Michael Goguen, Sequoia Capital: Think Big, Start Small

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Master class for Ukrainian start-upers
Presentation
Kyiv, June 30, 2012

Michael Goguen, Sequoia Capital: Think Big, Start Small

  1. 1. Think BigBut Start Small Mike Goguen Managing Partner Sequoia Capital
  2. 2. Topics1. Sequoia Capital Snapshot2. What We Look For In A Startup
  3. 3. SEQUOIA CAPITAL • 40 year old Venture Capital firm • US, China, India, Israel • Seed, Venture, Growth • 820+ companies • 150+ IPOs, 150+ M&As
  4. 4. Humble BeginningsSteve & Steve Trip Sandy & Len
  5. 5. Humble BeginningsJerry & David Larry & Sergey Steve Chad Jawed
  6. 6. Humble BeginningsBrian, Joe & Nathan Reid & Jeff Drew & Arash
  7. 7. To Household Names> $500B Market Cap Created
  8. 8. Our Investment EcosystemEnergy/Cleantech Alternative, Conventional, Efficiency, StorageFinancial Services Banking, Brokerage, PaymentsHealthcare Services Diagnostics, Drugs, Labs, Patient Care, Product DevelopmentInternet Advertising, Communications, e-Com, Gaming, Media, Search, SocialMobile Apps, Communications, Devices, Gaming, MonetizationTechnology Infrastructure, Data, Open Source, Saas, Security, Semi, Services, Storage
  9. 9. Yesterday
  10. 10. Today
  11. 11. Elements of a Sustainable Company✔ Clarity of purpose✔ Spectacular market✔ Alleviate customer pain✔ Team DNA✔ Incredible product focus✔ Real operating margins✔ Frugality✔ Inferno with a single match
  12. 12. What We Look For In A Plan 1. UNIQUE VALUE PROPOSITION/MARKET POSITIONING CLEAR, CONCISE, ABOVE THE NOISE; CUSTOMER VALIDATION? 2. EXPLOSIVE MARKET SECTORS, FULL OF DISCONTINUITIES AMBIGUITY AND CONFUSION ARE GOOD. HOW BIG? DEFINING? STRUCTURE/ACCESSIBILITY? READINESS? DISCONTINUITY—WHAT’S DIFFERENT? VALUE CAPTURE POTENTIAL? NO COMPETITION – OFTEN NO MARKET; ENTRENCHED PLAYERS: INNOVATOR’S DILEMMA? STARTUPS: HOW MANY? OUR TEAM? SOURCES FOR DIFFERENTIATION? 3. BREAKTHROUGH PRODUCTS/TECHNOLOGY SOURCES FOR DEEP SEPARATION AND ADVANTAGE? ORDER OF MAGNITUDE? DEGREE OF DIFFICULTY? ADOPTABILITY? COMPLETENESS? DEFENSIBILITY? 4. DEFINING TEAMS MAGNET QUALITIES? DOMAIN EXPERTISE? INTENSITY? DNA BLEND? SCAR TISSUE? 5. CAPITAL EFFICIENCY WHAT IS THE FULLY FUNDED PLAN? MARGIN? BUSINESS MODEL? DIRECT VS INDIRECT? EXPENSE MODEL? REVENUE ASSUMPTIONS?
  13. 13. One Revealing Metric: GROSS MARGINSustainable Companies = High Gross Margins (usually > 60%)High Gross Margins imply:• Real customer pain• Differentiated product / strong IP• Lower cash requirements• Higher growth potential• Higher profitability potential
  14. 14. Founder Attributes We Look For Very sharp, scrappy, frugal Obsessively driven, inquisitive, never satisfied Fixated on ―thrilling‖ customers Metric focused, always iterating and improving Not distracted by ego or title envy Not necessarily ―experienced‖
  15. 15. Startups Need Stealth, Speed and Focus
  16. 16. Focus & Alignment market pain strongest differentiation applying the best people taking the most risk
  17. 17. Ups and Downs S&P DECLINE 1973 – 74 43% 1980 – 82 17% 1987 30% 1973 1975 1977 1979 1981 1983 1985 1987 ATARI TANDEM APPLE AMCC LINEAR TECH ORACLE CISCO LSI LOGIC SYMANTEC 3COM EA 1990 15% 1998 15% 2000-02 44% 1989 1991 1993 1995 1997 1999MICROCHIP ARBOR FLEXTRONCIS YAHOO! REDBACK PAYPAL GOOGLE DOCUMENTUM NVIDIA NETAPP NETSCREEN RACKSPACE INS 2007 – 08 16% 2001 2003 2005 2007 2009 2011 GREENDOT ARUBA SOURCEFIRE YOUTUBE ADMOB DROPBOX UNITY SQUARE ISILON ZAPPOS PALO ALTO FIREYE JIVE POCKETGEMS TUMBLR LINKED-IN KAYAK BUMP MONGO AIRBNB
  18. 18. Why Are Capital Efficiency & Market WavesRelated? Microprocessors Computers Hard Drives Biotech Internet Cleantech
  19. 19. Is Your Business Dependant on the ―Kindness of Strangers‖?Government subsidies or (potentially temporary) regulations?The mass ―belief‖ in a market (before profits)?The presumed exuberance of later stage investors?The positive sentiment of the public markets?
  20. 20. Even For “Capital Intensive” CategoriesThe Likely Winners Will Still Stand Out from the Pack:• Will use dramatically less capital• Will use less people• Will get to market faster• Will be more profitableFor Startups, the ―Best‖ Technology Doesn’t Always Win
  21. 21. Conclusions Think Big… market size, ultimate market dominance gross margins, operating margins value to customers, ultimate value of the company…But Start Small… headcount, burn rate, money required singular focus, short time to market, …If you have the ―right stuff‖, it’s always a great time to start a newcompany!

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