An Idea Is Worth Nothing

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Why any entrepreneurial idea is likely to fail.

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An Idea Is Worth Nothing

  1. 1. Why an idea is worth nothing February 2009 Strategyn Ventures, LLC © 2009
  2. 2. Jay Haynes http://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 © 2008 2 HIghly Confidential
  3. 3. How do I know an idea is worth nothing?
  4. 4. Data!
  5. 5. What makes a new venture successful?
  6. 6. “Nothing can replace the entrepreneur’s passion and vision for the product and the company. ” Fred Wilson Union Square Ventures
  7. 7. “Nothing” Really?
  8. 8. Passion & vision (ideas) are not enough! Flat & Down Founder Rounds Ownership Series C Series A 41% 37% Series B 21% Series A Series C 14% 10% Dow Jones Venture Deal Report 2007 Dow Jones Venture Deal Report 2007
  9. 9. 90% of new products fail New Product Failure Harvard Business Review July 1, 2004 10% 90%
  10. 10. You won’t make any money! Venture Returns Profile 1990-2006 468 Investments $1,305 MM Cost / $3,338 MM Value = 2.56x Bill Sahlman, Harvard Business School % of Cost 63.2% 61.7% % of Value 4% 20.5% 13.6% 11.6% 9.2% 8.7% 4.3% 3.8% 3.3% <1x 1x to 3x 3x to 6x 6x to 10x >10x
  11. 11. It’s really even worse!! 20-year VC IRR 5 points of the 20 20.0% are from one company in one venture fund!! 5.0% http://www.techcrunch.com/2008/11/12/a-scary-line-has-been-crossed-for-vcs/
  12. 12. Without a 10x hit, venture returns are negative! Based on Sahlamn HBS data 1990-2006, Analyzed with 3 year investment, 7 year returns -1%
  13. 13. How much is your idea worth? Product Failure: 90% Equity Stake: 10% Returns Driver: 4% Venture IRR: 5% 0% = $0!
  14. 14. There is a reason new ventures fail
  15. 15. NOT ideas NOT tech NOT capital
  16. 16. Customer Needs!
  17. 17. “The main culprit has been a faulty understanding of customer needs.” New Product Failure MIT Sloan Management Review, Winter 2006
  18. 18. 95% failure to define needs Companies Without a Agreed-Upon Definition of Customer Needs MIT Sloan Management Review Spring 2008 5% 95%
  19. 19. Philip Kotler, Marketing Management “Understanding customer needs is not always simple.”
  20. 20. Success starts & ends with meeting customer needs
  21. 21. www.StrategynVentures.com

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