Funding & Pitching: How to do it Right

Venture Capital, Funding

& Pitching

Zubin Chagpar, Venture Capital Business

Development, Amazon Web Services

@phylosopher

Why do we talk about this?

• Work with many startups & EMEA’s leading VC’s

• Discuss many startups with VC’s & get feedback on pitches

• Not biased, no agenda, helping AWS startup customers succeed

“We win when you win – and only when you win”

Venture Capital Overview

Impact of Cloud on Venture Capital

What is a good pitch?

Venture Capital Overview

Impact of Cloud on Venture Capital

What is a good pitch?

Venture Capital

Startups!

Venture Capital

VC FundGeneral Partners, Principals, VP’s, Associates, etc.

Startups

Need for Capital

Growth Potential

Limited Partners

Institutional, Government & High Net Worth Individuals

\

Two-sided Platform model

Startups

With need for capital and growth potential

Capital & Value Creation connections, biz dev, GTM,

mentoring, etc

Risk & Return

Reduce Risk & deliver Financial Returns

Limited Partners

Institutional, Government & High Net Worth Individuals

“2 and 20”

So how does a VC make

money?

“2 and 20”

Management Fee. VC raises a fund of e.g.

$100M and gets $2M per year to operate

the fund (staff, expenses, etc.)2%

Performance Fee. VC returns the profits

from the fund to the LP’s but gets to keep

20% of these profits20%

Venture Funding

100%of nothing

17%of a Big Companyis a lot less than

AUG-08

Nathan, Brian,

and Joe

JAN-09

$20K Accelerator

Y Combinator

NOV-10

$7.2M Series A:

Sequoia

Greylock

SV Angel

& others

JUL-11

$112M Series B

Andreessen Horowitz

General Catalyst

& others

APR-09

$600K Seed

Round

Sequoia

Y Ventures

01 04

idea MVP monetizescale

Product Risk Market Risk Financial Risk

02 03

01 04

idea MVP monetizescale

Product Risk Market Risk Financial Risk

02 03

Startup 2.0: “Lean Investor” Model

• Incubator / Angel: $0-250K for ‘Product Viability’

• Seed: $250-$1M to ‘Expand Market Distribution’

• Venture: $1M-$5M to ‘Maximize Revenue’

01 04

idea MVP monetizescale

Seed Round

Series A, B, C, etc.

Incubator / Angel

Product Risk Market Risk Financial Risk

02 03

$0-250K

$250-$1M

$1M-$5M, or more

What caused the evolution

towards the “Lean Investor”?

Venture Capital Overview

Impact of Cloud on Venture Capital

What is a good pitch?

“Amazon changed the VC industry.

This is mind boggling. That online

book company. Not … or anybody

else. Amazon. 100% of the credit.”

Mark Suster, serial entrepreneur and MD at GRP Partners

\

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

1995 – .comTechnology Startups require physical hardware and

proprietary software to build their business

Typical Series A Spent on… Innovation

5-10M•$2.5: marketing,

sales, etc.

•$2.5M on

infrastructure

•Not a lot, since

experimentation was

costly

\

Typical Series A Spent on… Innovation

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

2000: Rise of Open SourceOpen source software drove technology costs down by 90%,

which spurred innovation in technology

3-5M•Less on Software–

LAMP

•More on development

•Still on infrastructure

•A lot more, as

experimentation is

less costly now

\

Typical Series A Spent on… Innovation

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

2005: Enter the CloudPioneered by Amazon drove total operating costs

down significantly

500K-

3M

•Staff – the battle for

talent

•Customer Acquisition

•Explosion in

experimentation,

innovation, and

Startups

\

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

2007: Micro VC / SeedPublic Cloud led to explosion in the number of Startups

and the emerging of “micro VCs”

Angels Incubators VC’sAngels unite in

‘Super Angels’ for

Seed investments

thru VC-like setup

Boom in incubator

programs, with micro

investments,

mentoring, etc.

Venture funds that

back early-stage

startups with <$1M

Why do VC’s care?

More deals

Shorter time to scale

Faster time to revenue

Lower ‘burn rate’

Higher valuation at exit

Venture Capital Overview

Impact of Cloud on Venture Capital

What is a good pitch?

Why is your pitch

important?

Because it shows you have a

PLAN

What is a good pitch?

Intro Team Opportunity Solution CompetitionBusiness Model

The Ask

Intro: Define the company, business, service or product in a single

sentence

Team: Identify a core group of talent that can execute on the next set

of milestones

Opportunity: Establish the need for your company’s solution and the

size of the market

Competition: Identify your competitors, validate your differentiator

Business Model: Explain how you will generate revenue, show what

you’ve accomplished to date, and make future forecast.

The Ask: Ask for the deal and outline what you need to make your

business a success

What’s always there?

Product

Lots of product, product, product

Rosy Forecast

The infamous hockey stick

What’s always missing?Business Model

not just WHAT, also HOW

Metrics

not just traction, also unit economics

Strategy

What will you DO? How will you GROW?

Execution…

1.Problem

2.Solution

3.Business Model

4.Business Model Metrics

5.Growth Strategy

6.Status / Traction

7.Team

8.Competition

9.Roadmap / Forecast

10.ASK

10 / 20 / 30

Rule

Pitch Outline

1. Problem

Define the

problem clearly

Explain the impact.

Why bother?

What’s the opportunity?

Market size?

Problem Impact Market

Chip design has gotten

more complex, tools

haven’t improved

Product delays.

Increased costs. Less

collaboration

US$5B market for

Electronic Design

Automation software

2. Solution

\

3. Business Model

Business Model ≠ Pricing

4. Business Model Metrics

“I look for signs in a pitch that the founders understand the mechanics of the

business.” Phil Morle, Pollenizer

\

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4. Business Model Metrics

\

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4. Business Model Metrics

Avg Time on Site

Average Price Basket

Advertising CTR

4. Business Model MetricsMetric / KPI Now Comp A Comp B Comp C Goal

Advertising CTR 1.5% 3% 6% 2.5% 5%

Average time on site 4 9 6 5 10

Average Basket Price $18 $75 $118 $45 $73

Metric 4

Metric N

5. Growth StrategyMetric / KPI Now Goal Growth Strategy & Actions

1. Advertising CTR 6% 8% 1. A/B test creatives

2. Continuously optimize campaign settings for CTR

3. Hire 1 marketing specialist

2. Website Conversion 5% 10% 1. A/B testing of landing pages

2. A/B testing signup flows

3. Run Marketing campaigns (marketing budget)

3. Conversion to Active Y% 70% 1. Automate email addition for known hosts

2. A/B testing of email account addition UX (UI and flow)

3. Hire UX/UI Designer

4. Conversion to Paid Z% 25% 1. Optimize the product package of Free and Paid

2. Make it easier to pay/transact

3. Develop the product to add new features to paid users

4. Deploy payment gateways & get PCI compliant

5. Hire 3 developers

10. ASKMetric / KPI Now Goal Growth Strategy & Actions Costs

1. Advertising CTR 6% 8% 1. A/B test creatives

2. Continuously optimize campaign settings for CTR

3. Hire 1 marketing specialist

75K

2. Website Conversion 5% 10% 1. A/B testing of landing pages

2. A/B testing signup flows

3. Run Marketing campaigns (marketing budget)

150K

3. Conversion to Active Y% 70% 1. Automate email addition for known hosts

2. A/B testing of email account addition UX (UI and flow)

3. Hire UX/UI Designer

75K

4. Conversion to Paid Z% 25% 1. Optimize the product package of Free and Paid

2. Make it easier to pay/transact

3. Develop the product to add new features to paid users

4. Deploy payment gateways & get PCI compliant

5. Hire 3 developers

180K

My ASK for funding = $480K

WHEN do you need to have

WHAT?

01 02 03 04

idea MVP monetizescale

Seed Round

Series APitch for Angel Money

Pitch for Seed Round

Pitch for Series A

Bootstrap / Angel

Angel Pitch

Show me a great idea!

1.Problem

2.Solution

3.Business Model

4.Business Model Metrics

5.Growth Strategy

6.Status / Traction

7.Team

8.Competition

9.Roadmap / Forecast

10.ASK

Seed Round Pitch

Show me

traction!

1.Problem

2.Solution

3.Business Model

4.Business Model Metrics

5.Growth Strategy

6.Status / Traction

7.Team

8.Competition

9.Roadmap / Forecast

10.ASK

Ash Fontana, Founder of AngelList

Series A Pitch

Show me a business

&show me returns!

1.Problem

2.Solution

3.Business Model

4.Business Model Metrics

5.Growth Strategy

6.Status / Traction

7.Team

8.Competition

9.Roadmap / Forecast

10.ASK

So before you pitch…

Ask some important questions

Where is my startup in its lifecycle?

Do I understand my business model, metrics?

Can I explain my growth strategy and justify my ask?

Which TYPE of investor should I target?

So before you pitch…

And do your homework…

Decide what you look for in an investor

Easy vs Hard, Dumb vs Smart

Investigate who you want to ‘marry’

Which firm? Which Partner?

Speak with people that know them

Business partners (e.g. AWS), CEO’s in portfolio

Questions?

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