NOAH	
  CONFERENCE	
  
2013	
  
The	
  road	
  to	
  inves:ng	
  and	
  building	
  
high	
  growth	
  companies	
  
Our Approach

2	
  
2 Business Strategies

ANGEL	
  INVESTING	
  

PROJECT	
  BUILDING	
  

Sinergies between both strategies
Many small inves...
Consumer Facing Businesses in Certain Regions
•  We only look at consumer facing businesses we feel
capable of evaluating:...
Investment Heuristics
We need to like:

Team

Business Model

Product

Deal Terms

1. 
2. 

At least $1 billion in potenti...
10 Mistakes to Avoid when Creating a Start-Up
1.  Single founder or fights between co-founders
2.  Choosing a marginal nic...
Angel Investing: In Search of the Next Big Hit
Some example of our strong current portfolio:

7	
  
Angel Investing: Our Successful Exits

Private sales - Brazil Online Travel Agency* - Brazil
In: 2009 | Exit: 2012
IRR: 68...
Lessons Learned from Angel Investing
  Creativity is overrated: tenacity and passion are more important than
intelligence...
Project Building: Setting Solid Foundations for Growth

10	
  
Project Building: Strong Track Record

Concept

Social Media
Marketing for Brazil

Online Travel Agency
for Brazil

Free G...
Lessons Learned from Project Building
•  Focus on proven models
  Allows for more focus on execution
  Avoids combining ...
How Big Can it Get?

13	
  
Being part of a big hit: What everyone is looking for
• 

In the last decade 39 U.S. software companies reached over $1 bi...
How to Assess Potential Growth
•  Market size
–  Is the target market big enough to allow for growth?
–  How fast is this ...
Potential Issues Arising from Growth
•  Operational complexity

–  Dealing with increasing SKUs, new logistics requirement...
Growth Requires Discipline: Management Systems
Financial and Strategic Planning:
•  Operating budget

Product Development ...
Disciplined Businesses Grow Faster

Source:	
  “Building	
  Sustainable	
  High-­‐Growth	
  Startup	
  Companies”	
  
–	
 ...
Growth is being limited by the Series A crunch

Source:	
  PitchBook	
  

Increasing number of seed rounds (and follow-up ...
Companies that get through the crunch grow twice as fast

Source:	
  “Building	
  Sustainable	
  High-­‐Growth	
  Startup	...
In emerging markets, discipline is even more necessary
Success in emerging markets is possible and can be
achieved by adhe...
A few Companies are Generating

Most of the Value

22	
  
The PayPal network: shaping and developing the sector
Key alumni of the
online payment
company PayPal
have formed one of
t...
Silicon Valley is not the only example…
Buenos Aires
Tech Network

Amman
Tech Network

Source: Endeavor Global

24	
  

Th...
Key Takeaways

25	
  
Key learnings from our network of entrepreneurs
What were their biggest mistakes?
•  Trying too many things at the same ti...
Key Takeaways
  It’s easier and cheaper to create an internet startup than it’s ever been!
  Hire the right team and cho...
Thank You!

José Marín
jmarin@igexpansion.com
www.igexpansion.com
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IG Expansion - NOAH13 London

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The Road to Investing and Building High Growth Companies - Presentation by Jose Marin, Co-Founder & MD of IG Expansion at the NOAH 2013 Conference in London, Old Billingsgate on the 14th of November 2013.

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Transcript of "IG Expansion - NOAH13 London"

  1. 1. NOAH  CONFERENCE   2013   The  road  to  inves:ng  and  building   high  growth  companies  
  2. 2. Our Approach 2  
  3. 3. 2 Business Strategies ANGEL  INVESTING   PROJECT  BUILDING   Sinergies between both strategies Many small investments spread & pray approach Awareness of new business models and 
 market trends 3  
  4. 4. Consumer Facing Businesses in Certain Regions •  We only look at consumer facing businesses we feel capable of evaluating: –  Marketplaces –  Ecommerce –  Travel –  User Generated Content •  We’ll invest in new innovative projects in the US (e.g.; Virool & Getaround) •  We only invest in proven models in countries such as Brazil, Russia, Germany, and Turkey 4  
  5. 5. Investment Heuristics We need to like: Team Business Model Product Deal Terms 1.  2.  At least $1 billion in potential revenues 3.  A valid business model understood from the get-go 4.  Does not require more than $2 M in seed or $15 M in first round VC money 5.  A business where there is a real shot at being one of the top players – at least in the region targeted 6.  A scalable idea 7.  A business with little or no risk of disintermediation and/or margin compression by suppliers and/or customers 8.  A business that is in a rapidly growing market 9.  Our Selection Criteria The company is live and has some traction An idea that we know how to execute on or can learn how to execute on 10.  An idea that we like and want to do! 5  
  6. 6. 10 Mistakes to Avoid when Creating a Start-Up 1.  Single founder or fights between co-founders 2.  Choosing a marginal niche with the hope to avoid competition 3.  Hiring bad programmers and choosing the wrong platform 4.  Launching too early or launching too late 5.  Having no specific user in mind 6.  Raising too little or too much money 7.  Spending too much 8.  Poor investor management 9.  Sacrificing users to (supposedly) increase profit 10.  Half-hearted effort, the most common reason for failure 6  
  7. 7. Angel Investing: In Search of the Next Big Hit Some example of our strong current portfolio: 7  
  8. 8. Angel Investing: Our Successful Exits Private sales - Brazil Online Travel Agency* - Brazil In: 2009 | Exit: 2012 IRR: 68% (5.7x) OTA - Southern Europe In: 2000 | Exit: 2006 IRR: 52% (15.5x) In: 2010 | Exit: 2011 IRR: >1000% (31.0x) C2C Auctions - India Online payments - LatAm Classifieds Markeplace** - Global In: 2006 | Exit: 2012 In: 2006 | Exit: 2010 IRR: 53% IRR: 93% (13.1x) Interactive Advertising - France Online Glasses - Germany In: 2000 | Exit: 2004 In: 2001 | Exit: 2006 In: 2009 | Exit: 2013 IRR: 60% IRR: 82% IRR: 51% (8.2x) (20.1x) *This represents a passive angel investment by Fabrice Grinda in Viajanet, but not Jose Marin’s founder’s equity ** This represents a passive angel investment by Jose Marin in OLX, but not Fabrice Grinda’s founder’s equity 8   (16.6x) (5.5x)
  9. 9. Lessons Learned from Angel Investing   Creativity is overrated: tenacity and passion are more important than intelligence!   Don’t overthink – iterate, iterate, iterate!   Make sure you select the right business idea!   Ideas that work in one country, typically work in another country   Stick to your investment principles   Diversity is good   It pays to be lucky   Exits can take a long time, and most exits are below $30 M   Just do it! 9  
  10. 10. Project Building: Setting Solid Foundations for Growth 10  
  11. 11. Project Building: Strong Track Record Concept Social Media Marketing for Brazil Online Travel Agency for Brazil Free Global Classifieds Mobile Media Provider Entrepreneur Emilio Maciel Jose Marin (Chairman) Fabrice Grinda & Alec Oxenford Fabrice Grinda Founded in 2011 2010 2006 2004 Total Funding Combined: c. $100 million Revenues Combined: > $400 million yearly run rate Ownership: 15%-55% 11  
  12. 12. Lessons Learned from Project Building •  Focus on proven models   Allows for more focus on execution   Avoids combining market risks with business model risks •  Capacity for local execution is key   Adapting to local markets can be a great advantage against global players   Profound knowledge of “Know-How” and “Know-Who” is key Proven Business Models 12   > USD 100 M in revenues (US / EU) 5-10 years old EBITDA positive Consolidated projects
  13. 13. How Big Can it Get? 13  
  14. 14. Being part of a big hit: What everyone is looking for •  In the last decade 39 U.S. software companies reached over $1 billion valuation –  They only account for 0.07% of venture-backed software startups •  Facebook was the “mega hit” (worth >$100 billion) •  Every recent decade has witnessed between one and three “mega hits” •  Consumer-oriented companies have created more value in aggregate •  Enterprise-oriented companies have reached higher valuations on average –  Also raised less private capital, providing higher return on investments •  Four major business models: –  Consumer audience, e-commerce, software-as-a-service, and enterprise software •  These companies waited over 7 years on average for a “liquidity event” •  Companies with co-founders in their thirties, with top-degrees, and previous history have built the most successes •  14   San Francisco (not the Valley) is the hot spot for most of these big hits Source:  Tech  Crunch  ar:cle  by  Aileen  Lee  (Founder  of  Cowboy  Ventures).  
  15. 15. How to Assess Potential Growth •  Market size –  Is the target market big enough to allow for growth? –  How fast is this market growing? •  Potential market penetration –  What is the online market penetration? –  How does it compare to mature online markets such as the US? –  What share of the pie am I likely to get? •  Competition –  Are there already clear winners in the market? –  What are the barriers to entry for potential competition? •  Scalability –  Is my business model cost effective to scale? •  Potential expansion to new markets –  What other markets should I keep in the rear mirror? –  Is it realistic to think that I will be able to expand to those markets before someone else takes over? 15  
  16. 16. Potential Issues Arising from Growth •  Operational complexity –  Dealing with increasing SKUs, new logistics requirements, etc, increase the complexity of running larger businesses efficiently –  Personnel structure is rarely prepared for rapid growth before growth occurs (timing is key) •  Overspend –  Capex increases require new funding –  Companies that raise more capital than is required have a tendency to overspend –  Hiring is expensive (make every hire count) These issues create the need to adopt professional management systems 16  
  17. 17. Growth Requires Discipline: Management Systems Financial and Strategic Planning: •  Operating budget Product Development Management: •  Product concept testing process Financial Evaluation: •  Performance against target Sales/Marketing Management: •  Market research projects Human Resources Planning: •  Written performance evaluations Partnership Management: •  Partnership milestones These systems provide managers with timely and accurate information for better decision making within an increasingly complex organization 17  
  18. 18. Disciplined Businesses Grow Faster Source:  “Building  Sustainable  High-­‐Growth  Startup  Companies”   –  A.  Davila,  G.  Foster,  N.  Jia   Businesses with higher adoption of professional management systems are better prepared to deal with the potential issues arising from rapid growth, thus more likely to experience Venture Capital-backed like growth 18  
  19. 19. Growth is being limited by the Series A crunch Source:  PitchBook   Increasing number of seed rounds (and follow-up seed rounds) are overtaking Series A rounds 19  
  20. 20. Companies that get through the crunch grow twice as fast Source:  “Building  Sustainable  High-­‐Growth  Startup  Companies”   –  A.  Davila,  G.  Foster,  N.  Jia   VC backed companies are usually better funded and have higher management systems adoption than non VC backed ones, making it easier for such businesses to grow into large companies 20  
  21. 21. In emerging markets, discipline is even more necessary Success in emerging markets is possible and can be achieved by adhering to the following five simple rules: 1. Avoid pro-cyclicality: •  Resilient long-term commitment 2. Survive the crises: •  Maintain a lean and flexible work force •  Be operationally efficient and avoid high levels of leverage 3. Be bold when others panic: •  The greatest opportunities often arise in the darkest of moments 4. Read Tomorrow’s newspaper: •  Developed markets have been there, making it possible to see what the future holds 5. Choose the right partners: •  Many risks in emerging markets are mitigated by local knowledge from trusted, experienced partners 21  
  22. 22. A few Companies are Generating
 Most of the Value 22  
  23. 23. The PayPal network: shaping and developing the sector Key alumni of the online payment company PayPal have formed one of the most influential networks of entrepreneurs and investors that Silicon Valley has seen during the Internet age. These are some of the most prominent members Source: Endeavor Global 23  
  24. 24. Silicon Valley is not the only example… Buenos Aires Tech Network Amman Tech Network Source: Endeavor Global 24   The top 3 entrepreneurs ultimately influenced >80% of the other successful firms in their networks and are key drivers of their country’s economy Istanbul Tech Network
  25. 25. Key Takeaways 25  
  26. 26. Key learnings from our network of entrepreneurs What were their biggest mistakes? •  Trying too many things at the same time   Amazon only sold books for 4 years before expanding •  Overestimated market growth at early stages of market development   As a consequence over invested in marketing •  Didn’t fundraise aggressively enough and didn’t manage the cash balance properly •  Hiring the wrong people, too senior and too early, and not firing them fast enough What were key factors for success? •  •  •  •  •  •  26   Get relevant backers on board early and build a strong relationship Hiring the best people and continuously thinking about upgrading the team Create a product that stands out and solves a problem better than the alternatives Define current milestones and remain focused Concentrate in long-term goals, think big Be perseverant, iterate Source:  Interviews  with  Kevin  Ryan,  Alec  Oxenford,  Kamil  Kurmayev,  and  Xenios  Thrasyvoulou.  
  27. 27. Key Takeaways   It’s easier and cheaper to create an internet startup than it’s ever been!   Hire the right team and choose strong partners   Creativity is overrated: tenacity and passion are more important than intelligence!   Don’t overthink – iterate, iterate, iterate!   It pays to be lucky – big hits are rare, “mega hits” are even more so   Growth requires discipline   Adopt professional management systems   Plan for the best, and prepare for the worse – be well funded as it is challenging to reach Series A financing rounds   Exits can take a long time, and most exits are below $30 M   Creating a strong network within your industry is   Just do it! 27  
  28. 28. Thank You! José Marín jmarin@igexpansion.com www.igexpansion.com

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