The beginner's guide to Silicon Valley, startup world and venture capital - presentation to Tallinn Technical University students on Dec 1, 2011

1. Silicon Valley
Startups, VCs and venture spirit
Allan Martinson
MTVP & Kurat.com

2. My startup (and not so startup) life
Baltic

3. Beginners guide to Known locations of
Silicon Valley
S.F.
Restaurants, gigs, gay
s, liberals and the
#estonianmafia
hippiest startups
SFO
The gates S.J.
Please wake me up
Palo Alto when I’m finished
„The Capital“
Sand Hill Rd
Money lives here
No evil here. Seriously
Stanford Uni.
„The brains“
Apples here
After $100m exit you
will live here The Zuck Country

4. Valley of Death
Forget Silicon Valley.
Lets start from
Death Valley

5. A startup is a human institution
designed to deliver a new product or
service under conditions of extreme
uncertainty
Eric Ries
Founder, the Lean Startup Methodology
Theleanstartup.com

6. The Art of the Start
Six lessons for your stupid little startup

7. How does a startup start?

8. Lesson 1: It’s all about people

9. It does not start from a business idea
It starts from Skeptic 2 founder rule
people Leader
Incubation
takes years
Multi-skilled
Team & talents
Values

10. Lesson 2: The birth of an idea

11. This does not happen

12. 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

13. The What
• 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”?

14. Lesson 3: The art of pivot

15. Pivot, explained
„I am not leaving you… I am pivoting to another man“

16. The life of any startup can
be divided into two parts –
before product/market fit
and after product/market fit
Marc Andreessen
Founder, Netscape
Partner, Andreessen Horowitz

17. Why pivot?
Not a single great company
follows its original business
idea
Failure is not a problem
Slow failure is a
problem

18. 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

19. Lesson 4: The Need For Speed

20. Why speed?
• Startups, by very
definition, are
probabilistic
• Success seems
intentional only in
retrospective –
impossible to compute

21. In unpredictable environments
speed and focus
are the best boosters of success rate
And hunger is the best factor
contributing to it

22. 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
Founder, Microsoft
on refusing to meet Warren Buffet

23. Lesson 5: Importance of right signals

24. Silicon Valley is a
mental state

25. Being Estonian is
a full-time job

26. Lesson 6: Where to find smart investors

27. Raising venture capital is the
art of younger men seducing
older men
- Anonymous

28. Typical lifecycle of a high-tech company
+
0
-
18-24 mo
9-18 mo
2-3 Y
3-7 Y
2 10 50 200 500 employees
FFF A-round B-round IPO or
$10-500K $1-10m $5-50m exit

29. 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

30. 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

31. Thank you!
allan.martinson@mtvp.ee
allan.martinson@kurat.com