Expara accelerator program

July 2016

Expara Accelerator Program

Discussion slides

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About the lecturer

Wharton MBA

JP Morgan – Vice President IB Technology, GM Internet Marketing

Parallax Capital Mgmt – Co-founder and MD Private Equity

Extream Ventures – Co-founder and MD S$20 million seed fund

Expara – Founder and MD IDM Ventures Incubator, advisory, training

NUS – Adjunct Associate Professor, Business School, Entrepreneurship

Sasin – Visiting Professor, Venture Capital

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• Go big or go home • Investment: why and how • Business model canvas and plan

Understanding the big picture

• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and

activation workshop • Low fidelity MVP demo

Key elements for success: product/market fit

• Team, team and team • Legal and regulatory issues

Key elements for success: business

• The fundraising process • Financial plan and model • Valuation • Key deal terms and term sheets • Negotiating with investors • VC-startup negotiation

workshop • Investor presentation materials • Presenting to investors • Investor presentation workshop • Demo Day

Financing and fundraising

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Go big or go home

Introduction to scalable entrepreneurship

Understanding risk and return

Let’s fail

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What is an entrepreneur?

A person who organizes, operates, and assumes the risk for a business venture.

From Old French, from entreprendre, to undertake.

Enterprise: An undertaking, especially one of some scope, complication, and risk.

Enterprising: Willingness to undertake new ventures; initiative: "Through want of enterprise and faith men are where they are, buying and selling, and spending their lives like serfs" (Henry David Thoreau).

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What is a scalable business?

Small business: limited scope, complication and risk. Slow growth.

Scalable business: significant scope, complication, and risk. Rapid growth.

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Present to investor to raise money

How to build a scalable business?

Identify idea and write business plan

The new venture creation process

Form a start-up company team

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What are the qualities that make a successful entrepreneur?

Intelligent

Creative problem-solving skills

Self-starting

Committed

Motivated

Risk taking

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Is entrepreneurship important to the country?

The development of a thriving entrepreneurial sector is not just an economic "nice-to-have." In the knowledge- and innovation-driven globalized economy of the 21st century it is a competitive necessity.

In one year alone, the small number of venture-backed companies in the US generated $736 billion in revenues, created 4.3 million new jobs, accounting for 3.3% of total jobs in the US and 7.4% of GDP.

The more than 4,000 companies started by MIT grads employ more than 1.1 MM people and generate more than $232 B in revenue p.a.

Innovative entrepreneurs drive long-term economic growth – creative destruction

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Why is entrepreneurship important to you?

What type of life do you want to have? – An average life or an extraordinary life?

What do you want to do with your life? – Create something of value from nothing or just make money?

Do you want to: – Make a difference? – Change the world in some way? – Leave something of value after you are gone?

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As an entrepreneur, you can:

Have an extraordinary life

Create something of value from nothing

Become rich

Do something meaningful

Make a difference

Change the world in a positive way

Leave something of value behind after you are gone

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Obstacles to entrepreneurship

Lack of entrepreneurial skills

Attitudes toward risk

Cultural attitudes toward failure

Entrepreneurial success is difficult

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This could be you - iTwin

BMA5108 – “Cable-less cable” remote access device based on A-Star technology

Selected for TechCrunch 50 2009 in Silicon Valley

Spin-off company launched in 2010

Raised S$2 MM Series A funding in July 2010

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This could be you - Sparefoot

2007 – Chuck Gordon takes TR3002

2008 –Co-founds Ikatoo – Winner, IDM Prize S@S and i.JAM recipient

2008 – Returns to US and resumes work on Sparefoot

2010 – Sparefoot raises US$3 MM VC

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This could be you: Pirate 3D

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This could be you: Asia’s Top 25 Entrepreneurs

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This could be you: Facebook

Feb 2004: Mark Zuckerberg, 19, launches The Facebook from his Harvard dorm room, with ~10K investment. Half of Harvard signs up in the first month

June 2004: Facebook receives $500K funding from Peter Thiel

Mid 2005: Accel partners invests $12.7MM and Greylock $27.5MM

Oct 2007: Microsoft buys 1.6% of Facebook for $246MM

Nov 2007: Li Ka-shing invests $60MM

2009-10: Elevation partners invests $210MM at valuation $12 - 23B

2011: Goldman Sachs buys shares in the secondary market at an implied valuation of $50B

2012: Goes IPO at valuation ~$100B (now $67B)

“The youngest billionaire on earth” - Forbes

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This could be you: Instagram

2010 - Kevin Systrom and Mike Krieger focus their multi-featured HTML5 check-in project Burbn on mobile photography

Mar 2010 – Close $500K seed funding round from Baseline Ventures and Andreessen Horowitz; est. val. $5 MM

Oct 2010 – Product launches on Apple App Store

Feb 2012 – Raise $7MM Series A funding; valuation $25 MM

Apr 2012 – Raise $50 MM at $500 MM valuation; sold to Facebook, val $1 B

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101520253035

Millions of Users

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This could be you: Google

1995: Sergey Brin and Larry Page, two Stanford University graduate students develop the technology that will become the Google search engine.

1998: Sergey and Larry raise $1 million in funding from family, friends, and angel investors to start Google in a friend's Menlo Park, Calif. garage with four employees.

1999: Google raises $25MM from VCs and angel investors

2004: Google goes IPO at a valuation of US$23.1 billion. Sells 7% to public for $1.67 billion. Market cap Jan 2007 US$149 billion.

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This could be you: YouTube

Feb 2005: Chad Hurley, Steve Chen, and Jawed Karim found YouTube, Inc.

Nov 2005: YouTube receives funding from Sequoia Capital

Dec 2005: YouTube service is officially launched

Nov 2006: Google acquires YouTube for US$1.65 billion, 20 months after the company was founded

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Founded by undergrads: Dell and Microsoft

Michael Dell, who founded Dell in 1984 with $1,000 when he was 19 years old. The company now employs approximately 41,800 people worldwide and reported revenues of $38.2 billion for the past four quarters.

Bill Gates, who founded Microsoft in 1975 while still an undergraduate at Harvard. Microsoft had revenues of US$32.19 billion for the fiscal year ending June 2003, and employs more than 54,000 people in 85 countries and regions.

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SEA exit markets at an inflection point

Exit activity in SEA, especially in Singapore, has exploded • Increased investment in startups since 2007 is beginning to yield results

• Number of exits increased from 5 or less pre-2011 to 60 in last three years

• Singapore alone has had 40 exits since 2007

• Value of exits increased from 51 MM in 2010 to 1.2 B in 2014

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Some recent exits Company Country Acquiror Price Year

ZopIM Singapore Zendesk US$29.8MM 2014 Non-Stop Games Singapore King US$ 100MM 2014 sgCarMart Singapore SPH S$60 MM 2013 DS3 Singapore Gemalto S$50 MM est. 2013 Asian Food Channel Singapore Scripps Networks Undisclosed 2013

Reebonz Singapore MediaCorp and Existing investors S$250MM 2013

Yfind Singapore Ruckus Wireless Undisclosed 2013 Techsailor Singapore TO THE NEW Undisclosed 2013 travelmob Singapore HomeAway Undisclosed 2013 Catcha Digital Media Singapore Opt Inc Undisclosed 2013

GridBlaze Singapore Undisclosed Silicon Valley Startup Undisclosed 2013

Viki Singapore Rakuten US$200MM 2013 SGE Singapore Tech In Asia Undisclosed 2013 ThoughtBuzz India To The New Undisclosed 2013 AyoPay Indonesia MOL AccessPortal Undisclosed 2013 Tongue in Chic Malaysia PopDigital Undisclosed 2013 Ocision Malaysia Star Publication US$ 4.36MM 2013 Glamybox Vietnam VanityTrove Undisclosed 2013 PaymentLink Singapore Wirecard US$41.2MM 2013 Dealguru Singapore iBuy S$34.28 MM 2013 Buy Together Hong Kong iBuy S$21 MM 2013 Dealmates Malaysia iBuy S$10 MM 2013 PropertyGuru.com Singapore ImmobilienScout24 S$60 MM 2012 HungryGoWhere Singapore Singtel S$12 MM 2012 AdMax Network Singapore Komli Media Undisclosed 2012 TheMobileGamer Singapore Singtel US$1.5 MM 2012

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Go big or go home



Let’s fail

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What is the relationship between risk and return?

Risk and return are highly correlated

You cannot increase return without taking more risk

Return

Risk

Potential outcomes

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Go big or go home



Let’s fail

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Let’s fail: the importance of failure for innovation

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3 key elements for success

Do something you love to do – something meaningful

Create opportunities – don’t wait for them

Don’t give up – stay the course

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What about luck?

Luck by definition is random

In the long run, luck should even out for most

Luck plays an important role in initial conditions but after that much less than you imagine

Don’t wait to get lucky; make your own luck

Chance favors the prepared mind

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Evolving cultural attitudes toward failure

Failure is bad; avoid at all costs

Traditional

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Failure is acceptable; leads to learning

Traditional Current

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Failure is acceptable; leads to learning

Failure is desirable; necessary for innovation

Traditional Current Future

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Why is failure desirable?

Willingness to fail – allows risk-taking and innovation

Risk and return – high risk ventures means they are likely to fail

Innovation – key to scalable ventures – innovators will fail

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Rate of tech change is increasing exponentially

1 10 100 1,000 10,000 100,000 1,000,000 10,000,000100,000,00

0

First Humanoids

Language

Agriculture

Abacus

Calculating machine

Telegraph

Stock Ticker

Light Bulb

Recording sound

Television

General purpose computer

Stored program computer

Integrated circuit

Mini computer

Microprocessor

Personal computer

IBM PC

Pentium

World Wide Web

Deep Blue defeats Kasparov

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The rate of innovation is increasing

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Ever-shorter product cycles = more innovation

Phonograph - invented in 1877 by Thomas Edison

33 rpm/45 rpm discs - 1948 (71 years)

Cassette tapes - 1966 (18 years)

Compact disc - 1982 (16 years)

MP3 files - 1991 (9 years)

MP4 files - 1998 (7 years)

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Sometimes failure itself is innovation

Post-It notes - failed glue

Scotchgard - spilled on shoes

Combat - failed additive for cattle feed

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The essence of risk is failure

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Failure is necessary to achieve success

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Why are people afraid to risk failure?

Fear of the unknown - “Why take a chance?”

Fear of looking stupid - “What will they think?”

Judging too quickly - “That will never work”

Attachment to the old - “We have always done it this way”

Attachment to past successes - “This approach got us here”

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Do not let fear stop you

Why are you afraid to try?

The outcome must be important to you; otherwise no fear

This makes you afraid to fail

If you do not try, then you have already failed

“You miss 100% of the shots you do not take” - Wayne Gretzky

Fear causes you to fail at the things that are most important to you

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Why fear?

Fear is good when it helps us stay alive

It is rational to be risk-averse in life-and-death situations

Most investment decisions are not life-and-death situations

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Conquering your fear

Everyone is afraid

It is OK to be afraid

Don’t try to eliminate your fear

Work through your fear

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If you don’t fail, you are not trying hard enough

Most learning and progress are achieved through failure

The top scientists in the world fail more than average scientists

Everyone who is now highly successful took significant risk to get there

We don't regret the things that we do and fail at; we regret the things that we fail to do.

A life lived in fear is a life half lived

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Success from failure – Apple and Steve Jobs

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Product failures – from Apple III to Apple Newton

1980 - Apple III - 75k units sold

1983 – Apple Lisa - 40K units sold in 1984 vs. 80K forecast

1986 – Pixar Image Computer - < 300 units sold

1990 – NeXT workstation – 50K units sold

1993 – Newton – 100MM spent on development – 80K units sold

Apple clones, NeXT software

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Market failure - Apple stock price – 1988 to 1998

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Competitive failure – Apple vs. Microsoft

1980 – Apple’s share of PC market 15%

1996 – 4%

2005 – 2.2%

2011 – Microsoft Windows still has 92% share of operating system market

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Steve Jobs career timeline

Success - 1977 • Apple II

Failure – 1980 • Apple III

Failure – 1983 • Lisa

Success – 1984 • Macintosh

Failure – 1985 • Ousted from Apple

Failure – 1988 • Pixar Image Computer

Failure – 1990 • NeXT Workstation

Failure – 1993 • NeXT discontinues HW

Success – 1995 • Toy Story; Pixar IPO

Success – 1996 • Apple buys NeXT

Success – 1997 • Return to Apple

Success – 1998 • Apple profitable

Success 2001 • IPod

Success 2007 • Iphone

Success 2010 • iPad

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Success from failure

Pixar animated films – 1995 (Toy Story) – 26 Oscars, 7 Golden Globes, 3 Grammies – Films have earned > $6.3 billion worldwide

iPod - 2001 – 300 MM units sold – 90% market share

iPhone – 2007 – > 75 MM units sold – 50% of profits from global mobile phone sales

iPad – > 15 MM units sold, more than all other tablets combined – 83% market share

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Apple stock price 2004 – 2015 +7,910%

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What makes Silicon Valley different?

A different attitude toward failure

Many Silicon Valley VCs will only invest in entrepreneurs who have already failed

“I got my education on the mean streets of Silicon Valley, where I got to see how huge mistakes are made. Knowing what doesn’t work is perhaps more valuable than knowing what should work. Failure is just tuition. If you are in a failing start-up, take notes.” - successful start-up founder

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Only do things that are difficult to do

Everything that is worth doing is difficult

If it is easy, it is probably not worth doing

Therefore, you should never hesitate to do something difficult

Start-up entrepreneur is one of the most difficult jobs in the world

The more difficult it is to do, the greater the return when you succeed (risk/return correlation)

Returns to successful start-up entrepreneurs are the highest in the world

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Investment: why and how

Why entrepreneurs raise money

Why investors invest in startups

How to raise venture funding

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Why should companies raise investment?

Lifestyle or scalable?

Paycheck or payout?

A big piece of a small pie?

A small piece of a big pie?

Founder

Investors

Investors

Founder

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How to fund growth?

Internally generated

Debt

Hybrid

Equity

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Cost, control, growth and risk

Internal

Debt

Equity

Source of funds

Cost Lose Control Growth $ Risk

Impact of funding

Low Somewhat High

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Financial leverage and firm value

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Companies founded with venture capital

www.nvca.org

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Industries created by venture capital

www.nvca.org

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Why invest in venture capital?

As of 31-Dec 2014 The Cambridge Associates LLC U.S. Venture Capital Index® is an end-to-end calculation based on data compiled from 1,569 U.S. venture capital funds (1,002 early stage, 175 late & expansion stage, 386 multi-stage and 6 venture debt funds), including fully liquidated partnerships, formed between 1981 and 2014. 1Pooled end-to-end return, net of fees, expenses, and carried interest. Sources: Cambridge Associates LLC, Barclays, Dow Jones Indexes, Frank Russell Company, Standard & Poor's, Thomson Reuters Datastream, and Wilshire Associates, Inc. *Capital change only

Case Shiller Real Estate Index 4.1

Expara IDM Ventures (2) 43.03

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Impact of VC on a diversified portfolio

Private Equity and Strategic Asset Allocation. 2007 Ibbotson Associates

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Early-stage tops long-term performance

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How does early-stage out-perform?

10 years after investment. Data from Sand Hill Road Econometrics. Companies received first financing before 1 January 1999. First non-seed round investment. Returns are gross - before fees and carry

Gross value multiples at all stages of investment

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65% of the portfolio will deliver less than 1x Gross value multiples for losers


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Early-stage winners will have more home-runs Gross value multiples for winners


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Early-stage has 450% more 50x and 800% more 100x than later rounds Gross value multiples for home runs


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How does a venture capital fund work?

Fund Investors

VC

8

$ 10 mm

2

$ 10 mm

$ 58 mm

25%

75%

Fund size 10,000,000$ Life of the fund 7Management fee 2.5%Investable 8,250,000$ Investment size 1,031,250$ Companies 8Fail 4 50%Break even 2 25%Exit 2 25%

Investor's required ROI 35%Fund multiple return 5.76Fund size at exit 57,600,000$ Carry @ 20% 9,520,000 Distribution 48,080,000$ Fund return multiple 4.81Fund ROI 35%Required return per exit 28 times

Equity per company F/D 15%Required value of equity at exit 28,800,000$ Required co value at exit 192,000,000$

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GVMs for all first-round investments


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How do VCs make money?

Trade sale – sell to another company

IPO – sell to the public through listing on an exchange

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Trade sale or IPO?

www.nvca.org

http://www.nvca.org/

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The investor’s decision tree

Innovative?

Yes

Value proposition?

Yes

Fast-growing market?

Yes

Exit

No

No

No

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Product or service: which scales better?

Product-based start-ups – Value proposition is delivered

via product

Service-based start-ups – Value proposition is delivered

via people

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Getting to gatekeepers

It’s not what you know; it’s who you know

Network, network, network

Strong ties and loose ties

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Connecting to my network

My company websites: www.expara.com

My blog: www.douglasabrams.com

E-mail: [email protected]; [email protected]

Facebook: [email protected]

Linked-In: [email protected]

Twitter: twitter.com/douglaskabrams

http://www.expara.com/

http://www.douglasabrams.com/

mailto:[email protected]




http://twitter.com/douglaskabrams

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• Go big or go home • Investment: why and how • Business model canvas and

plan










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Key elements for success

Develop an innovative product – Innovation

Solve a problem for customers – Value proposition

Identify your customers – Market identification and analysis

Reach your customers – Marketing strategy

Compete when others enter - Sustainable competitive advantage

Make money – Business model and financial plan

Team – A team or B team

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Problem Solution

Key Metrics

Cost drivers Revenue model

Innovation and value proposition

Sustainable competitive advantage

Channels

Customer segments

Market size

Customer archetype

High concept

Existing solutions

Top 1-3 customer problems

How are these problems solved today?

Your solutions to customer problems

Key numbers that tell if you are succeeding

What is innovative about your solution? Why are you better than existing solutions?

One sentence that says it all

How will you create barriers to entry for followers?

How will you get your product to customers?

Who are your target customers?

How big is your market and how fast is it growing?

Characteristics of your key customers

How do you generate revenue?

What are your key cost drivers?

Expara Business Model Canvas

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Writing a model business plan

1. Executive summary

2. Value proposition and innovation

3. Market identification and analysis

4. Marketing and sales strategy

5. Sustainable competitive advantage

Overview, innovation, market

6. Company products and services

7. Team

8. Expansion plan

9. Operational plan

10. Finances – Revenue and cash flow, valuation, funding required, equity offered, ROI

Execution and financials

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• Innovation and value proposition

• Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and








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Sources of innovation – Trend-driven: forces, trends and mega-trends – Technological, macro, social, demographic, political

Types of innovation – Technology, product, process, positioning, paradigm,

operational, cost, customer experience, management, business model, industry, attribute-driven (Blue Ocean)

Degrees of innovation – Incremental, disruptive

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Types of innovation

Trend-driven: forces, trends and mega-trends – Technological, macro, social, demographic, political

Business model: changing market and industry structures & needs – Market inefficiencies

Attribute-driven – Blue Ocean strategy

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Generating innovations

Alternative approaches to existing innovations – Second mover advantage

Personal experience, hobbies and pastimes, personal passions, annoyances

De-commoditize a commodity – Starbucks

Drive an innovation down-market – Spinbrush

Import geographically isolated innovations, cross regional, discipline or industry

– Red Bull, Starbucks

Identify small companies with niche products with broader market appeal potential

– Gyration and Nintendo

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Value propositions

• What value do we deliver to customers?

• Which one of our customer’s problems are we helping to solve?

• What bundles of products and services are we offering to each Customer Segment?

• Which customer needs are we satisfying?

Key questions

• Newness

• Performance

• Customization

• Getting the job done

• Design

• Brand/status

• Price

• Cost reduction

• Risk reduction

• Accessibility

• Convenience/usability

Types of values

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Value proposition – how much does it hurt?

Painkiller

Vitamin

Candy

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Value proposition – degrees of recognition

Latent problem – they have a problem but don’t know it

Passive problem – they know they have a problem but not looking for a solution yet

Active or urgent problem – they know they have a problem, are actively looking for a solution but no serious work done yet to solve

A vision – they have an idea for solving the problem and a home-grown solution but are prepared to pay for a better solution

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Business model innovation: Diamond Rio vs iPod

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Disruptive business model or disruptive tech

Diamond is the first mover in portable MP3 in 1998

Apple enters in 2003 and captures 90% of the market

Business model innovation – hardware + software + service

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Disruptive models from Gillette to Google

Gillette – razor and blade

Southwest Airlines – budget airlines

Dell Computer – mass customization

Charles Schwab – on-line broker

Amazon – ecommerce

eBay – peer to peer marketplace

Google – search-based advertising

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1. What is your product and what is innovative about it?

2. What is the painful problem you are solving for customers?

3. What are the shortfalls of the current solutions?

4. How do you solve this problem and can you quantify your benefit?

5. How does your innovation enable you to accomplish this?

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• Innovation and value proposition • Market identification and

analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and








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Market and competitive analysis

Identifying favorable markets

Analyzing markets

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Choose an industry favorable to start-ups

Increasing returns business: up-front costs are high relative to marginal costs

Network externalities

Complementary technologies are important to use

Producer learning is strong, switching costs are high

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Look for fast-growing, segmented markets

The cost gap between new and established firms is smaller in larger markets

In fast-growing markets, new firms can serve new customers rather than customers of existing firms

Segmented market provide niches for new firms to enter and reduce retaliation by existing firms

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Market timing – entering at the inflection point

Measure of performance

Measure of effort invested

The technology adoption S curve

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Industry life cycles and structures

Choose a young industry – more demand and less competition

Enter before a dominant design has been adopted

Labor intensive rather than capital intensive

Advertising and branding less important

Less concentrated industries – smaller competitors

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Market and competitive analysis

Identifying favorable markets

Analyzing markets

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Market identification and analysis

1. What is your market type?

2. How big is your market and how fast is it growing? – Top-down approach – Bottom-up approach

3. What are trends in your market are favourable for you? – Technological, social, demographic, regulatory

4. Who are your direct and indirect competitors?

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Types of markets

Existing markets

Re-segmented markets/niche market

New market

Clone market

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Top-down market sizing

Total addressable market

Target market

Target segment

Market share

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Bottom-up market sizing

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Customer discovery workshop

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The customer discovery process

Phase 1 State Hypothesis Draw Business model canvas

Phase 2 Test the problem

Phase 4 Verify or pivot

Phase 3 Test the solution

Customer validation

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Phase 1: Business model hypothesis

Market size hypothesis

Value proposition hypothesis – Product vision – Product features and benefits – Minimum viable product

Value proposition 1: low fidelity MVP – Do customers care about the problem? – Write a user story

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• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and

strategy • Customer analysis and archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and








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What are the elements of marketing strategy?

Differentiation – how is your product different from competition – Product - superior customer value – better, faster closer – Cost leadership

Positioning – market selection + differentiation – Image for the product that embodies its values

Marketing Execution – the 4 Ps – Product, pricing, place, promotion

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Marketing strategy

1. How is your product differentiated from your competitors’ product? Use a comparison matrix to illustrate.

2. What is your position in the market? Use a positioning map or Blue Ocean Strategy canvas to illustrate

3. What are your price, place, product, promotion and initial sales plans

4. What is your tagline?

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Comparison matrix

Competitor 1

Competitor 2

Competitor 3

Competitor4

Your company

Benefit 1

Benefit 2

Benefit 3

Benefit 4

Benefit 5

Benefit 6

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Positioning map

Portability

Value

Competitor 2

Your company

Competitor 1

Competitor 3

Competitor 4

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Value innovation – reduce costs & increase value

Costs

Buyer value

Value innovation

www.blueoceanstrategy.com

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Four factors model


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Blue Ocean strategy canvas


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iPod strategy map

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Develop a tagline

Clear, strong, authentic

Describes your unique offering to customers

Provides focus and differentiation

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Elements of the 4 Ps

Product – Name, functionality, styling, quality, safety, packaging, repairs and

support, warranty, accessories and service

Price – Pricing strategy, MSRP, volume discounts and wholesale pricing, cash

and early payment discounts, seasonal pricing, bundling, flexibility

Place – Distribution channels, market coverage, specific channel members,

inventory management, logistics

Promotion – Push/pull, advertising, selling and sales force, sales promotions, PR

and publicity, budget. – How will you make your first sale?

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Competitors will enter

How to compete with followers?

How to compete with existing companies?

Sustainability of technological lead – Competitors cannot duplicate the technology – Firm can innovate as fast or faster than competitors

First-mover disadvantages

Last-mover advantage

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Competitive advantage – barriers to entry

Proprietary intellectual property

Network effects or externalities

Customer lock-in/switching costs

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First mover advantage?

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Creating last-mover advantage

Reputation

Preempting positioning

Switching costs/Lock-in/Network effects

Unique channel access

Move down learning curve

Favorable access to inputs

Definition of standards

Institutional barriers – IP protection

First Mover Advantages

Pioneering costs

Demand uncertainty

Changes in buyer needs

Specificity of investments to early generations

Technological discontinuities

Low-cost imitation

Disadvantages

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Strategies to create last-mover advantage

IP strategy – patents, copyrights, trademarks, trade secrets

Create barriers to entry – Network effects and externalities – Lock-in effects

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Established company strengths and weaknesses

Learning curve

Reputation effect

Cash flow

Economies of scale

Complementary assets

Advantages

Difficult to innovate

They need to satisfy existing customers, partners and supply chain

Existing organizational structure is appropriate to current tasks

Risk aversion

Weaknesses

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Opportunities that favor new firms

Existing firms frozen in the headlights

Disruptive technologies and business models

Uncertainty: existing firms’ advantages in market research are neutralized; risk propensity

Technologies: Discrete versus systemic technologies, based on human capital, general purpose rather than specific

Bad customers: Enter market that is unattractive to existing competitors due to established cost structure

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• Innovation and value proposition • Market identification and analysis • Customer discovery workshop • Competitive analysis and strategy • Customer analysis and

archetype • Channel strategy • Sales strategy • Revenue model • Cost model • Customer acquisition and








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Customer segments

• For whom are we creating value?

• Who are our most important customers?

Key questions

• Mass market

• Niche market

• Segmented

• Diversified

• Multi-sided platform or market

Types of customer segments

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Customer segments: who/problem

Customer problem – Latent – Passive – Active or urgent – Vision

Customer types – End user – Influencer – Recommender – Economic buyer – Decision maker

Customer archetype

A day in the life of a customer

Organizational/influence maps

Consumer/web influence map

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Customer archetype

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Customer relationships

• What type of relationships does each of our customer segments expect us to establish and maintain with them?

• Which ones have we established?

• How are they integrated with the rest of our business model?

• How costly are they?

Key questions

• Personal assistance

• Dedicated Personal Assistance

• Self-Service

• Automated Services

• Communities

• Co-creation

Examples

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Do you love to sell?

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Sales and distribution

Great sales and distribution vs great product

Best sales is hidden

Products don’t sell themselves

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Metrics for effective distribution

CLV: total net profit earned over the course of relationship with customer

CAC: cost to acquire a new customer

CLV>CAC

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Sales channels

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Complex sales

Seven figure deals

CEO must sell

50-100% YoY growth over 10 years

Enterprise sales must start small

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Personal sales

10K-100K

Sales team can sell

Need to establish a process so sales team can move to mass

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Sales dead-zone

Product needs a personal sales effort

Resources are not available or too expensive

Underserved SME markets

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Marketing and advertising

Work for products with mass appeal but not viral – FMCG

Can work for start-ups but

Only when CLV-CAC make all other channels uneconomical

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Viral marketing

Core functionality encourages users to invite their friends

Move first to dominate most important segment of market with viral potential

Get the most valuable users first

Paypal – initial focus on 20K Ebay PowerSellers

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Power law of distribution

Select one - one distribution channel will be more powerful than all others combined

Most businesses get zero distribution channels to work

Poor sales rather than bad product is most common cause of failure

Sell your company to the media

Everyone sells

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Channels

• Through which channels do our customer segments want to be reached?

• How are we reaching them now?

• How are our channels integrated?

• Which ones work best?

• Which ones are most cost-efficient?

• How are we integrating them with customer routines?

Key questions

• Awareness: How do we raise awareness about our company’s products and services?

• Evaluation: How do we help customers evaluate our organization’s Value Proposition?

• Purchase: How do we allow customers to purchase specific products and services?

• Delivery: How do we deliver a Value Proposition to customers?

• After sales: How do we provide post-purchase customer support?

Channel phases

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Channel hypothesis – physical products

Does your product fit the channel?

Physical channel choices – Direct sales – Independent sales rep firms – SI/VAR – Distributors/resellers – Dealers/Retailers – Mass merchandisers – OEMs

Which channel should I use?

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Channel hypothesis – web/mobile

Pick one distribution channel – use tests to choose

Web/mobile channel choices – Dedicated e-commerce – your website – Two-step e-distribution - Amazon – Aggregators - Lendingtree – Platform app store – Apple – Social commerce - Facebook – Flash sales - Groupon – Free-to-paid channel

Multi-sided markets need unique channel plans

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Customer relationships hypothesis

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Get customers strategy

Who is your audience and where are they?

What content will they like?

Make sure your content works in location

Participate in their communities

Create content that people want to link to

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Get customers tactics

Earned or free – Public relations – Viral marketing – SEO – Social networking

Paid – Pay-per-click advertising – Online or traditional media advertising – Affiliate marketing – Online lead generation; permission-based emailing

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Keep customers

Interact, retain

Customization

User groups

Blogs

Online help

Product tips/bulletins

Outreach, affiliates

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Grow customers

Get current customers to spend more – Cross-sell – Up-sell – Next selling – Unbundling

Get customers to send more customers – Encourage likes – Discounts or free trials to share – Enable email to friends to create mailing lists – Contests or incentives for viral activities – Highlight social networking action buttons – Encourage bloggers to write about the product

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Revenue models

• For what value are our customers really willing to pay?

• For what do they currently pay?

• How are they currently paying?

• How would they prefer to pay?

• How much does each Revenue Stream contribute to overall revenues?

Key questions

• Asset sale

• Usage fee

• Subscription Fees

• Lending/Renting/Leasing

• Licensing

• Brokerage fees

• Advertising

Types

• List price

• Product feature dependent

• Customer segment

• dependent

• Volume dependent

Fixed pricing

• Negotiation (bargaining)

• Yield Management

• Real-time-Market

Dynamic pricing

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Key revenue model issues

Subscription/membership

Volume or unit-based sales

Advertising-based

Licensing & syndication

Transaction fee

Pay-per-use

Referrals

Affiliate/revenue sharing

Selling data

Back-end offers

Revenue models

Single stream

Multiple streams

Interdependent

Loss leader

Revenue streams

Value pricing

Competitive

Volume

Portfolio

Razor/blade

Subscription

Leasing

Product based

Pricing models

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Other revenue model issues

Total cost of ownership (TCO)

Return on investment (ROI)

Multi-sided markets have multiple revenue models

Distribution channel affects revenue streams

Consider lifetime value

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Revenue diagram – Grateful Dead

From Note on Business Model Analysis for the Entrepreneur – HBS Publishing

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Cost structure

• What are the most important costs inherent in our business model?

• Which Key Resources are most expensive?

• Which Key Activities are most expensive?

Key questions

• Cost Driven (leanest cost structure, low price value proposition, maximum automation, extensive outsourcing)

• Value Driven (focused on value creation, premium value proposition)

Is your business more

• Fixed Costs (salaries, rents, utilities)

• Variable costs

• Economies of scale

• Economies of scope

Sample characteristics

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Cost drivers

Payroll-centered (Direct)

Payroll-centered (Support)

Inventory

Space/Rent

Marketing/advertising

Cost structures

Fixed

Semi-variable

Variable

Non-recurring

Types of cost drivers

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Costs diagram – 7-11 Japan

From Note on Business Model Analysis for the Entrepreneur – HBS Publishing

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Complete business model diagram

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Customer acquisition and activation workshop

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Key roles in a start-up company team

Position Skills 1 CEO (Chief Executive Officer) Leadership, vision, presentation

2 CFO (Chief Finance Officer) Financial 3 COO (Chief Operating Officer) Operations and HR

4 CTO (Chief Technology Officer) Technical/product background

5 CMO (Chief Marketing Officer) Sales and marketing

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Beyond the management team

Board of advisors

Strategic partners

Suppliers

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Key partnerships

• Who are our key partners?

• Who are our key suppliers?

• Which key resources are we acquiring from partners?

• Which key activities do partners perform

Key questions

• Optimization and economy

• Reduction of risk and uncertainty

• Acquisition of particular resources and activities

Motivations for partnership

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Partners hypothesis

Strategic alliances

Cooperation with competitors

Joint business development efforts

Key supplier relationships

Traffic partners (web/mobile)

Other partners – app stores, payment providers

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IP Strategy

Patents

Copyrights

Trade Marks

Registered Designs

Trade secrets

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Patents

Technical inventions

Novelty, inventiveness & industrial application

Registration system – national & PCT systems

Novelty & infringement searches

20 years, if continuously renewed

Exclusive monopoly

Business methods & computer programs, algorithms, ideas

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Copyrights

Exists on creation, no registration procedures

Searches are therefore not available

Expression not ideas – words, music, art, film, sound, broadcast, cable, publishing, live performance

Life or author/ creator+ 50 years; or 50 years

Copy, publish, perform, broadcast, cable, adapt

Software, databases, GUI, multimedia

International protection e.g.., Berne, TRIPs

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Trade Marks

Registration system – national, CTM & Madrid treaties

Capable of distinguishing & earlier marks

Substantive examination

Searches? – national or CTM

10 years, renewable indefinitely

Right to use in the course of trade

Domain names, marketing, web partnerships

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Design registration

National registration system

Novelty and mass-produced articles

Formal examination only

15 years / 25 years protection, if continuously renewed

Exclusive monopoly

Computer icons

Register or almost no protection, not even copyright

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Trade Secrets

Formula (e.g. Coca Cola formula)

Pattern, Plan, Customer Lists, etc

Process, R&D Data

Device, Apparatus, Machinery etc

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Advantage of Trade Secrets

No fees

No time limits

Information not available to competitor for improvements

No blocking patents

Freedom to operate

Proprietary position

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Forms of organization

Sole proprietorship

Partnership

Limited Liability Partnership

Companies – Private Limited companies – Public companies – Listed public companies

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Key agreements

Shareholder agreement

Employment agreement

Director’s responsibilities

Investment agreement

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Who are the players?

Entrepreneurs – Lifestyle entrepreneurs - limited scope, complication and

risk. Slow growth. – High-growth entrepreneurs (scalable business)

Significant scope, complication, and risk. Rapid growth.

Venture investors – Venture capitalists (VCs) – Seed investors/incubators – Angel investors – Corporate VCs and investors – Banks, government

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What roles do they play?

Identify opportunities

Provide funding

Oversee finances

Assist with growth

Generate returns for themselves or their investors

Venture investors

Create opportunities

Raise funding

Manage finances

Increase value

Generate returns for investors

Entrepreneurs

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VCs invest at multiple stages

Founder’s Capital

Seed/Angel

Series A, B, C

Mezzanine Pre-Exit Exit

VC hurdle rates 60-100% 40-60% 20%

OM F,F&F

Incubators corporations government

Customers, suppliers, strategic partnersVCs, Banks for VC loans

R&D Establishment GTM/Rollout Accelerated Expansion MaturityEnablement growth

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How much funding is required?

What are sources of funds – debt, equity, retained earnings

How much money do you need to raise and how much equity will the investor receive?

You should generally be raising around $0.6MM to $1.5MM at this stage.

Remember that if you are raising less than $1MM, you will likely be seeking investment from Angel investors rather than from VCs.

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Equity offered – how much do you need?

What percentage does the company want to sell? – Often too much or too little – This is the wrong question

Set performance and fund-raising milestones – How much money do you need to achieve the next milestone? – Divide defensible firm value by funds needed to determine

percentage to sell

Equity offered in the seed stage should usually be in the range of 15-30%

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Use the funds to fuel company growth

How are you going to use the money you are raising?

Show a detailed breakdown

Minimize investment in fixed assets

No big salaries for founders

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Exit strategy and ROI

How will your investors make money and how much will they make?

The most likely exit strategies are IPOs (sell to the public) and trade sale (sell to another company), with trade sale the first choice in most cases.

For VCs, ROI should be at least 10 times and preferably 30-100 times over 5 years.

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How do VCs make money?

Trade sale – sell to another company

IPO – sell to the public through listing on an exchange

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Trade sale or IPO?

www.nvca.org

http://www.nvca.org/

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Exit markets at an inflection point

Exit activity in SEA, especially in Singapore, exploded in 2013 • Increased investment in startups since 2007 is beginning to yield results

• Number of exits increased from 6 in 2010 to 20 in 2013

• Singapore alone has had 30 exits since 2007, 13 in 2013

• Value of exits increased from 51 MM in 2010 to 400 MM in 2013

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Recent exits in SEA Company Country Acquiror Price Year

ZopIM Singapore Zendesk US$29.8MM 2014 Non-Stop Games Singapore King US$ 100MM 2014 sgCarMart Singapore SPH S$60 MM 2013 DS3 Singapore Gemalto S$50 MM est. 2013 Asian Food Channel Singapore Scripps Networks Undisclosed 2013

Reebonz Singapore MediaCorp and Existing investors S$250MM 2013

Yfind Singapore Ruckus Wireless Undisclosed 2013 Techsailor Singapore TO THE NEW Undisclosed 2013 travelmob Singapore HomeAway Undisclosed 2013 Catcha Digital Media Singapore Opt Inc Undisclosed 2013

GridBlaze Singapore Undisclosed Silicon Valley Startup Undisclosed 2013

Viki Singapore Rakuten US$200MM 2013 SGE Singapore Tech In Asia Undisclosed 2013 ThoughtBuzz India To The New Undisclosed 2013 AyoPay Indonesia MOL AccessPortal Undisclosed 2013 Tongue in Chic Malaysia PopDigital Undisclosed 2013 Ocision Malaysia Star Publication US$ 4.36MM 2013 Glamybox Vietnam VanityTrove Undisclosed 2013 PaymentLink Singapore Wirecard US$41.2MM 2013 Dealguru Singapore iBuy S$34.28 MM 2013 Buy Together Hong Kong iBuy S$21 MM 2013 Dealmates Malaysia iBuy S$10 MM 2013 PropertyGuru.com Singapore ImmobilienScout24 S$60 MM 2012 HungryGoWhere Singapore Singtel S$12 MM 2012 AdMax Network Singapore Komli Media Undisclosed 2012 TheMobileGamer Singapore Singtel US$1.5 MM 2012

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In the financial section of the business plan

Business model

Financial projections

Valuation

Funding required and equity offered

Use of Proceeds

Exit Strategy and ROI

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Business model – how will you make money?

Revenue sources

Cost drivers

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Complete business model diagram

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Create financial projections

3-5 years of projected balance sheet, income statement and cash flow statements.

Project from bottom up and top down

Sales growth and market share are key

Project cash requirements using a detailed budget

Yr 1 Yr 2 Yr 3 Yr 4

Gross Revenues

Operating Expenses

EBITDA

Metric: Ex: Units sold/leased

Scalability necessary for VC investment - $50MM in annual rev

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Pro-forma financial statements

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Company valuation methods

Price to earnings (p/e)

Dividend yield

Multiple of book value

Comparables

Discounted Cash Flow (DCF)

VC method

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Valuation – how much is your business worth?

How much is your business worth, based on comparables and a DCF valuation of your projected cash flows at an 80% discount rate?

Make sure that you can explain how you arrived at this valuation.

For seed stage companies, this should generally be in the range of $2-4 MM.

Pre-money valuation - worth of the business before VC investment

Post-money valuation – after VC investment

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VC method of valuation

Variation on NPV/IRR method

Founders expect to sell company for $25 MM in 4 years

Need to raise $3MM; investors require 50% return (discount rate)

Post-money valuation = $4.9 MM ($25MM/(1.54)

Pre-money valuation = $1.9MM ($4.9MM-$3MM)

Equity required = $3MM/$4.9MM = 60.75%

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How much equity does the investor receive?

Pre-money valuation – Amount invested by VC ÷ (Agreed pre-money value of business

+ Amount invested by VC) – $3MM pre + 1 MM VC = 25% VC equity

Post-money valuation – Amount invested by VC ÷ post-money valuation – $4MM post = 25% VC equity

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Pro-forma DCF valuation model

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• The fundraising process • Financial plan and model • Valuation • Key deal terms and term

sheets • Negotiating with investors • VC-startup negotiation



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Key elements of the deal

Board of directors

Protective provisions

Drag-along agreement

Conversion

Control

Price-per-share

Valuation

Amount of financing

Liquidation preference

Vesting

Options pool

Anti-dilution

Pay-to-play

Economics

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Calculate investor’s ROI including dilution

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Cap table

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VC vs. entrepreneur - interests

Solve sorting problem

Minimize agency costs/problems

Maximize financial returns

Maintain option to abandon

Be able to force entrepreneur to exit and distribute proceeds

Maintain reputation

VC

Get outside capital

Maximize financial gains from equity stake

Retain control, minimize constraints on behavior and decision making

Build successful firm

Build reputation

Get outside expertise and contacts

Entrepreneur

From Venture Capital Negotiations: VC versus Entrepreneur – HBS Publishing

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VC versus entrepreneur

Entrepreneur compensation increases when value of VC's stake increases

Vesting of entrepreneur's stake

Key-person agreements

Ability to fire managers

Ways to align incentives

Due diligence

Repeated relationships

Monitoring/information rights

Ways to reduce information asymmetries


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VC versus entrepreneur

Equity stake senior to that of entrepreneur

Option to abandon through staging of investments across financing rounds

Forcing exit through decision-making control

Convertible debt

Puts rights and anti-dilution provisions

Ways for VC to protect downside

Seat on board of directors

Covenants in agreement limiting entrepreneur's ability to use capital in undesirable ways

Involvement in operations

Super-majority rights

Ways for VC to control decision making


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Entrepreneur versus investor

Maximize financial returns

Maintain option to abandon

Be able to force entrepreneur to exit and distribute proceeds

Maintain reputation

VC

Get outside capital

Maximize financial gains from equity stake

Retain control, minimize constraints on behavior and decision making

Build successful firm

Build reputation

Get outside expertise and contacts

Entrepreneur

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VC-Start-up negotiation workshop

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workshop • Investor presentation

materials • Presenting to investors • Investor presentation workshop • Demo Day


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Communicating with investors

Business plan

Executive summary

Investor presentation

Formal and informal presentations

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Use meaningful titles

The title of each slide should communicate the key message for that slide.

For example, if you have a slide that shows projected sales, do not make the title "Projected Sales."

Instead, make the title something like, "Projected Sales in 2003 are $3 Million."

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Less is more

Your message needs to be clear and concise

Clean visual design – avoid chart junk and “design-itis”

On presentation slides, less is more – slides, bullet points, text

If you can't explain your message simply, you need to re-formulate your message.

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How long does it take to make a first impression?

First impressions are critical

You make yours in the first 7 seconds of your presentation

How long to feel someone is trust-worthy? 0.1 second

How can people decide so quickly? Appearance and body language.

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You can’t judge a book by its cover, can you?

Appearance counts

Attractive people are viewed as more interesting, credible, trustworthy and persuasive

Good looking people get better jobs, tall men perceived as powerful

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Which one is more likely to be the CEO?

In the U.S. population, about 14.5 percent of all men are six feet or over

Among CEOs of Fortune 500 companies, that number is 58 percent

3.9 percent of adult men are 6'2" or taller

Among CEOs, 30 percent were 6'2" or taller

An inch of height is worth $789 a year in salary

From Blink – Malcolm Gladwell

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You can’t judge a book by its cover: Part II

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You can’t judge a book by its cover: Part III

You can’t judge a book by its cover; appearance doesn’t matter

Everyone judges books by their cover; appearance matters a lot

We can be seriously misled by this approach – Susan Boyle

So why does everyone judge a book by its cover?

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All stereotypes are wrong, aren’t they?

Beauty is not in the eye of the beholder – standards of beauty are innate

One-week old babies look longer at attractive faces

Beauty is not only skin-deep

Bi-lateral symmetrical and composite appearance are correlated with genetic and developmental fitness

Tall and strong men were more successful in our ancestral environment

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Presentation dos and don'ts

Rock back and forth - nervous

Fidget - nervous

Shake leg while sitting – bored, nervous

Too many um and uh

Voice too soft – shy; too loud – overbearing

Rubbing back of the neck – bored

Don’t

Stand up straight, open body language – nothing crossed

Arms at side - relaxed and proper gesticulation – hands below chin and within shoulder ranger

Be aware of hands and feet

Face smiling and inviting

Silent pause – thoughtful and confident

Do

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Maintain proper eye contact

Too little eye contact – lying

Too much eye contact – stalker stare

Look directly at the audience for emphasis or conviction

Sweep and click to create connections

Handshake – strong and confident. Pump 2-3 times, then release. Don’t use two hands

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Pitching to VCs

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Getting past gatekeepers

Why are presentations important?

Understand gatekeepers’ incentives

Avoid raising red flags

Attention to detail

Get it right the first time

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Why are presentations important? You’re fired!

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What causes choking?

Top performance under pressure requires focus and relaxation

Too much focus on performance causes skill to break down

Forget about your bad shots; remember your good shots

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Create takeaway messages

People remember the first or last things that you say, so start and end the presentation strong

Communicate your important points clearly, concisely and memorably.

People remember stories more easily than lists of facts, so if you can make any of your key points in story form, that can be helpful.

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Do not read your slides

Do not just stand and read your presentation slides.

Makes your presentation redundant and therefore uninteresting, since the audience can just then read the slides.

Try to pick out one or two important points on each slide to discuss in more detail.

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Practice and test

Analyze the details of your presentation, then master those details by practice, practice, practice.

Arrive early and if you are using any technology, test it

If you can not get in early, try to test the night before

It is OK to be nervous before you begin

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Q&A is the most important part

Audience has a chance to ask you about what is on their mind.

Q&A is do or die time.

Prepare for Q&A by studying your material in-depth

Anticipate likely difficult questions and formulate answers

Note questions you are asked and if you did not have a good answer to a specific question, formulate one for next time.

Don’t disagree - agree

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workshop • Investor presentation materials • Presenting to investors • Investor presentation

workshop • Demo Day


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Presentation workshop

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Demo day

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Customer discovery process

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The customer discovery process

Phase 1 State Hypothesis Draw Business model canvas

Phase 2 Test the problem

Phase 4 Verify or pivot

Phase 3 Test the solution

Customer validation

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Testing the problem

• Do we really understand the customers problem?

• Do enough people care about the problem for the business to scale?

• Will they care enough to tell their friends?

Key questions

• Designing experiments for customer tests

• Preparing for customer contacts and engagements

• Testing customers understanding of the problem and assessing its importance to customers

• Gaining understanding of customers

• Capturing competitive and market knowledge

Key steps

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Design tests and pass/fail experiments

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Prepare for customer contacts – physical

Start with 50 target customers

Develop a reference story

Start the appointment setting process

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Build low-fidelity MVP – web/mobile

Makes sure the problem or need is an urgent one

Presents the problem

Asks for a response

Can use multiple MVPs

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Test understanding of problem and assess its importance - physical

Develop a problem presentation

The problem meeting

Understand how they solve the problem today

Collect information on everything

Amalgamate and score customer data

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Low fidelity MVP problem test – web/mobile

Push – push contacts need referral sources

Pull – pull strategies

Pay – pay for contacts

Drive traffic and start counting

Consider scalability

Use traffic measurement tools

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Gain customer understanding

Participate in their culture

Get to know real customers

Internalize customer experience

Understand how they discover new ways to spend their time

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Contact us

Douglas Abrams

Expara Pte. Ltd.

[email protected]

www.expara.com

65-6323-3084, 65-9780-5381 (hp)

Block 71 Ayer Rajah Crescent, #02-10/11 Singapore 139951

http://www.expara.com/

Leadership & Management

Expara accelerator program