Problem-Solution Fit - Patrick Lor

1. PROBLEM/SOLUTION FIT
EUROPEAN INNOVATION ACADEMY | PORTUGAL 2019
PATRICK LOR, MANAGING PARTNER | PANACHE VENTURES

2. ABOUT ME Home & family
HOME: Calgary, Alberta, Canada (7,642 km from Cascais)
FAMILY: Prince Edward Island (4,728 km), Waterloo (3,165 km)
(distances from Calgary)

3. ABOUT ME Resume
EDUCATION: BA Sociology, MBA
COMPANIES: iStockphoto, Adobe, 500 Startups
Panache Ventures

4. ABOUT THIS PRESENTATION
Available on Slideshare
Stock photos from Unsplash
VC 101 presentation link
Other materials linked throughout the deck

5. 0 50 100 150 200 250$ MILLIONS
CONTEXT How big are the companies that VCs fund?
At the low end, VC firms will co-invest with angel
investors. At the high end, VC firms often work
with PE firms.
Some companies consider going public as they
reach higher valuations, although most high-tech
firms are staying private longer because of the
abundance of private equity, and volatility of the
public markets.
VC firms typically fund companies
that have between $3m to
$200m in enterprise value.
COMPANY VALUATIONS
FRIENDS & FAMILY: < $2,000,000
ANGEL: < $10,000,000
VENTURE CAPITAL: $3,000,000 - $200,000,000
PUBLIC/PE: $50,000,000 - $10,000,000,000+

6. STAGES OF A STARTUP Capital raise and traction metrics
STAGE IDEATION PRE-SEED SEED SERIES A SERIES B SERIES C+ IPO
CAPITAL
RAISE <$250K $250K - $1M $1M - $3M $4M - $10M $10M - $25M $25+
INVESTORS Self funded, loans
Friends & family,
Angels, VCs
VCs, Angels Institutional VCs Institutional VCs
Growth VCs,
Private Equity
TRACTION PSF, FMF,
Initial concept,
identification of
customers and
market
opportunity.
Initial prototype,
beta customers in
target segments,
MRR $0-25k
Strong usage from
early customers,
POCs convert to
customers. MRR
$25k-100k
PMF, strong
customer growth &
management team.
ARR $2m+, 3x Y/Y
growth.
Expansion of
product lines,
proven channels
to scale customer
acquisition.
ARR $6m+, 3x Y/Y
Market leading
tech/platform,
customer trust.
Predictable,
profitable. ARR
$15m+, 2 Y/Y
PSF: Problem Solution Fit FMF: Founder Market Fit MRR: Monthly Recurring Revenue ARR: Annual Run Rate PMF: Product Market Fit

7. DEALFLOW
For Potential Investments, We Ask Four Basic Questions:
1. What is it?
2. How big can it be?
3. Is there founder magic?
4. What are the deal terms?

8. DEALFLOW Screening Questions
What's the life changing experience
with your product or service?
What is your north star metric?
How do you assess the quality of your
engagement campaigns?
What's your thesis around how this
becomes massive?
Why is now the right timing to build
this?
How does the problem you are solving
and your solution become top of mind
for your customers?
What are the long-term strategic
implications of your business if it
succeeds? (What impact will it have on
the world?)
What has been your biggest failure,
and what are the lessons learned?
How do you think you're going to
incentivize people to play on the
platform?
What are the mission critical factors for
your business to reach [milestone]?

9. THE PROBLEM
IS IT LUV?:
LARGE, URGENT, & VALUABLE
Hunter Walk: Homebrew link 1 | link 2
1/3 = no business
2/3 = small/medium business
3/3 = huge, venture-scale business

10. PROBLEM/SOLUTION FIT Rules
RULE 1: THE PROBLEM BEING SOLVED MUST BE LUV
AIM FOR 3

11. PROBLEM/SOLUTION FIT Success factors
What Matters Most For
Business Success
Bill Gross of Idealab, started over
125 companies (TED2015 talk)

12. What Matters Most For
Business Success
5 factors were taken into account
for Bill’s study: timing,
team/execution, idea, business
model, and funding.
PROBLEM/SOLUTION FIT Success factors

13. What Matters Most For
Business Success
TIMING was the most important
factor.
Money was least important.
Example: Idealab launched a
video content business before
broadband was widely available,
and before codec software was
readily available. YouTube
launched as this problem was
being solved
PROBLEM/SOLUTION FIT Success factors

14. PROBLEM/SOLUTION FIT Rules
RULE 1: THE PROBLEM BEING SOLVED MUST BE LUV
AIM FOR 3
RULE 2: GET YOUR TIMING RIGHT &
BUILD SOMETHING MASSIVE

15. 8
Internet Trends
2019
Global New Smartphone Unit Shipments =
Declining -4% vs. 0% Y/Y
Source: Katy Huberty @ Morgan Stanley (3/19), IDC.
New Smartphone Unit Shipments vs. Y/Y Growth
-25%
0%
25%
50%
75%
0
0.4B
0.8B
1.2B
1.6B
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Y/YGrowth(RedLine)
NewSmartphoneShipments,Global
Android iOS Other
0%

16. 9
Internet Trends
2019
Global Internet Users =
3.8B >50% of Population
24%
51%
0%
35%
70%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
InternetPenetration,Global
Internet Penetration, 2018
Internet user data is as of mid-year. Source: United Nations / International Telecommunications Union, USA Census
Bureau. Pew Research (USA), China Internet Network Information Center (China), Islamic Republic News Agency /
InternetWorldStats / Bond estimates (Iran), Bond estimates based on IAMAI data (India), & APJII (Indonesia).

17. 10
Internet Trends
2019
Global Internet Users =
Asia Pacific Leads in Users + Potential
89%
62%
32%
78%
48%
0 3B 6B
North America
South America &
Carribean
Africa & Middle East
Europe
Asia Pacific
Population
Internet Users Non-Internet Users
Internet Users by Region, 2018
Asia Pacific
(15%)
Europe
Africa & Middle East
Latin America & Caribbean
North America
53% of Global Internet Users
48% Internet User Penetration in Region
15%
78%
13%
32%
10%
62%
9%
89%
Internet user data is as of mid-year. Source: United Nations / International Telecommunications Union, USA Census
Bureau. Pew Research (USA), China Internet Network Information Center (China), Islamic Republic News Agency /
InternetWorldStats / Bond estimates (Iran), Bond estimates based on IAMAI data (India), & APJII (Indonesia).

18. 11
Internet Trends
2019
Global Internet Users =
China @ 21% of Total...India @ 12%...USA @ 8%
0 0.8B 1.6B
Turkey
France
Nigeria
Iran (I.R.)
United Kingdom
The Philippines
Germany
Mexico
Russia
Japan
Brazil
Indonesia
United States
India
China
Internet Users Non-Internet Users
Internet Users – Top Countries, 2018
Internet user data is as of mid-year. Source: United Nations / International Telecommunications Union, USA Census
Bureau. Pew Research (USA), China Internet Network Information Center (China), Islamic Republic News Agency /
InternetWorldStats / Bond estimates (Iran), Bond estimates based on IAMAI data (India), & APJII (Indonesia).

19. PROBLEM/SOLUTION FIT BUILD SOMETHING MASSIVE
MASSIVE TREND: INTERNET USAGE reference link
- 1.5B+ smart phones shipped every year; Android dominates
- USA: nearing full saturation
- China, India, Africa, S.E. Asia: underserved
Internet Trends
201
Mary Meeker
June 11 @ Code 2019
INTERNET TRENDS 2019
Mary Meeker
June 11 @ Code 2019
bondcap.com/report/it19
2
Internet Trends
2019
Internet Trends 2019
1) Users
2) E-Commerce + Advertising
3) Usage…
4) Freemium Business Models
5) Data Growth
6) …Usage
7) Work
8) Education
9) Immigration + USA Inc.
10) Healthcare
11) China (Provided by Hillhouse Capital)

21. MASSIVE TREND: ELECTRIC CARS vs ELECTRIC SCOOTERSreference link
- Electric scooters popular as Christmas gifts
- More electric scooter choices available
- More ways to access electric scooters
PROBLEM/SOLUTION FIT BUILD SOMETHING MASSIVE

22. PROBLEM/SOLUTION FIT PROBLEM DISCOVERY
THE PROBLEM WITH PROBLEMS:
- We’ve solved a ton of problems over the last 100 years
- We make a lot of stuff we don’t need
“Efficiency is starting to fade as an important variable.
Capitalism today is more about generating demand for stuff
we don't need than about manufacturing stuff we need”
VINOD KHOSLA
CO-FOUNDER OF SUN MICROSYSTEMS
FOUNDER OF KHOSLA VENTURES
FORBES 2014 400 RICHEST PEOPLE IN THE WORLD LIST

23. PROBLEM/SOLUTION FIT AAABBBBCCCPROBLEM/SOLUTION FIT PROBLEM DISCOVERY
VITAMIN
NICE TO HAVE
OR
PAINKILLER
NEED TO HAVE

24. PROBLEM/SOLUTION FIT Rules
RULE 1: THE PROBLEM BEING SOLVED MUST BE LUV
AIM FOR 3
RULE 2: GET YOUR TIMING RIGHT &
BUILD SOMETHING MASSIVE
RULE 3: DON’T SEEK APPROVAL
SEEK ANSWERS

25. PROBLEM/SOLUTION FIT PROBLEM DISCOVERY
STEP 1: IS THE PROBLEM OBVIOUS?
- 1.4B people in the world don’t have electricity vs.
does the world need another food app?
If B2B food app, proceed to step 2.

26. PROBLEM/SOLUTION FIT PROBLEM DISCOVERY
STEP 2: ASK OPEN-ENDED QUESTIONS
- “What are the most difficult parts of your day?” vs
“Is [this task] difficult?”
- If B2B food app, proceed to step 2A.

27. PROBLEM/SOLUTION FIT PROBLEM DISCOVERY
STEP 2A: B2B PROBLEM DISCOVERY QUESTIONS WILL LOWRY
- What would get you fired?
- What would get you promoted?
- What keeps you up at night?
- If you’re still working on the food app, proceed to step 3.

28. PROBLEM/SOLUTION FIT PROBLEM DISCOVERY
STEP 3: SEEK QUANTITATIVE PROOF
- QUANTITY: How much time/money do you spend on the problem now?
- PRIORITY: What are your top 5 budget items?
- FREQUENCY: What are the things that you must do at least 10x a day?
- RECENCY: When was the last time you spent time/money on this?

29. PROBLEM/SOLUTION FIT PROBLEM DISCOVERY
STEP 4A: FIND A RELEVANT SOLUTION
- BRAINSTORM: ”yes, and” vs “no, but”
- CUSTOMER BENEFITS: what you want to build vs
what the customer cares about
- 10x cheaper or better
- SWITCHING COSTS: how much time or money to switch?
would you switch your music app if you got a free subscription?

30. PROBLEM/SOLUTION FIT PROBLEM DISCOVERY
STEP 4B: DEFINE YOUR TARGET CUSTOMER
- GET SPECIFIC: age, income, residence, occupation, family, etc.
- RESEARCH: USA: CENSUS.GOV has 3,338 publications
BONUS: read the surveys, they ask great questions

34. PROBLEM/SOLUTION FIT 30-SECOND PITCH
CLEARLY STATE:
We make (software/hardware)
that does (some amazing function)
that solves (a major problem)
for (a valuable customer segment).
Zoom Video Communications:
We make software that does high-quality video and conference
calling on mobile friendly devices that solves the problem
choppy, static-filled calls for business professionals.

35. PROBLEM/SOLUTION FIT UNIQUE VALUE PROPOSITION
UVP: A clear statement that describes the benefit of your offer,
how you solve your customer’s needs and what distinguishes you
from the competition.
Understanding your competitive advantage
- PRIMARY RESEARCH:DD/expert calls
- SECONDARY RESEARCH:
- Free research: Google
- Subscription: Pitchbook, Crunchbase,
check your university library for databases

36. PROBLEM/SOLUTION FIT Rules
RULE 1: THE PROBLEM BEING SOLVED MUST BE LUV
AIM FOR 3
RULE 2: GET YOUR TIMING RIGHT &
BUILD SOMETHING MASSIVE
RULE 3: DON’T SEEK APPROVAL
SEEK ANSWERS

37. IF YOU WANT TO GO FAST, GO ALONE.
IF YOU WANT TO GO FAR, GO TOGETHER.