are No Entrenched Companies!
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eBayPierre wanted to allow his wife to sell Pez dispensers online
YahooDavid & Jerry built a directory of the Internet for their personal use
GoogleLarry & Sergey started Google as a Stanford PhD research project
Craig’s ListCraig’s list was a list of fun parties and events for him and his friends to attendcraigslist
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The Biggest Ideas Are Often Born Out Of Ordinary Needs!
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I VENTURE CAPITAL MARKET
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Venture Capital Investment
0.0
20.0
40.0
60.0
80.0
100.0
120.0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
E
Am
ou
nt
Inv
es
ted
(U
S$
bill
ion
)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Av
era
ge
De
al S
ize
(U
S$
mill
ion
)
Amount Invested Average Deal Size
I VENTURE CAPITAL MARKET
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Financial
LAST TEN YEARS
VENTURE CAPITAL INVESTMENTS
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VENTURE CAPITAL INVESTMENTS
Venture Capital Investment by Quarter
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Q104
Q204
Q304
Q404
Q105
Q205
Q305
Q405
Q106
Q206
Q306
Q406
Q107
Q207
Q307
Q407
Q108
Am
ou
nt
Inv
es
ted
(U
S$
bill
ion
)
0
200
400
600
800
1,000
1,200
# o
f D
ea
ls
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Financial
I VENTURE CAPITAL MARKET
BY QUARTERS
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PRE-MONEY VALUATIONS
Source: Dow Jones VentureSource and Thomson Financial, PWC, NVCA
I VENTURE CAPITAL MARKET
$0
$20
$40
$60
$80
$100
$120
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Am
ou
nt
Inve
sted
($b
n)
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90 Med
ian P
re-Mo
ney V
aluatio
n
($mm
)
Amount Invested First Round Second Round Later Stage
$4
$5
$6
$7
$8
4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07
Am
ou
nt
Inve
sted
($b
n)
$0
$10
$20
$30
$40
$50 Med
ian P
re-Mo
ney V
aluatio
n
Amount Invested First Round Second Round Later Stage
LAST TWELVE QUARTERS
LAST TEN YEARS
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RISK / REWARD PROFILE
High Risk
Low Risk
High ReturnsModest Returns
Early-Stage Firms
PrivateEquity
GrowthEquity
AngelInvestors
I VENTURE CAPITAL MARKET
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What Makes a Good Business Model
I VENTURE CAPITAL MARKET
Total Addressable Market (>$1 billion)
Conversion / Adoption Rates Network / Viral Effect (Bloomberg, Facebook)
Revenue Model Predictability of Revenue (Recurring vs. Non-Recurring)
Profitability EBITDA Margin
Growth Rates 10% per year or per month?
Concentration of Client base
Depth of Management Team
Proprietary Technology / Barriers to Entry
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Ideas for New Companies
I VENTURE CAPITAL MARKET
Think “In-the-Box”
Mimic Ideas from Overseas Auction Sites
Ringtones
Improve on Existing Technology / Idea
Apply One Technology to Another Industry GPS
Think “Out-of-the-Box”
Create a Whole New Market Social Networks
Cleantech
What Do You Think?
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Starting Your Own Company
I VENTURE CAPITAL MARKET
The Earliest Capital is the Most Expensive!
Beg your friend and family for money
Don’t pay yourself
Beg your developer friends to build the software for you
Give sweat equity to whomever you need in the early stages of the company
Penny pinch on everything – you most likely don’t need a CFO, nice offices, etc. Just get the product out of the door!
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Using A Knowledgeable Banker
I VENTURE CAPITAL MARKET
Use a banker with domain expertise
Avoids conflicts with potential investors
Creates a perception of professionalism and investor demand
Running a sale process increases valuations and will result in better transaction terms
Bankers have strong relationships
Bankers have valuable insights into markets
Bankers can offer “out-of-the-box” thoughts on potential investors
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The Capital Raise Process
I VENTURE CAPITAL MARKET
STAGE IDevelop Marketing Materials
Executive Summary PowerPoint Presentation Financial Model
STAGE II Contact Institutions
STAGE IIIMeetings & Conference Calls
STAGE IVReview Term Sheets
STAGE VDue Diligence & Closing
Contact Potential Strategic/Private Equity Investors Distribute Executive Summary Schedule Conference Calls/Meetings
Engage in Conference Calls/Meetings Initial Due Diligence
Review Term Sheets Negotiation Process Select Acquirer/Investor
Complete Due Diligence Documentation Close and fund
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Important Transaction Terms
I VENTURE CAPITAL MARKET
Pre-Money Valuation + Investment = Post-Money Valuation
Participating vs. Non-Participating Preferred
Liquidation Preference
Anti-Dilution Provisions
Pay-to-Play
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II Case Studies
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SUBSCRIPTION GROWTH
II CASE STUDIES – COMPANY A
Total Subscriptions
0
50,000
100,000
150,000
200,000
250,000
300,000
Jan07
Feb07
Mar07
Apr07
May07
Jun07
Jul07
Aug07
Sep07
Oct07
Nov07
Dec07
Jan08
Feb08
Mar08
Month
Su
bsc
rip
tio
ns
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SUBSCRIBER GROWTH BY EDITION
II CASE STUDIES – COMPANY A
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CHURN
II CASE STUDIES – COMPANY A
Churn
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
Jan07
Feb07
Mar07
Apr07
May07
Jun07
Jul07
Aug07
Sep07
Oct07
Nov07
Dec07
Jan08
Feb08
Mar08
Month
Su
bsc
rip
tio
ns
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MEMBER GROWTH
II CASE STUDIES – COMPANY B
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PAID SUBSCRIBER GROWTH
II CASE STUDIES – COMPANY B
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
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SELECTED PAST CLIENTS
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SELECTED PAST CLIENTS
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For further information, please contact:
Warren SparSparring Partners Capital420 Lexington Ave, Suite 2458New York, NY [email protected]
Tel: 212-490-6525