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Venture Capital, Funding
& Pitching
Zubin Chagpar, Venture Capital Business
Development, Amazon Web Services
@phylosopher
Why do we talk about this?
• Work with many startups & EMEA’s leading VC’s
• Discuss many startups with VC’s & get feedback on pitches
• Not biased, no agenda, helping AWS startup customers succeed
“We win when you win – and only when you win”
Venture Capital
VC FundGeneral Partners, Principals, VP’s, Associates, etc.
Startups
Need for Capital
Growth Potential
Limited Partners
Institutional, Government & High Net Worth Individuals
\
Two-sided Platform model
Startups
With need for capital and growth potential
Capital & Value Creation connections, biz dev, GTM,
mentoring, etc
Risk & Return
Reduce Risk & deliver Financial Returns
Limited Partners
Institutional, Government & High Net Worth Individuals
“2 and 20”
Management Fee. VC raises a fund of e.g.
$100M and gets $2M per year to operate
the fund (staff, expenses, etc.)2%
Performance Fee. VC returns the profits
from the fund to the LP’s but gets to keep
20% of these profits20%
AUG-08
Nathan, Brian,
and Joe
JAN-09
$20K Accelerator
Y Combinator
NOV-10
$7.2M Series A:
Sequoia
Greylock
SV Angel
& others
JUL-11
$112M Series B
Andreessen Horowitz
General Catalyst
& others
APR-09
$600K Seed
Round
Sequoia
Y Ventures
01 04
idea MVP monetizescale
Product Risk Market Risk Financial Risk
02 03
Startup 2.0: “Lean Investor” Model
• Incubator / Angel: $0-250K for ‘Product Viability’
• Seed: $250-$1M to ‘Expand Market Distribution’
• Venture: $1M-$5M to ‘Maximize Revenue’
01 04
idea MVP monetizescale
Seed Round
Series A, B, C, etc.
Incubator / Angel
Product Risk Market Risk Financial Risk
02 03
$0-250K
$250-$1M
$1M-$5M, or more
“Amazon changed the VC industry.
This is mind boggling. That online
book company. Not … or anybody
else. Amazon. 100% of the credit.”
Mark Suster, serial entrepreneur and MD at GRP Partners
\
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
1995 – .comTechnology Startups require physical hardware and
proprietary software to build their business
Typical Series A Spent on… Innovation
5-10M•$2.5: marketing,
sales, etc.
•$2.5M on
infrastructure
•Not a lot, since
experimentation was
costly
\
Typical Series A Spent on… Innovation
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
2000: Rise of Open SourceOpen source software drove technology costs down by 90%,
which spurred innovation in technology
3-5M•Less on Software–
LAMP
•More on development
•Still on infrastructure
•A lot more, as
experimentation is
less costly now
\
Typical Series A Spent on… Innovation
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
2005: Enter the CloudPioneered by Amazon drove total operating costs
down significantly
500K-
3M
•Staff – the battle for
talent
•Customer Acquisition
•Explosion in
experimentation,
innovation, and
Startups
\
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
2007: Micro VC / SeedPublic Cloud led to explosion in the number of Startups
and the emerging of “micro VCs”
Angels Incubators VC’sAngels unite in
‘Super Angels’ for
Seed investments
thru VC-like setup
Boom in incubator
programs, with micro
investments,
mentoring, etc.
Venture funds that
back early-stage
startups with <$1M
Why do VC’s care?
More deals
Shorter time to scale
Faster time to revenue
Lower ‘burn rate’
Higher valuation at exit
Intro Team Opportunity Solution CompetitionBusiness Model
The Ask
Intro: Define the company, business, service or product in a single
sentence
Team: Identify a core group of talent that can execute on the next set
of milestones
Opportunity: Establish the need for your company’s solution and the
size of the market
Competition: Identify your competitors, validate your differentiator
Business Model: Explain how you will generate revenue, show what
you’ve accomplished to date, and make future forecast.
The Ask: Ask for the deal and outline what you need to make your
business a success
What’s always there?
Product
Lots of product, product, product
Rosy Forecast
The infamous hockey stick
What’s always missing?Business Model
not just WHAT, also HOW
Metrics
not just traction, also unit economics
Strategy
What will you DO? How will you GROW?
Execution…
1.Problem
2.Solution
3.Business Model
4.Business Model Metrics
5.Growth Strategy
6.Status / Traction
7.Team
8.Competition
9.Roadmap / Forecast
10.ASK
10 / 20 / 30
Rule
Pitch Outline
1. Problem
Define the
problem clearly
Explain the impact.
Why bother?
What’s the opportunity?
Market size?
Problem Impact Market
Chip design has gotten
more complex, tools
haven’t improved
Product delays.
Increased costs. Less
collaboration
US$5B market for
Electronic Design
Automation software
4. Business Model Metrics
“I look for signs in a pitch that the founders understand the mechanics of the
business.” Phil Morle, Pollenizer
4. Business Model MetricsMetric / KPI Now Comp A Comp B Comp C Goal
Advertising CTR 1.5% 3% 6% 2.5% 5%
Average time on site 4 9 6 5 10
Average Basket Price $18 $75 $118 $45 $73
Metric 4
Metric N
5. Growth StrategyMetric / KPI Now Goal Growth Strategy & Actions
1. Advertising CTR 6% 8% 1. A/B test creatives
2. Continuously optimize campaign settings for CTR
3. Hire 1 marketing specialist
2. Website Conversion 5% 10% 1. A/B testing of landing pages
2. A/B testing signup flows
3. Run Marketing campaigns (marketing budget)
3. Conversion to Active Y% 70% 1. Automate email addition for known hosts
2. A/B testing of email account addition UX (UI and flow)
3. Hire UX/UI Designer
4. Conversion to Paid Z% 25% 1. Optimize the product package of Free and Paid
2. Make it easier to pay/transact
3. Develop the product to add new features to paid users
4. Deploy payment gateways & get PCI compliant
5. Hire 3 developers
10. ASKMetric / KPI Now Goal Growth Strategy & Actions Costs
1. Advertising CTR 6% 8% 1. A/B test creatives
2. Continuously optimize campaign settings for CTR
3. Hire 1 marketing specialist
75K
2. Website Conversion 5% 10% 1. A/B testing of landing pages
2. A/B testing signup flows
3. Run Marketing campaigns (marketing budget)
150K
3. Conversion to Active Y% 70% 1. Automate email addition for known hosts
2. A/B testing of email account addition UX (UI and flow)
3. Hire UX/UI Designer
75K
4. Conversion to Paid Z% 25% 1. Optimize the product package of Free and Paid
2. Make it easier to pay/transact
3. Develop the product to add new features to paid users
4. Deploy payment gateways & get PCI compliant
5. Hire 3 developers
180K
My ASK for funding = $480K
01 02 03 04
idea MVP monetizescale
Seed Round
Series APitch for Angel Money
Pitch for Seed Round
Pitch for Series A
Bootstrap / Angel
Angel Pitch
Show me a great idea!
1.Problem
2.Solution
3.Business Model
4.Business Model Metrics
5.Growth Strategy
6.Status / Traction
7.Team
8.Competition
9.Roadmap / Forecast
10.ASK
Seed Round Pitch
Show me
traction!
1.Problem
2.Solution
3.Business Model
4.Business Model Metrics
5.Growth Strategy
6.Status / Traction
7.Team
8.Competition
9.Roadmap / Forecast
10.ASK
Series A Pitch
Show me a business
&show me returns!
1.Problem
2.Solution
3.Business Model
4.Business Model Metrics
5.Growth Strategy
6.Status / Traction
7.Team
8.Competition
9.Roadmap / Forecast
10.ASK
So before you pitch…
Ask some important questions
Where is my startup in its lifecycle?
Do I understand my business model, metrics?
Can I explain my growth strategy and justify my ask?
Which TYPE of investor should I target?
So before you pitch…
And do your homework…
Decide what you look for in an investor
Easy vs Hard, Dumb vs Smart
Investigate who you want to ‘marry’
Which firm? Which Partner?
Speak with people that know them
Business partners (e.g. AWS), CEO’s in portfolio