The Art of the Start
Six lessons for startups
Allan Martinson, MTVP
Latvian IT Cluster/RBS, Nov 26, 2010
Valley of Death
Startup:
A vehicle to drive thru
Death Valley
The One Million Land
A startup is a human institution
designed to deliver a new product or
service under conditions of extreme
uncertainty
Eric...
My startup (and not so startup) life
Baltic
6 lessons
on how to grow your
stupid little startup
into SOMETHING
How does a startup start?
Lesson 1: It’s all about people
It does not start from a business idea
Incubation
takes years
2 founder rule
Leader
Skeptic
Multi-skilled
talentsTeam &
Va...
Pick your friends wisely
• Your future income will be the average of 5 of
your closest friends
Pick your friends wisely
Yo...
Lesson 2: The origin of great business ideas
Povarskaya St, Moscow
March 1990
My moment of epiphany?
This does not happen
Three origins of great startups
• Copycats: Copy existing business
model to new markets
• Evolutionary: Seek better soluti...
• The 30-seconds pitch:
tell your granny
– Who is your customer
– What does your
company do for this
customer
– Why are yo...
Why I will never invest in
IT services any more
0
5
10
15
20
25
30
1 2 3 4 5 6 7 8
Sales
Expenses
0
5
10
15
20
25
30
1 2 3...
Lesson 3: The art of pivot
The life of any startup can
be divided into two parts –
before product/market fit
and after product/market fit
Marc Andree...
Why pivot?
Not a single great company follows
its original business idea
Failure is not a problem
Slow failure is a problem
The importance of milestones
• MVP (Minimum Viable Product): 48 hrs – 3
months
• Initial customer validation: 1 week – 6 m...
Lesson 4: The Need For Speed
Why speed?
• Startups, by very
definition, are
probabilistic
• Success seems
intentional only in
retrospective –
impossibl...
Works in startups, too
20% of more effort will result in many times better result after some time
In probabilistic environments,
speed and focus
are the best boosters of success rate
And hunger is the best factor
contrib...
The ultimate example of being focused
“I was too busy, I didn’t do
things like that… I just didn’t
go and meet new people
...
Lesson 5: Importance of right signals
Importance of the right signals
• With whom do we compare ourselves?
• What do our customers, investors, partners
really t...
Being Latvian is
a full-time job
Lesson 6: Where to find smart investors
Raising venture capital is the
art of younger men seducing
older men
- Anonymous
9-18mo
18-24mo
2-3Y
3-7Y
0
+
-
2 10 50 200 500 employees
FFF
$10-500K
A-round
$1-10m
B-round
$5-50m
IPO or
exit
Typical li...
Typical life cycle in figures
Year 1 2 3 4 5 6
Phase Startup Early growth Growth Exit
Revenues ($m) 0 1 4 10 20 30
Growth ...
What shall you know about VCs
• Venture capital (LPs) and venture capitalists
(GPs) are not the same
• VCs are in the busi...
Thank you!
allan.martinson@mtvp.eu
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Six Startup Lessons & The Essence of Venture Capital

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Lecture to Latvian IT and startup community in RBS.

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  • Et teiega samast asjast räägiks, siis mis on startup. Surmaorg
    Miljon midagi
  • Six Startup Lessons & The Essence of Venture Capital

    1. The Art of the Start Six lessons for startups Allan Martinson, MTVP Latvian IT Cluster/RBS, Nov 26, 2010
    2. Valley of Death Startup: A vehicle to drive thru Death Valley The One Million Land
    3. A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty Eric Ries
    4. My startup (and not so startup) life Baltic
    5. 6 lessons on how to grow your stupid little startup into SOMETHING
    6. How does a startup start?
    7. Lesson 1: It’s all about people
    8. It does not start from a business idea Incubation takes years 2 founder rule Leader Skeptic Multi-skilled talentsTeam & Values It starts from people
    9. Pick your friends wisely • Your future income will be the average of 5 of your closest friends Pick your friends wisely Your future income = average of your 5 closest friends
    10. Lesson 2: The origin of great business ideas
    11. Povarskaya St, Moscow March 1990 My moment of epiphany?
    12. This does not happen
    13. Three origins of great startups • Copycats: Copy existing business model to new markets • Evolutionary: Seek better solution to existing problems • Revolutionary: Seek unknown solution to unknown problems The best ideas come on cross-roads of trends and disciplines
    14. • The 30-seconds pitch: tell your granny – Who is your customer – What does your company do for this customer – Why are you better than competition • Do you pass the “Google test”? The What
    15. Why I will never invest in IT services any more 0 5 10 15 20 25 30 1 2 3 4 5 6 7 8 Sales Expenses 0 5 10 15 20 25 30 1 2 3 4 5 6 7 8 Sales Expenses Company 2: IT services Company 1: Platform business
    16. Lesson 3: The art of pivot
    17. The life of any startup can be divided into two parts – before product/market fit and after product/market fit Marc Andreessen
    18. Why pivot? Not a single great company follows its original business idea Failure is not a problem Slow failure is a problem
    19. The importance of milestones • MVP (Minimum Viable Product): 48 hrs – 3 months • Initial customer validation: 1 week – 6 months • One million something (users, $$$, etc): 1-2 years • You shall pivot if: – Your solution seeks a problem, not vice versa – Nobody wants to use your product – even you – You have ceased to believe into your company for >1 month
    20. Lesson 4: The Need For Speed
    21. Why speed? • Startups, by very definition, are probabilistic • Success seems intentional only in retrospective – impossible to compute
    22. Works in startups, too 20% of more effort will result in many times better result after some time
    23. In probabilistic environments, speed and focus are the best boosters of success rate And hunger is the best factor contributing to it
    24. The ultimate example of being focused “I was too busy, I didn’t do things like that… I just didn’t go and meet new people who were involved in investments.” Bill Gates on initially refusing to meet Warren Buffet Interview with Financial Times, Oct 2010
    25. Lesson 5: Importance of right signals
    26. Importance of the right signals • With whom do we compare ourselves? • What do our customers, investors, partners really think? • Are we insiders or foreign? • Nothing replaces human interaction even in internet era • Silicon Valley is the focal point of information, emotions and ideas • It is the mental state
    27. Being Latvian is a full-time job
    28. Lesson 6: Where to find smart investors
    29. Raising venture capital is the art of younger men seducing older men - Anonymous
    30. 9-18mo 18-24mo 2-3Y 3-7Y 0 + - 2 10 50 200 500 employees FFF $10-500K A-round $1-10m B-round $5-50m IPO or exit Typical lifecycle of a high-tech company
    31. Typical life cycle in figures Year 1 2 3 4 5 6 Phase Startup Early growth Growth Exit Revenues ($m) 0 1 4 10 20 30 Growth % 300% 150% 100% 50% Investment phase Angel A-round B-round Pre-money / exit valuation ($m) 0,5 3 40 150 Investment ($m) 0,4 2,5 25 Post-money valuation ($m) 0,9 5,5 65 150 Post-money ownership of founders 56% 30% 19% 19% Value of founders’ stake ($m) 0,5 1,7 12,1 28,0 IRR to angel investors 124% Money-back, angel 56 times IRR to A-round investors 102% Money-back, A-round 17 times IRR to B-round investors 52% Money-back, B-round 2,3 times
    32. What shall you know about VCs • Venture capital (LPs) and venture capitalists (GPs) are not the same • VCs are in the business of saying NO and then making money • You can divorce your wife but you cannot divorce a VC • You shall like, but not love each other • If in doubt, pick the smartest
    33. Thank you! allan.martinson@mtvp.eu

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