Business Models: Gautam Gupta


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Business Models: Gautam Gupta

  1. 1. Financing 101 What an entrepreneur should know; a primer on VC.
  2. 2. Sources of Capital <ul><li>Friends and Family </li></ul><ul><li>Angel Investors </li></ul><ul><li>Venture Capital / Private Equity </li></ul><ul><li>Customer Financing </li></ul><ul><li>Debt (Credit cards / Mortgages) </li></ul>
  3. 3. Why take VC? <ul><li>Venture capital is not for every business, some very successful businesses have never taken venture capital </li></ul><ul><li>Some have: </li></ul><ul><ul><li>Ebay </li></ul></ul><ul><ul><li>Google </li></ul></ul><ul><ul><li>Yahoo </li></ul></ul><ul><li>Venture capital is largely for businesses requiring a great deal of capital (+5-10M) in a market sector that can support large exits </li></ul>
  4. 4. What does a “VC” do? <ul><li>A VC obtains money from investors and finds high risk, high return investments that will “return the fund” </li></ul><ul><ul><li>Institutional Investors </li></ul></ul><ul><ul><li>Fund of Funds </li></ul></ul><ul><li>PE vs. VC </li></ul><ul><li>Hedge Fund vs. VC </li></ul>
  5. 5. Gary Snoman <ul><li> </li></ul>
  6. 6. What differentiates VCs <ul><li>Value-add </li></ul><ul><ul><li>Network </li></ul></ul><ul><ul><li>Team expertise </li></ul></ul><ul><ul><li>Reputation </li></ul></ul><ul><li>Historical Performance </li></ul><ul><li>Geographical Location </li></ul><ul><li>Fund size / Funds under management </li></ul>
  7. 7. What VCs look for <ul><li>Multiples on their money </li></ul><ul><li>Not in the business of running companies, building teams, creating ideas </li></ul><ul><li>An idea isn’t everything…team, market, financial performance, exit opportunities </li></ul>
  8. 8. As an entrepreneur, what should you keep in mind <ul><li>You never stop fundraising and fundraising process is long </li></ul><ul><li>Don’t settle for just money (caveat, if you need to make payroll, you need money) </li></ul><ul><li>Dilution is a concern, but not the main one </li></ul><ul><li>Understand that not every business needs or should want VC </li></ul>
  9. 9. Valuations / Price <ul><li>This can be a complicated concept, think of a pie – everyone wants a piece, it all depends on how big of a pie you have at the end of the day </li></ul><ul><li>Pre-money valuation – how much is your company worth </li></ul><ul><li>Pre + Investment = Post-money </li></ul><ul><li>Pre (10M) + Investment (5m) / Post (15m) = 33% ownership </li></ul>
  10. 10. Valuation Pre-Investment Post-Investment Investor $5M 33% Founders $10M 100% Founders $10M 66% Someday worth $30M… Someday worth $150M…
  11. 11. Exit <ul><li>When the company is sold or goes public, shareholders want the highest price possible </li></ul><ul><li>Investors make money on the exit, so do you </li></ul>
  12. 12. Questions
  13. 13. Case Study - #1 <ul><li>Founded to allow consumers to find and trade Pez dispensers </li></ul><ul><li>Charging 5-25 cents per listing as an optional donation </li></ul><ul><li>First item sold: Broken laser pointer for $14.83 </li></ul><ul><li>Founder is a 28 year old computer programmer </li></ul><ul><li>Founder didn’t have time to cash all the checks that were being mailed in! </li></ul>
  14. 14. AuctionWeb (AKA Ebay) <ul><li>Benchmark’s $6M investment turned into $5B </li></ul><ul><li>Pierre proved to be an exceptional founder / visionary, but needed to be complemented with a manager (Meg Whitman) </li></ul><ul><li>Today, Ebay has annual sales of $8B and worth $19B </li></ul>
  15. 15. Key Learnings <ul><li>Investing in people not ideas </li></ul><ul><li>Seek out large markets / sea changes </li></ul><ul><li>Focus on capital efficiency </li></ul><ul><li>Customer traction is a strong indicator of success </li></ul>
  16. 16. Case Study - #2 <ul><li>Cell phone service targeted to 18-35 year olds that allowed you to watch live TV on your phone, play games, listen to music </li></ul><ul><li>Founder previously started a very successful cell phone carrier company </li></ul>
  17. 17. Amp’d Mobile <ul><li>Investors put in $360M and lost ALL of it </li></ul><ul><li>Business model depended on VZW’s network and was forced into bankruptcy </li></ul><ul><li>Customers (18-35 yr olds) didn’t pay their bills! Almost half their customers were sent to collection agencies. </li></ul><ul><li>CEO was spend-free </li></ul>
  18. 18. Key Learnings <ul><li>Business Models matter </li></ul><ul><li>Sell to customers that have strong ability and willingness to pay </li></ul><ul><li>Prior success not necessarily an indicator of future success </li></ul><ul><li>Control your own destiny </li></ul>