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![Founders Circle Filter
Capital Efficiency of Growth
• Revenue over $40M – GOOD [$404]
• Revenue growth over 40% - GOOD [
600%]
• GM over 40% - FAIL [ (12%)]
• Revenue/Capital Expended – FAIL [ 2.9X
1.2B/$0.4]
• FAIL](https://image.slidesharecdn.com/gq47hf6qiapimm3g0l9i-signature-ad03765ae742697665284b0ce9416efafe3a9087981abd69d62f77c3727bfa76-poli-170213175958/85/Lessons-From-the-0-3-Highest-Performing-Private-Companies-42-320.jpg)
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Lessons From the 0.3% Highest Performing Private Companies
- 2. Master Class Lessons fromthe 0.3% Highest Performing Companies 2.5.17
- 3. CONFIDENTIAL | 3 3 4Start-ups & Co-Founded two Venture Firms Chris Albinson @chrisalbinson #breakawaygrowth Co-Founder & Managing Director Founders Circle Capital Years to IPO: 3 Peak Market Cap: $18B Peak Revenue/Profit: $2B/$0.2B Sold: $7B Years to IPO: 5 Peak Market Cap: $12B Peak Revenue/Profit: $0.56B/($0.2)B Sold: $0.34 B
- 6. Companies Staying PrivateLonger – 11 years Source: SVB (Dr. Jay Ritter, Univ. of Florida, U.S. Unicorns) 9
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- 13. #Breakawaygrowth Question: When doyou have 90% confidence in an outsized outcome?
- 14. Quantitative Analysis Qualitative Analysis 30- 40 Investments 40,000 Companies 510 Companies 120 Companies Performance and Velocity Analysis Proprietary Algorithm, SVB Data, External Data Quantitative Analysis: $40/40%/40%+ • FCC analysis • RBC Insights • SVB insights • GP Insights Proprietary Algorithm, Public and Private Data Founders Circle Diligence • Circle Unique Insight • Domain Experts • Management Referencing Proprietary Data Founders Circle Capital
- 15. Quantitative Analysis Qualitative Analysis 40,000 Companies 20%of outcomes = 77% of value (75% via IPO) *Total Value of venture-backed exits defined as Market Cap at IPO or Acquisition Price Sources: NVCA and Public IPO/M&A Data 30-50 IPOs & 100 M&A Exits/yr
- 16. Quantitative Analysis Qualitative Analysis 30-50IPOs & 100 M&A Exits 40,000 Companies 4,000 Financings/year Companies 510 Breakawaygrowth Companies 40,000 companies Which will be the 0.3%? 1,500 new companies/year Median Age 1 5 11
- 17. The 40 Rule: Minimum$40M in revenue with 40% Growth with 40% Gross Margin With < 1.5X Revenue/Capital Expended = #Breakawaygrowth Only 510 on the planet
- 18. #Breakawaygrowth Insights I. Ambition II.Product Market Fit/Moats III. Market IV. Unit Economics V. People
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- 29. Unit Economics What doesa customer value CAC = Customer Acquisition Cost • How much does it cost to get a paying customer • BGC Insight: Get the toughest customer first LTV = Lifetime Value (of a customer) - How much will a customer pay for value over time - BGC Insight: Retention is everything
- 30. Unit Economics Rules 40Rule: Founders Circle (revenue+GM+Growth with < 1.5X Capital Invested/Revenue) 70 Rule: Redpoint (combination of growth + profit % > 70 BGC Insight: #1 Cause of Startup Death? Premature Scaling BGC Insight: VC Fund My life or http://www.vcfml.com/
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- 32. Quality+feedback really reallymatters #Breakawaygrowth Insights: • Alignment with mission • Work in customer support for first month • CEO meets every hire • CEOs have coaches; teams have coaches • Open 360s twice a year minimum • Feed back loops, feed back loops • Measurement BGC Insight: #2 Cause of Startup Death? People issues
- 34. 34 Case Study: Snap FoundedMay 2012
- 35. Pattern Recognition I. Ambition II.Product Market Fit/Moats III. Market IV. Unit Economics V. People
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- 37. Product/Market Fit avg 2.5billion Snaps were created every day 4Q ended December 31, 2016
- 38. Market IDC projects thatworldwide advertising spend will grow by 18% from $652 billion in 2016 to $767 billion in 2020. Mobile advertising is the fastest growing segment of this market, and is expected to grow nearly 3x from $66 billion in 2016 to $196 billion in 2020
- 39. Moats Snapchat is freeand easy to join, the barrier to entry for new entrants is low, and the switching costs to another platform are also low. Moreover, the majority of our users are 18-34 years old. This demographic may be less brand loyal and more likely to follow trends than other demographics. These factors may lead users to switch to another product, which would negatively affect our user retention, growth, and engagement.
- 40. Unit Economics For theyear ended December 31, 2016, we recorded revenue of $404.5 million, as compared to revenue of $58.7 million for the year ended December 31, 2015, representing a year-over-year increase of more than 6x. Our Adjusted EBITDA was $(459.4) million, as compared to $(292.9) million for the year ended December 31, 2015. For the year ended December 31, 2016, net cash used in operating activities was $611.2 million as compared to $306.6 million for the year ended December 31, 2015. For the year ended December 31, 2016, our Free Cash Flow was $(677.7) million as compared to $(325.8) million for the year ended December 31, 2015..” • Roughly $2.50 to acquire and monetize a new user (and getting more expensive fast with v low and slowing growth) • Each user generates $3 in ad revenue per year • Each user costs them $3.25 in Google data center costs per year to store their pictures (so negative gross margin still at 150M users) • Plus another $1+ per user a year in R&D costs • Plus another $1+ per user a year in G&A costs • NET: Loss of ($2.75) per user per year • Today the more users they get, the more money they lose. • Facebook makes $12/user/year in ad revenue and is world-class at advertising with the best technology, the most data for targeting, the best reach, and the best target demographic: Moms, who control the household budget. Snap has more tweens and teens with lower disposable incomes, so the path may be difficult to get the $3/user/year to 2x, and 3x, and 4x. They may achieve it, but they haven’t yet done it. It is too early for an IPO. • ($677,686)/year burn with $987,368 for remaining cash = 17 months of cash remaining
- 41. People I. Evan Spiegel,26 Co-Founder, Chief Executive Officer & Director II. Robert Murphy, 28 Co-Founder, Chief Technology Officer & Director
- 42. Founders Circle Filter CapitalEfficiency of Growth • Revenue over $40M – GOOD [$404] • Revenue growth over 40% - GOOD [ 600%] • GM over 40% - FAIL [ (12%)] • Revenue/Capital Expended – FAIL [ 2.9X 1.2B/$0.4] • FAIL
- 43. 11 Year Triathlon 40,000Start 500 Finish
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