The document provides insights into venture capital, detailing its structure, the role of limited partners, and the challenges of identifying high-potential startups, particularly unicorns. It discusses the healthy growth of the Canadian VC ecosystem, emerging market trends, and investment criteria that emphasize strong founders and network effects. Key takeaways indicate a higher bar for what qualifies as 'VC fundable' startups and the importance of solving significant market problems while building defensible business models.

1. AccelerateOTT
May 2016
VC Insights
A Pulse on the Ecosystem:
Where & Why I’d Invest

2. VC InsightsVC101

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. 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. 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. 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. 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. 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. 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. 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. 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. VC InsightsThe startup ecosystem today

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. … 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. $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. 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. 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. 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. What is the future of computing?
In between platforms
Source: What’s next in computing? by Chris Dixon
19941981 2007
2018?

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. 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. VC InsightsWhat we look for

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. Strong founding team
Talent
Passion+
Storytelling+
What we look for

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. 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. 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. 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. 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. 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. 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. 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. VC InsightsKey takeaways

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. Angela Kingyens
Version One Ventures
ThankYou
Twitter: @ATKingyens
Email: angela@versionone.vc