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A Pulse on the Ecosystem: Where & Why I'd Invest

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My talk on VC 101 as well as trends, challenges and opportunities in the VC/startup world. Given at AccelerateOTT on May 5, 2016.

A Pulse on the Ecosystem: Where & Why I'd Invest

  1. 1. AccelerateOTT May 2016 VC Insights A Pulse on the Ecosystem: Where & Why I’d Invest
  2. 2. VC InsightsVC101
  3. 3. What is Venture Capital (VC)? VC is financial capital provided to early-stage, high-potential growth start-ups. A VC fund earns money by owning equity in the companies it invests in. Investors in VC funds are called limited partners. LPs are high net worth individuals, family offices, pensions, endowments, fund of funds, etc. VC101
  4. 4. Limited Partner General Partner EXIT (IPO, Acquisition, etc.) Portfolio Company 1 ………. Company n VCs distribute cash for equity Fund LPs “pay” management fees to GPs LPs are “repaid” and earn 80% profit GPs earn carry (20% profit) from liquidation VC101
  5. 5. What does it mean to be “VC fundable”? Version One I is a $20M seed fund. VC101 For this fund size, we’re looking for $100M+ companies. One unannounced
  6. 6. VC101 Fund size $20M Return target 3-4x $80M Avg. stake / company 3-5% $1.6-2.0B 20# of portfolio companies Avg. exit value / company ~$100M
  7. 7. Larger venture funds look for “unicorns” ($1B+ opportunities) to deliver acceptable returns. e.g. To return the initial capital of a $400M fund, that might mean needing to own: 1) 20% of two $1B companies; or 2) 20% of one $2B company at acquisition or IPO. VC101
  8. 8. It’s ridiculously hard to find unicorns. They are rare. Since 2003, there have been 84 unicorns. This is 0.14% of VC-backed startups. lose money break-even make good money (5-10x) Typical portfolio return assumption 1/3 1/3 1/3 VC101 Source: Welcome to the unicorn club: 2015 by Aileen Lee
  9. 9. It’s ridiculously hard to find unicorns. There is a lot of noise. 500 intro meetings per year (or 10 per week) 50 follow-up meetings 10 due diligence 5-6 funded per year 0.5-1% “funding” rate VC101
  10. 10. 800-1000 seen per year 500 intro meetings per year (or 10 per week) 50 follow-up meetings 10 due diligence 5-6 funded per year VC101
  11. 11. 50,000+ startups 800-1000 seen per year 500 intro meetings per year (or 10 per week) 50 follow-up meetings 10 due diligence 5-6 funded per year VC101
  12. 12. VC InsightsThe startup ecosystem today
  13. 13. The Canadian VC ecosystem is healthy… Canadian VC fundraising Data source: 2016 Thompson Reuters $1,433 $1,220 $1,212 $929 2013 2014 2015 Q1 2016 In Millions Raised (CAD)
  14. 14. … with more and more startup financings, … Canadian VC investments +7% +12% Data source: 2015 Canadian Venture Capital Market Review - CVCA Report $1,897 $2,022 $2,259 2013 2014 2015 In Millions Invested (CAD)
  15. 15. $1,062 $1,379 $272 $647 $394 $135 $14 $42 $0 $500 $1,000 $1,500 2013 2014 2015 In Millions Invested (CAD) … especially in ICT and life sciences. Canadian VC investments ICT Life Sciences Clean Tech AgriBusiness Data source: 2015 Canadian Venture Capital Market Review - CVCA Report
  16. 16. 2013 2014 2015 In Millions (CAD) Other IPO M&A We’re also seeing more exits. Canadian VC investments $1,343 $1,457 $4,263 Data source: 2015 Canadian Venture Capital Market Review - CVCA Report
  17. 17. But all this is still only a fraction of that of the US. US VC investments +46% Data source: 2015 US Venture Capital & Startup Traction Report - Mattermark $39.9 $58.3 2014 2015 In Billions Invested (USD) USD:CAD invested is 30:1 Population ratio suggests it should be 10:1
  18. 18. Popular themes Web & Mobile Apps Leading Technology Software-as-a-Service Social Networks Marketplaces IoT & The Connected World Messaging-as-a-Platform Machine Learning & Artificial Intelligence Virtual Reality & Augmented Reality Bitcoin & Blockchain Drones & Robotics
  19. 19. What is the future of computing? In between platforms Source: What’s next in computing? by Chris Dixon 19941981 2007 2018?
  20. 20. “Some of the hottest venture deals these days are being done in a field that is mostly low-tech or even no-tech…” In between platforms Source: Heat Death: Venture Capital in the 1980s by Jerry Neumann Is history repeating itself? “VCs were investing in startups […] unlike the ones that generated the phenomenal 1980 VC returns. The new wisdom was to lower risk by investing in well-understood, slower growth markets […and…] by shunning technology.” - Wall Street Journal, 1989
  21. 21. In between platforms Web & Mobile Apps Leading Technology Software-as-a-Service Social Networks Marketplaces IoT & The Connected World Messaging-as-a-Platform Machine Learning & Artificial Intelligence Virtual Reality & Augmented Reality Bitcoin & Blockchain Drones & Robotics What are the next big unique ideas? What are the killer use cases?
  22. 22. VC InsightsWhat we look for
  23. 23. Our investment thesis Strong founders who are leveraging network effects to solve an important problem in a unique way for a market that many people care about
  24. 24. Strong founding team Talent Passion+ Storytelling+ What we look for
  25. 25. Our investment thesis Strong founders who are leveraging network effects to solve an important problem in a unique way for a market that many people care about
  26. 26. What we look for What are network effects? When a new user/member increases the value of the product or service to all other users High number of quality suppliers Attracts more customers Brings more suppliers They create a high degree of defensibility Network effects ≠ virality (rate of adoption) marketplace virtuous cycleHelps to draw even more customers
  27. 27. Our investment thesis Strong founders who are leveraging network effects to solve an important problem in a unique way for a market that many people care about
  28. 28. 0 to 1 What we look for vertical or intensive progress doing new things horizontal or extensive progress copying things that work 1 to n Source: Zero to One by Peter Thiel
  29. 29. Highly-regulated industries can be still disrupted. Can we take a bottoms-up network-driven approach? What we look for Permissionless innovation Mostly permissionless innovation People regulation incumbents Employees incumbents legacy Patients Doctors regulation incumbents legacy Clinics, Carriers & Pharma Healthcare Fintech Government Education Insurance Manufacturing
  30. 30. Our investment thesis Strong founders who are leveraging network effects to solve an important problem in a unique way for a market that many people care about
  31. 31. MVP The “What” Vision The “Why” Distribution Strategy & Scale The “How” Total Addressable Market TAM Expansion Initial Target Market Market 2 Market 3 Market 4 All addressable markets / distribution channels / customer segments / verticals . . . . . What we look for
  32. 32. Our investment thesis Entrepreneur Business Model Market Opportunity Category Leader Strong founders who are leveraging network effects to solve an important problem in a unique way for a market that many people care about
  33. 33. VC InsightsKey takeaways
  34. 34. Larger funds expect greater returns, so the bar for “VC fundable” startups is higher than ever. We’re in between mature and emerging platforms. There are still many opportunities to become a category leader by solving a clear pain point and building a defensible asset with network effects. Key takeaways
  35. 35. Angela Kingyens Version One Ventures ThankYou Twitter: @ATKingyens Email: angela@versionone.vc

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