Revenue models: How-to convince VC

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Founder Institute 2014 Spring session

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  • Views a venture as a set of assumptions that must be learned about, rather than a plan to be proven.
    It is positioned as a six step process:
    Differentiation between primary and derivative assumptions with focus on extracting and understanding primary assumptions
    Early construction of a business model that allows calculation of the impact of the primary assumptions on derivative assumptions such as sales or revenue
    Assignment of uncertainty ranges to primary assumptions
    Identification of the critical assumptions by determining the impact of their uncertainty ranges on the net present value of the venture
    Selection of the next venture milestone based on a test program that results in maximum reduction of uncertainty at least cost in least time for the most critical assumptions
  • Document all assumptions that you are making as you go through thinking about venture deliverables

    Focus on the most critical assumptions.
    Some assumptions are more critical than others, due to their close association with the key production- or consumption-chain, hence driving the cost, revenue or business risk of the venture

    Create management interventions (« checkpoints ») to deliberately structure the systematic testing of critical assumptions as the plan unfolds

    Link the critical assumptions and the checkpoints.
    The goal is to have a chart that will help you identify which critical assumptions will be tested at which checkpoint – bearing in mind that many critical assumptions might be tested more than once
  • Revenue models: How-to convince VC

    1. 1. Revenue Models: How to convince VC Michael Demidov, T34Moscow
    2. 2. First amendments  User is a must  Value is king  Product as state of art Tim Brown Change by Design
    3. 3. No money, no woman?
    4. 4. No revenue, No VC?
    5. 5. Business model weird-do 2013
    6. 6. Typical revenue schemes Stable growth Hockey Stick step growth Growth to stability
    7. 7. Die is cast  Not understanding the revenue drivers  What are the leverage points of revenue build-up?  Underestimating time to generate revenues  Costs come before revenues  Underestimating costs  Leading to cash crunches and ultimate failure  Lack of comparables  VC’s check industry standards  Top-down versus bottom-up forecasting  How do you get to projected numbers?
    8. 8. Assumptions&illusions
    9. 9. Revenue VS profits
    10. 10. Q&A Michael Demidov michael@demidov.vc Angel.co/demidov

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