Lecture Entrepreneurship -The Art of the Start - How to start a Venture Capital backed Company


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Presentation at the university of Mannheim / Chair of Entrepreneurship
March 2011

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Lecture Entrepreneurship -The Art of the Start - How to start a Venture Capital backed Company

  1. 1. The Art of the Start <br />Starting a VC backed company<br />Michael Altendorf<br />University of Mannheim/ Chair of Entrepreneurship<br />30.3.2011<br />
  2. 2. <ul><li>ADTELLIGENCE is a high-tech company in the metropolitan Rhine-Neckar region of Germany
  3. 3. Founded by Michael Altendorf and Dr. Cyrille Waguet (SAP’s chief software architect of BI unit), together with venture capitalists
  4. 4. Team consists of experts that formerly held key positions at SAP, Google, and IBM
  5. 5. With its technology, ADTELLIGENCE creates the basis for successful business models in Web 2.0 & mobile platforms, increasing the competitiveness of social media services over traditional media
  6. 6. ADTELLIGENCE got awarded at the Intel Technology Entrepreneurship Challenge 2010 (IBTEC) in Berkeley </li></ul>About us<br />
  7. 7. Next Generation Social Web Technology<br />Data DrivenAdvertising<br />Dynamic Personalization of eCommerce Shops, Targeting based on user profile data like Facebook Connect and Social Analytics for a closedloop marketing process<br />Der Nutzer wird immer wieder in den Kaufprozess zurückgeleitet. Absprungraten werden so minimiert.<br />
  8. 8. Some Highlights www.adtelligence.de for more info<br />BUSINESS INTELLIGENCE<br />SELF-BOOKINGPLATFORM<br />ANALYTICS2.0<br />GEOTARGETING<br />DEMOGRAPHICTARGETING<br />AD SERVING2.0<br />
  9. 9. HOW TO START A VENTURE ?<br />
  10. 10. THE IDEA COMES FIRST<br />
  11. 11. Questions to ask yourself before the start<br /><ul><li>Do I have a good idea?
  12. 12. Am I good enough to be an Entrepreneur?
  13. 13. Where do I get the money for my Company from?
  14. 14. Who gives me the Money?
  15. 15. How do I get to know such people?
  16. 16. Why do the rich people do this?
  17. 17. What do I have to do?
  18. 18. What kind of questions do the Investors ask?
  19. 19. How much Money do they give to me (& how much do they want from me?)
  20. 20. When do I get the Contract and the Money?
  21. 21. What happens then?</li></ul>How to start?<br />Iterate, iterate, iterate…<br />Source: Computer History Museum<br />
  22. 22. From Idea to concept<br />No…<br />…Better…<br />…Maybe…<br />…Yes<br />
  23. 23. From first idea to first version of a product – sometimes it takes only some days – Sales Funnel Analysis Tool<br />
  24. 24. THE TEAM<br />
  25. 25. How to built a great team for the start?<br /><ul><li>Motivation is key!
  26. 26. Experience is something but not much
  27. 27. You need some experience in several disciplines</li></ul> but no senior team<br /><ul><li>Combination of experience and fresh ideas is best
  28. 28. Minimum 2 people for the start, 3-4 are better</li></ul>The Team<br />Source: A-Team<br />
  29. 29. When others will think that you will become a real entrepreneur<br /><ul><li>80% of the success is determined by the Team
  30. 30. Your Qualification: 1,0 in Informatics + 1,0 MBA + 2 own (sold) companies + 5 years work experience would be “good”
  31. 31. BA in XYZ + an internship at McKinsey is not enough to get VC
  32. 32. Quote from former CFO SAP: “The guys who sold nothing switched to marketing”</li></ul>Show that you are able to build the product and the company<br /><ul><li>Work on your Idea:
  33. 33. Identify markets
  34. 34. Calculate Costs and Revenues
  35. 35. Develop a Prototype
  36. 36. Talk to experts
  37. 37. …</li></ul>The CV problem<br />
  38. 38. THE (BUSINESS) PLAN<br />
  39. 39. <ul><li>Yes, you will write it for yourself, but the VC wants to see the potential (100 Mio in 5 Years is the key, not in one VC round, you need at least 3-5) – start small (50K rev e.g. for the first year and show how to grow to 100M) think big
  40. 40. No, salary of more than 50.000€ per Year is not ok for the start when your just graduated
  41. 41. No, with 3 People you won't reach 5% Market share - please calculate bottom-up
  42. 42. No, you don't have to mention Gartner and IDC, but 1 Big Player would be good
  43. 43. No, you can't do it without a business plan (…but with a product which has 10.000 users +)
  44. 44. No, it should not be longer than 10-25 Pages (10/ 20/30 rule) – no McKinsey 80 page plan with 40 page competitive feature analysis – you can do the longer analysis for you but not for the VC – VC’s do not have time to read more than 10 pages
  45. 45. As short as possible, not longer than necessary
  46. 46. The core problem is to write a short plan, not long one!</li></ul>Some FAQ for the (Business) Plan<br />
  47. 47. THE VENTURE CAPITAL<br />
  48. 48. Typical Sources for first angel money:<br /><ul><li>Own Money
  49. 49. Family, Friends & Fools
  50. 50. Business Angel
  51. 51. Bank
  52. 52. Seed Venture Capital Fonds</li></ul>(Seedcamp, Y Combinator)<br /><ul><li>Prefer Smart Money in the Beginning!
  53. 53. Venture Capitalists most times didn't had an own company with problems you will get
  54. 54. Prefer Business Angel with Experience and a lot of spare time</li></ul>Where do I get the Money for my Company<br />
  55. 55. Prefer an experienced Business Angel with "proven track record", a good network, and Experience in the right Segment<br />Who gives me the Money?<br />Source: John Doerr/Ted.com<br />Source: Forbes Magazine<br />Source: Ron Conway/Techcrunch<br />
  56. 56. <ul><li>Recommendations by other CEO’s or VC’s
  57. 57. Best Place to pitch VC’s: University Coffee in Palo Alto/SilliconValley</li></ul>Or on local Events<br /><ul><li>Our own matching event:Rhein Neckar Technology Ventures (www.technologyventures.de)
  58. 58. Heidelberger Innovationsforum or other local events
  59. 59. Contacts (Lawyer, Tax Accountant)
  60. 60. BAND/BA Networks
  61. 61. Karlsruhe
  62. 62. Frankfurt
  63. 63. Heilbronn
  64. 64. Stuttgart
  65. 65. Mentor or Public Consultant
  66. 66. Do not pay, if it is not necessary the best advice you will get for free!</li></ul>How do you meet those people?<br />
  67. 67. How much should I raise? (…or how much do you get!)<br />
  68. 68. Ideal Way of increasingvalue – Facebook (at least till 2011)<br />Source: Techcrunch.com<br />
  69. 69. THEBUSINESS MODEL<br />
  70. 70. Define a Business Model, test it and iterate, iterate, iterate…<br />2<br />Offering<br />1<br />3<br />3<br />Customer<br />Infrastructure<br />Customer Relationship<br />Core Competencies<br />Customer Segments<br />Partner Network<br />Value Proposition<br />Distribution Model<br />Value <br />Configuration<br />Costs<br />Revenue Model<br />4<br />Finance<br />Source: A. Osterwalder Business Model Design Template<br />
  71. 71. THE PRODUCT<br />
  72. 72. The unique selling proposition of your product?<br />Some questions to answer:<br /><ul><li>Why should somebody buy your product?
  73. 73. What needs to you address?
  74. 74. What are the key USP‘s for your target customer?
  75. 75. Why are you better?
  76. 76. Is there a market?
  77. 77. If there is no competition there is no market! That is not an USP – nobody will buy it!</li></ul>Source: Forbes Magazine<br />
  78. 78. THE MARKET<br />
  79. 79. 5 Forces (Porter)<br />Potential Entrants<br />Threat of new Entrants<br />Suppliers<br />Buyers<br />Industry Competitors<br />Rivaly among existingfirms<br />Bargaining Power of Suppliers<br />Bargaining Power of Buyers<br />Threat of Substitute Products or Service<br />Substitutes<br />
  80. 80. The Competition<br />
  81. 81. The Gartner Hype Cycle – Define the right time to market<br />
  82. 82. New Markets are different<br />Source: Steve Blank<br />
  83. 83. GO TO MARKET STRATEGY<br />
  84. 84. How to find the first Customer<br />Customer Validation<br />Customer Discovery<br />Search<br />Pivot<br />
  85. 85. Crossing the Chasm in an existing market<br />Source: Steve Blank<br />
  86. 86. Crossing the Chasm in a New market takes much longer<br />Source: Steve Blank<br />
  87. 87. Customer Development - How the find the Target Customer<br /><ul><li>Week 1: Define a beachhead where to enter the market
  88. 88. Define the pricing
  89. 89. Week 2: define a new target customer
  90. 90. Define a better package and better pricing
  91. 91. Week 3: …
  92. 92. After one year: Market clearer but iterations every 4 weeks to improve pitch and feature set</li></li></ul><li>Plattform vs. One Trick Pony<br />Easier to enter the market, niche leader but can become obsolete with game changing technology (Facebook vs. Studivz<br />Very hard to sell, indirect business models, high investment but maximum ROI<br />Source: Facebook<br />
  94. 94. Define a Sales Process and potential customer market and positioning in the value chain<br />Source: Slideshare<br />
  95. 95. What's up with the Marketing - there is no Budget<br /><ul><li>Todays Online Marketing Technologies for the Web 2.0 are more Creative
  96. 96. The new Tools are used to make all kinds of Advertising:PR News, Blogs or Twitter
  97. 97. An interesting and interactive way of Advertising is the viral marketing (Word of Mouth Marketing)
  98. 98. The Problem of these creative Advertising:
  99. 99. You can't predict the effect
  100. 100. Viral Campaigns are unique - you can't replicate them </li></ul>WEB 2.0 TOOLBOX<br />Viral Marketing<br />Early Adopter Marketing<br />Buzz & Guerilla Marketing<br />Blogging & Twittering<br />Brand Page<br />Facebook Fan Pages<br />Online Events / Webinar<br />Youtube Video PR<br />Company Radio & TV<br />
  101. 101. FINANCE AND REVENUES<br />
  102. 102. Raise 50% more money than you need in the beginning<br />Example:<br />HTGF gives 500K for 15% (+one time anti dillusion) as they know that you will need it<br />Raising VC & Sales – Money is Oxygen<br />
  103. 103. <ul><li>There is some time between order entry and cash flow
  104. 104. This can become your core problem!
  105. 105. If you have contracts, the bank can be used for this but not unlimited</li></ul>Working Capital<br />
  106. 106. An important "period" Break Even (HGB vs IAS vs US GAAP)<br />…cash flow break even is important<br />
  107. 107. HUMAN RESSOURCES<br />
  108. 108. <ul><li>Look for talent not for CV
  109. 109. Motivation is more important than previous internships etc.
  110. 110. Grades make no good great sales guy</li></ul>Building a great Team<br />
  111. 111. <ul><li>Like in a rock band: All instruments have to be played and not everybody can play everything
  112. 112. Very important to find 5 key people in the company
  113. 113. In the beginning you need 2: one to sell, one to build
  114. 114. Later you need: CEO, VP Sales, COO, CFO, CTO/visionary</li></ul>The SMT – Building a Senior Management Team<br />
  115. 115. GROWTH CAPTIAL<br />
  116. 116. <ul><li>Create a Financial Plan in 2 ways
  117. 117. Bottom Up
  118. 118. Top Down
  119. 119. From where to you get the Numbers?
  120. 120. Gartner & Co
  121. 121. Calculate 3 Scenarios (+/+/=) (if you have a negative scenarios – how to innovate the business mode to still make money?
  122. 122. How do I have to calculate to get VC? </li></ul>Finance Planning and Venture Capital<br />
  123. 123. Who are the Key Players to get VC?<br />E.g. in the valley<br />Check it out: http://linksviewer.com/free/view/Map.htm<br />
  124. 124. Try to reach Network Effects<br />Year 1<br />Year 2<br />Year 3<br />
  125. 125. Scaling the Company & Establish an Expansion Strategy<br />Many ways to grow:<br /><ul><li>Product differentiation
  126. 126. Go into verticals
  127. 127. Expand into other countries
  128. 128. Start partnerships</li></ul>Problem: Which way is right?<br />Try everything but stop fast if ist not working<br />
  129. 129. EXIT SCENARIOS<br />
  130. 130. <ul><li>Selling to Google is best, but there are many other which are ready to buy
  131. 131. IPO – not necessary, you can use private equity first
  132. 132. As an expert first before you sell (M&A advisors in London, NY , silicon valley)
  133. 133. Stay with your company?
  134. 134. Merger with competitor
  135. 135. …</li></ul>Exit Scenarios<br />
  136. 136. FAQ'S<br />
  137. 137. Books to Read<br /><ul><li>Starting a Venture - The Art of the Start – Guy Kawasaki
  138. 138. Go to market and productization - Steve Blank – 4 steps to epiphany
  139. 139. Got to market - Crossing the Chasm</li></li></ul><li>Product - What is the Product Roadmap? What are you developing next, how long will it take, and who are your hires to develop it? How did you make the decisions regarding the Direction the Product is right now? We want to understand your Decision making Process and your vision of the company. This last point is extremly important.<br />Market - How big is the market and how will it grow? What are the trends in the market that make now the right time for your product? If you're in a big enough market, you can afford to make some mistakes (which as startups you will always do!). Who are your first customers? Are they referenceable? What does your pipeline look like? <br />Competition - Who are the competitors? What is your competitive advantage and is it sustainable? Hint: IP patents are not enough.<br />Team - What are your backgrounds, where did you meet, and why are you the right team to execute on this plan? Who does what, and who else do you need to hire to build out the right team? Be lean with your costs. No VC likes to see a company that is spending extraneous money. <br />Scalability - What are the barriers to growth? There will always be some; be aware of what they are. This could be from the business model side or the technical product side. Within this there is also the issue of customer acquisition strategy and cost. <br />Finally, although we do not ask the founder this question, we ask ourselves: In what ways do WE as the VC investor provide value to this particular entrepreneur/team/startup? Source: Janet Zhou //Silicon Valley VC Mai 2010<br />What kind of Questions do the Investors ask?<br />
  140. 140. How much should I raise?<br />
  141. 141. Week 1: When do I get the Contract and the Money?<br /><ul><li>When the Investor is interested : First Round 2 -3 Month Due Diligence Phase
  142. 142. "Finding the Rock": Investors asking question Founders are answering
  143. 143. Months of Contract Negotiations
  144. 144. Meeting with Notary (Founding GmbH)
  145. 145. Open an Account
  146. 146. Don't wait for the certificate of registration, start immediately
  147. 147. Then the Money comes </li></ul>Source: Wooga<br />
  148. 148. Week 2: What happens then?<br /><ul><li>Get an Office
  149. 149. Go to IKEA or buy on eBay
  150. 150. Get a Phone
  151. 151. Write Job Ads
  152. 152. Hire People - Is the Team complete?
  153. 153. No, you can't order a Porsche, a Macbook or an iPhone
  154. 154. Long Term Investments  You can‘t go to the Customer with a ALDI Notebook?</li></ul>Source: Blog<br />
  155. 155. Key Learnings<br /><ul><li>Being self-employed means working the every day and own your own - 60 - 100 hrs a week is normal
  156. 156. Never Stop Learning, iterate!
  157. 157. Writing and Optimizing the Business Plan
  158. 158. Get a "Level of Trust" - Visit Events and enlarge your network
  159. 159. Investors are paying for the growth of the Company, not for luxury like concord flights – don’t worry you will be invited to cool locations and events all the time all over the world!
  160. 160. Get in the Market when everybody makes fun of you</li></li></ul><li>Information: www.adtelligence.de<br />Become a fan: www.facebook.com/adtelligence<br />Twitter: www.twitter.com/Michael1980<br />Connect: www.linkedin.com/in/michaelaltendorf<br />www.xing.com/profile/Michael_Altendorf<br />Thank You<br />
  161. 161. Q&A<br />