Why an idea isworth nothing

February 2009

Strategyn Ventures, LLC© 2009

HIghly Confidential © 2008

Jay Hayneshttp://www.linkedin.com/in/jayhaynes

• 18 years of entrepreneurship

• Strategyn Ventures Co-Founder, Managing Director

• Raised $18 million in Venture Capital

- CEO of three tech start-ups

• Adjunct Professor

- Presidio School of Management: Venture Planning

- USC Marshall School of Business: Entrepreneurship

• Brown University, BA Phi Beta Kappa

• Harvard University, MBA with Distinction

2

How do I know an idea is worth nothing?

Data!

What makes a new venture successful?

“Nothing can replace the entrepreneur’s passion

and vision for the product and the company. ”

Fred WilsonUnion Square Ventures

“Nothing”Really?

Passion & vision (ideas)are not enough!

41%

21%

14%

Series A

Series B

Series C

Flat & Down Rounds

Dow Jones Venture Deal Report 2007

Founder Ownership

10%

37%

Series A

Series C

Dow Jones Venture Deal Report 2007

90% of new products fail

10%

90%

New Product FailureHarvard Business Review

July 1, 2004

Venture Returns Profile 1990-2006 468 Investments $1,305 MM Cost / $3,338 MM Value = 2.56x

Bill Sahlman, Harvard Business School

<1x 1x to 3x 3x to 6x 6x to 10x >10x

61.7%

9.2%13.6%

11.6%

3.8% 4.3%3.3%

8.7%

20.5%

63.2% % of Cost% of Value

You won’t make any money!

4%

20-year VC IRR

20.0%

It’s really even worse!!

5 points of the 20are from one

company in one venture fund!!

5.0%

http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/

Without a 10x hit,venture returns are negative!

Based on Sahlamn HBS data 1990-2006, Analyzed with 3 year investment, 7 year returns

-1%

How much is your idea worth?

0% = $0!

Product Failure: 90%Equity Stake: 10%

Returns Driver: 4%Venture IRR: 5%

There is a reason

new venturesfail

NOT ideasNOT techNOT capital

CustomerNeeds!

New Product FailureMIT Sloan Management Review,

Winter 2006

“The main culprit has been a faulty

understanding of customer needs.”

95% failure to define needs

5%

95%

Companies Without a Agreed-Upon Definition of Customer Needs

MIT Sloan Management Review Spring 2008

“Understanding customer needs is not always simple.”

Philip Kotler, Marketing Management

Successstarts & endswith meeting

customer needs

www.StrategynVentures.com