Six Startup Lessons & The Essence of Venture Capital
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This document provides 6 lessons for startups based on the author's experience. The 3 main points are: 1. Lesson 1 emphasizes that startups are about people, not just business ideas. It takes years of incubation and the right founding team with complementary skills and values to succeed. 2. Lesson 3 stresses the importance of pivoting if a startup fails to gain product/market fit or customer validation within set milestones. Slow failure is worse than failure. 3. Lesson 6 advises that raising venture capital requires understanding the venture capital process and life cycle of typical high-tech companies. It is important to pick smart investors who will provide long-term support.
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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: Itโs 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 โข 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 โข Copycats: Copy existing business model to new markets โข Evolutionary: Seek better solution to existing problems โข Revolutionary: Seek unknown solution to unknown problems The best ideas come on cross-roads of trends and disciplines
- 14. โข The 30-seconds pitch: tell your granny โ Who is your customer โ What does your company do for this customer โ Why are you better than competition โข Do you pass the โGoogle testโ? 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 โ 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 โข MVP (Minimum Viable Product): 48 hrs โ 3 months โข Initial customer validation: 1 week โ 6 months โข One million something (users, $$$, etc): 1-2 years โข You shall pivot if: โ Your solution seeks a problem, not vice versa โ Nobody wants to use your product โ even you โ You have ceased to believe into your company for >1 month
- 20. Lesson 4: The Need For Speed
- 21. Why speed? โข Startups, by very definition, are probabilistic โข Success seems intentional only in retrospective โ 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 โI was too busy, I didnโt do things like thatโฆ I just didnโt go and meet new people who were involved in investments.โ 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 โข With whom do we compare ourselves? โข What do our customers, investors, partners really think? โข Are we insiders or foreign? โข Nothing replaces human interaction even in internet era โข Silicon Valley is the focal point of information, emotions and ideas โข 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 ($m) 0,9 5,5 65 150 Post-money ownership of founders 56% 30% 19% 19% Value of foundersโ stake ($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 โข Venture capital (LPs) and venture capitalists (GPs) are not the same โข VCs are in the business of saying NO and then making money โข You can divorce your wife but you cannot divorce a VC โข You shall like, but not love each other โข If in doubt, pick the smartest
Editor's Notes
- Et teiega samast asjast rรครคgiks, siis mis on startup. Surmaorg Miljon midagi