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- 1. INVESTMENT IN STARTUPSAnalysis of Behaviour and Decision-Making Process of Investors
- 4. 4 Who are startups? *According to Harvard Business Review Startup Fail*87% Fail within first year Fail within second year (of those remaining) Fail within third year (of those remaining) 25% 36% 44% 50% Fail within fourth year (of those remaining) (investors’ vision) RISKS!!!
- 5. Steve Blank, Stanford Professor “An organization formed to search for a repeatable and scalable business model“ Eric Ries, “Lean Startup” Paul Graham, Y Combinator Business Dictionary “Early stage in the life cycle of an enterprise where the entrepreneur moves from the idea stage to securing financing, laying down the basis structure of the business, and initiating operations or trading” “A startup is a company designed to grow fast. Everything else we associate with startups follows from growth.” “A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.” What’s startup? 5
- 6. (startups’ vision) Who is investor?
- 7. (investors’ vision) Who is investor?
- 8. Who is investor? (or where to find money to finance your idea) Incubators Bootstrapping +Family, Friends Crowdfunding Traditional lenders Angel Investors Venture Capitalists
- 9. 9 Types of Investors Crowdfunding AMOUNT $25k-1mln STAGE Seed + GOAL Profit EQUITY THEY ASK <15 % Business Angel Venture Capitalist <$20-30k Up to 50%ProfitSeries A +>$1mln Pre-Seed + Product
- 10. 10 Equity share Additional money to develop product Additional Expertise Additional Network Time consumption Bootstrapping Business Angel Venture Capital Crowdfunding Investors Comparison
- 11. • Bootstrapping: pros and cons • Creating MVP doesn’t cost much • Lean startup: Build–Measure–Learn • Time vs. Result Do you really need an investor? <$1mln
- 13. 13 Market Potential and Size 85% MARKET SIZE UNDERSTANDING OF THE MARKET MARKET POTENTIAL TRACTION MARKET MATCH
- 15. 15 43 21 SIZE OF INVESTMENT POTENTIAL FOR INVESTOR EXIT COMPETITIVE ADVANTAGE MVP Other important factors 1 OUT OF 5
- 16. 16 INVESTABILITY STAGE FITS THE FOCUS OF INVESTOR BUSINESS MODEL Other Factors
- 17. 17 4/10 . 6/10 When asked what is more important: facts and figures or charisma and intuition of founders, investors chose CHARISMA FACTS AND FIGURES* *Some noted that partially good results (figures) are connected with charisma
- 18. Strong Listening Skills Effective communication between founders Perseverant, doesn’t take “no” for an answer Can support his opinion, persuasive speaker Good organisational skills, meets deadlines, answers fast Competitive Growth Hacker, project is a big part of his life Ready to learn constantly MARKET POINT 18 Founders Assessment: positive
- 19. Weaknesses No Facts, only words 19 Founders Assessment: negative Combining full-time job with work on the project Promotion of him(her)self Weak organizational skills One founder Serial winners of competitions “Distributed” team* Not all facts are revealed *Communication between co-founders is slow and long
- 20. 20 Observing startup over time Gut feelingPersonal Communication How investors make choice
- 21. 21 What documents investors request 1 out of 10 investors requests Business Plan Presentation One pager, executive summary Financial Spreadsheet
- 22. 22 Through partners’ network - recommendations 5 out of 10 Investors meet startups at events Investors find startups themselves 5 out of 10 5 out of 10 Startups find investors themselves (send requests, emails) 4 out of 10 How investors find startups
- 24. Pain Solution Market Size Team Financials 24 How to Make a Convincing Pitch
- 25. 25 Business Evaluation Models Calculate cashflow Define multiplicator and discount rate Create financial model Do not inflate evaluation
- 26. 26 Sell to an individual Make it cash cow M&A IPO Exit Strategies Liquidation and close down
- 28. 28 Veto rights Type of preferred stock Number of board seats Valuation Option Pool Size Liquidation Preferences What to do when you found investor?
- 29. Partner Chemistry1 Partners‘ Operational experience Portfolio Alignment Successful Exits Network 2 3 4 5 What to do when you found investor? 29
- 31. 31 01 02 03 04 05 06 No clear funding objective Seeking funding too early Not providing cash-flow analysis Overestimating future revenue Underestimating your variable expenses Raising too much money/Raising too little money Top Mistakes of startups Not using financial model to create a narrative for your business
- 32. Figure out how to convince people to work for you for next to nothing (in exchange for equity or deferred salary) . Lessons learnt: startups share their experience Create a product or service that you can sell and Start selling Use the revenue you are making to finance future product improvements and development . . Once you get to $20,000 per month in sales, then go look for seed funding to improve your product