Your SlideShare is downloading. ×
0
Early Stage Funding Options And Expectations
Early Stage Funding Options And Expectations
Early Stage Funding Options And Expectations
Early Stage Funding Options And Expectations
Early Stage Funding Options And Expectations
Early Stage Funding Options And Expectations
Early Stage Funding Options And Expectations
Early Stage Funding Options And Expectations
Early Stage Funding Options And Expectations
Early Stage Funding Options And Expectations
Early Stage Funding Options And Expectations
Early Stage Funding Options And Expectations
Early Stage Funding Options And Expectations
Early Stage Funding Options And Expectations
Early Stage Funding Options And Expectations
Early Stage Funding Options And Expectations
Early Stage Funding Options And Expectations
Early Stage Funding Options And Expectations
Early Stage Funding Options And Expectations
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Early Stage Funding Options And Expectations

4,348

Published on

Published in: Business, Economy & Finance

Transcript

  • 1. Early Stage Venture Funding: Options and Expectations Harish Gandhi hgandhi@canaan.com Jun 2009 www.canaan.com
  • 2. About Canaan Partners » Global Early Stage Venture Fund » Invest in Technology and Tech Enabled Services » Typical first cheque : $2M - $5M » Also do some seed and some mid-growth investments © Copyright 2008 Canaan Partners 2
  • 3. Agenda » Lifecycle of a startup and need for capital › Options for early stage » Venture Economics » What do Venture funds look for ? © Copyright 2008 Canaan Partners 3
  • 4. LifeCycle of a Startup Maturity • Market Validation stage: BD, fine tune • Feasibility stage: biz model, Product dev. , value partnerships proposition • Product Commercial, • Early Customer Some revenue Feedback • Customer Feedback • Select hires • Early product • Focus Execution diversification • Financial •Team Build out predictability • Risk management •Ideation / • Growth: Scalability, Teams, Concept stage Process, Profitability •Initial market • Market Validated feedback • Biz model validated •Market Sizing • Product diversification Time F&F Seed Early VC Growth VC/ PE IPO Source of Funds Angel Bank Financing © Copyright 2008 Canaan Partners 4
  • 5. Agenda » Lifecycle of a startup and need for capital » Venture Economics » What do Venture funds look for ? » © Copyright 2008 Canaan Partners 5
  • 6. Venture Economics » Venture fund invested over 3-4 years » Money returned to investors (LPs) 7- 10 years » Typical return 2.5x – 3.5X (IRR 18% – 25%) » Few super hits, few writeoffs » Expectations of return from each investment › Vary by stage of VC › Early stage VCs Return expectation 7 – 10X or higher Model works with significant stakes and large exits ($ amount) © Copyright 2008 Canaan Partners 6
  • 7. Types of Venture Funds / Which VC to pick Types of VCs » Stage of Investment (correlates with Ticket Size) » Sector Focus » Corporate VCs Picking a VC » Sector, Stage » Investment Cycle of fund » Ability to provide reserves for future investment » Philosophy » Non-monetary Contribution – “Value Addition” © Copyright 2008 Canaan Partners 7
  • 8. What can you expect from a Venture Fund » Other than money (acceleration of growth) … › Assistance /Sounding board for actions, strategies › Large Network for customer contacts, advisors › Active assistance in hiring senior members of team › Appointment of Board members, Advisors › Corporate Governance › Credibility › - again – varies by stage of VC » On the Flip side - › Lower level of freedom (spending, reporting) › Decisions being made by a balanced board rather than founder › Lower equity holding (but potentially much higher value) © Copyright 2008 Canaan Partners 8
  • 9. Agenda » Lifecycle of a Startup and need for capital » Venture Economics » What do Venture funds look for ? © Copyright 2008 Canaan Partners 9
  • 10. Early Stage: Venture Fundable businesses » Team › Early stage - risky » Large Market › Nascent market but rapidly growing and potential to be large › Large existing market with a disruptive play or discontinuity » Strong Value Proposition › Why you will win » Scalable › Build the business efficiently and quickly » Defensible › Differentiability (IP) › Defensible first mover advantage » Exits (IPO, Trade Sale) © Copyright 2008 Canaan Partners 10
  • 11. Team Scalable Market Defensible Team Value Proposition » Relevant Experience › Domain › Functional » Passion (strong belief, risk taking, ambition) » Ability to Sell, Hire » Execution capability › Business and Operational Experience © Copyright 2008 Canaan Partners 11
  • 12. Team Scalable Market Defensible Value Proposition Value Proposition » Is there a genuine need for the product / service? » How is it being addressed today ? » Who is best positioned to fulfill this need ? » Why will the customer select you, continue to use your service/product ? » Cheaper, Better, Faster © Copyright 2008 Canaan Partners 12
  • 13. Team Scalable Market Defensible Scalable : Capital Output: Revenue, Technology Facilitates Profits Capital Efficiency Input: Effort, Capital © Copyright 2008 Canaan Partners 13
  • 14. Team Scalable Market Defensible Defensible Value Proposition • Intellectual Property • Installed Base – Platform Play • Installed Base – deep entrenchment, hard to remove • First to Market - if Network effect (sometimes scale) • Specialized knowledge / Resources • NOT PRICE (unless sustainable cost advantage) •
  • 15. Less likely to be Venture Fundable » Entrepreneur › Lack of experience / knowledge in related area › Lack of sales and operational experience in founding team › Mindset: Always prioritizes profits over growth › Mindset: Reluctant to divest equity (or only limited amounts) › Mindset: Not open to feedback, change » Market › Small Market / aiming to build a 10 Cr company in 4 yrs › Uncertain Business model, Scalability challenges » Differentiability and Competition › Me too product / service » Capital Requirement › Risk of consuming too much capital © Copyright 2008 Canaan Partners 15
  • 16. When to Approach an early stage Venture Fund ? » VC unlikely to make a bet on multiple risk factors › Team › Technology and Product risk › Competitive Risk › Market and Business Model risk › Exit Risk » Product ready / close to being ready & customer traction » Some validation of assumptions, business model, market size » Presence of Business and Operations guy on team © Copyright 2008 Canaan Partners 16
  • 17. What if it doesn’t work out ? » Know why › Not in area of interest ? › Missing something critical? Adapt if you agree » Try other VCs » Stay in touch and provide updates on progress © Copyright 2008 Canaan Partners 17
  • 18. For further details please go to: http://www.slideshare.net/canaanpartners/canaan-entrepreneur-pitchbook-presentation?type=powerpoint
  • 19. Thank You

×