Lecture to Latvian IT and startup community in RBS.

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