nscc hackathon
TRANSCRIPT
August 2016
From Idea to Investment NSCC Hackathon
Douglas Abrams
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About the facilitator
• Wharton MBA
• JP Morgan – Vice President - IB Technology, Global Markets Internet Marketing
• Parallax Capital Management – Co-founder and MD - Venture Capital
• Extream Ventures – Co-founder and MD - S$20 million VC fund
• Expara – Founder and MD - IDM Ventures Incubator, fund, advisory, training
• NUS – Adjunct Associate Professor, Business School, Entrepreneurship
• Sasin – Visiting Professor, Venture Capital
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From Idea to Investment
• Overview of business models
• Preparing the idea for investment
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Why do ventures seek investment?
• A big piece of a small pie?
• A small piece of a big pie?
• Risk and return?
Founder
Investors
Investors
Founder
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Why do investors invest in ventures?
• Risk and return are highly correlated
• You cannot increase return without taking more risk
Return
Risk
Potential outcomes
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Risk and return – small versus scalable business
• Small business: limited scope, complication and risk. Slow growth.
• Scalable business: significant scope, complication, and risk. Rapid growth.
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How do entrepreneurs fund growth?
• Internally generated
• Debt
• Hybrid
• Equity
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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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Companies founded with venture capital
www.nvca.org
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Industries created by venture capital
www.nvca.org
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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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Problem Solution
Key Metrics
Cost drivers Revenue model
Value proposition and innovation
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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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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Diamond Rio versus iPod
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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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Business model innovation: 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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From Idea to Investment
• Overview of business models
• Preparing the idea for investment
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Questions to answer
• Innovation
• Value proposition
• Market identification and analysis
• Marketing strategy
• Sustainable competitive advantage
• Financials
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Value proposition and innovation
1. What is the painful problem you are solving for customers?
2. What is your product and what is innovative about it?
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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Market timing – entering at the inflection point
Measure of performance
Measure of effort invested
The technology adoption S curve
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Types of markets
• Existing markets
• Re-segmented markets/niche market
• New market
• Clone market
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Top-down market sizing
Total addressable market
Target market
Target segment
Market share
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Bottom-up market sizing
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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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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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Questions: creating and sustaining advantage
1. How is your product better than your competitors?
2. How are you positioned in your market?
3. What are your IP and competitive strategies to create barriers to entry for small followers and large companies?
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In the financial section of the business plan
1. Business model – Revenue model – Cost structure
2. Financial projections
3. Valuation
4. Funding required and equity offered
5. Use of Proceeds
6. Exit Strategy and ROI
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Stages and sources of funds
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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Cap table
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Key elements of a term sheet
• 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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Entrepreneur and investor communication
• Executive summary – 1-3 pages
• Business plan – 25 – 50 pages
• Investor presentation slides
• Verbal presentations to investors – informal and formal
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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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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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Effective presentations are simple
• Your message needs to be clear, concise and simple
• Clean visual design – avoid chart junk and “design-itis”
• On presentation slides, less is more – slides, bullet points, text
• Use meaningful titles
• Do not read your slides
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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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Nailing the Q&A
• 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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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