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1/7/14 Strictly Confidential Copyright © Canaan Partners 2013, All rights reserved.
Creating Value and Managing Growth
Nishant Verman
March 2014
1/7/14 Strictly Confidential Copyright © Canaan Partners 2013, All rights reserved. 1/7/14 Strictly Confidential
About
Canaan Partners
2
1/7/14 Strictly Confidential Copyright © Canaan Partners 2013, All rights reserved.
About Canaan
MONEY EXPERIENCE BREADTH RESULTS
$600M
FUND IX
26+
YRS WORKING WITH
ENTREPRENEURS
2
GLOBAL INSIGHTS
55
IPOS
$3.5B
UNDER
MANAGEMENT
400
INVESTMENTS
MULTI-SECTOR
95
M&As
$3.1B
EXIT PROCEEDS
12
YRS AVERAGE OF
GPs WORKING
TOGETHER
EARLY STAGE FOCUS
TOP QUARTILE
PERFORMANCE
33%
67%
Seed andEarly
Mid andLate
20%
80%
3
1/7/14 Strictly Confidential Copyright © Canaan Partners 2013, All rights reserved.
Consumer
Internet
Payments &
Financial Services Mobility
Enterprise &
Managed Services
Canaan India Portfolio
4
1/7/14 Strictly Confidential Copyright © Canaan Partners 2013, All rights reserved. 1/7/14 Strictly Confidential
Creating Value &
Managing Growth
5
1/7/14 Strictly Confidential Copyright © Canaan Partners 2013, All rights reserved.
TIME / REVENUE
M
A
T
U
R
I
T
Y
Business Model
Management
Product
Incubators
Angels Venture Capital Bank loans
Private equity IPO, Trade Sale
Profitability
Competition
Financing
Governance
Expansion
Liquidity
Value Creation
6
1/7/14 Strictly Confidential Copyright © Canaan Partners 2013, All rights reserved.
Case Study - iYogi
Concept & Pilot
- Pilot – demonstrate
quality of service
- Initial go-to-market plan
- Core team
Feasibility Stage
- Unit economics
- Initial traction
- Continuing quality of
service
Scale Phase 1
- Internet based scale
- Pilots around other
channels
- Team build out
Growth Stage
- Multi-channel scale
- Additional services
- Organizational Maturity
Maturity
Time Self/Angel Series A Series B Series C Series D
(Apr 2007) (June 2008) (Dec 2009) (Dec 2010)
Maturity Stage
- Profitability
- Focus Execution
- Financial predictability
- Risk management
7
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Business Model
• Market Size
• Validate assumptions in a controlled pilot
• Comparables
• Key macro trends & discontinuities
Business Model
Management
Product
Profitability
Competition
Financing
Governance
Expansion
Liquidity
8
1/7/14 Strictly Confidential Copyright © Canaan Partners 2013, All rights reserved.
Market: Case Study
$ 400MN
# of urban HH = 100MN
Annual Spent= 200/-
Market Size = 200*100
= 20 bn INR = $ 400MN
$ 80 MN
# of digi cams in India
= 20MN
Market Size = 20*200
= 4 bn INR = $80MN
$ 60 MN
Internet Penetration =
75%
Market Size = 0.75*80
= $60MN
?
Subscription Services
Photo Storage Platform
100/- per HH per annum
Mobiles with Cameras
Easy Storage. How
many of us print
Photos today?
» Competition
» Degree of fragmentation, network effects
» Compare growth rates, adoption rates from international markets
» Additional revenue opportunities
+
Online Photo Printing
Business Model
Management
Product
Profitability
Competition
Financing
Governance
Expansion
Liquidity
9
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Case Study
Online Travel Industry Online Ticketing
Internet
Penetration
Payment
Options
LCC Zero Commission
Regime
Watch for discontinuities which can impact the business
Online Ticketing - Air
Assisted
Ecommerce
2004 2005 2006 2007 2008 2012
Mobile
Commerce
E-ticketing
Hotels,
Packages
Business Model
Management
Product
Profitability
Competition
Financing
Governance
Expansion
Liquidity
10
1/7/14 Strictly Confidential Copyright © Canaan Partners 2013, All rights reserved.
Management
• Skills fit Domain
Functional
• Passion
• Execution capability
• Scalability
Business Model
Management
Product
Profitability
Competition
Financing
Governance
Expansion
Liquidity
11
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Product
• Instantly broadcast live video over wireless
channels
• Product Risk
Can team successfully build the technology
• Competitive Risk
Other technologies and approaches may still be in labs
• Adoption Risk
Use cases enticing industry to adopt it
Business Model
Management
Product
Profitability
Competition
Financing
Governance
Expansion
Liquidity
12
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Profitability
• Early Stage Series A in April 07
Remote desktop support company
Company had pilot with 1000 customer
Experienced founders
Large market at an appropriate price point
• Focused on contribution margin before growth
Life time value – key driver
• Series B in May 08
Build scale
Develop other marketing channels
• Series C in Jan 10
Build scale
Marketing
Business Model
Management
Product
Profitability
Competition
Financing
Governance
Expansion
Liquidity
13
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Competition
• Online travel industry (2008), eCommerce (today)
• Many well capitalized players with good teams
• Increased marketing spends
• Profitability risk
• Evolving barriers to entry
• Increased options for acquirer
2008:
2012:
Business Model
Management
Product
Profitability
Competition
Financing
Governance
Expansion
Liquidity
14
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Financing
• Out of Home industry – Network of digital screens
• Financing requirements
Critical mass on screens required, often financed by the
startup - Leading players will have 10,000+ screens in 4-5 years
- ~ $1000-2000 per screen
Operating losses to cover rental costs till revenues catch
up - ~ $2500 per screen per year
• Minimum $30MN - $40MN to build the business
What kind of syndicate should one setup to finance this?
Business Model
Management
Product
Profitability
Competition
Financing
Governance
Expansion
Liquidity
15
1/7/14 Strictly Confidential Copyright © Canaan Partners 2013, All rights reserved.
Financing
• eCommerce in India
• Financing requirements
Customer acquisition costs - ~$10 for horizontal players, ~$20 for verticals
- Significant well-funded players bidding up keywords
- Also need to invest in brand building
Working capital requirements - Need 45-60 days of working capital (depending on vertical)
- For a $50M top-line business, translates to $6-8M in working capital
• Minimum $30MN - $40MN to build the business
What kind of syndicate should one setup to finance this?
Business Model
Management
Product
Profitability
Competition
Financing
Governance
Expansion
Liquidity
16
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Governance
• Growing Business – Series A in August 2006
Validated business model
Category leader in classified space
• Series B in Jan 2008
Growth financing to breakeven
Ultimate exit – IPO or strategic acquisition
• Internal audits
• Control and management systems
• Board formation and formal processes
• Risk management
Business Model
Management
Product
Profitability
Competition
Financing
Governance
Expansion
Liquidity
17
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Scale and Expansion
0
100
200
300
400
500
600
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Re
ven
ue
s (in
Cr)
Jobs InfoEdge
2464 Headcount
IPO, 951
headcount
Business Model
Management
Product
Profitability
Competition
Financing
Governance
Expansion
Liquidity
18
1/7/14 Strictly Confidential Copyright © Canaan Partners 2013, All rights reserved.
Realizing Value
• Every stage has different risks to manage
• Investors should keep Exit options in mind
IPO - Focus on Scale and Profitability
Strategic M&A - Align with potential buyers early on
19
1/7/14 Strictly Confidential Copyright © Canaan Partners 2013, All rights reserved.
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