Intro to Venture Capital
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Delivered by Jonno Southam, Amazon Web Services Startup Venture Capital & Business Development Manager as part of the Startup Business Series.
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Intro to Venture Capital
- 1. © 2016, Amazon Web Services, Inc. or its Affiliates. All rights reserved. 20/9/2017 Introduction to Venture Capital Jonno Southam – Venture Capital Business Development (UK, Nordics & CEE)
- 2. Why does AWS talk about this? • Work with many startups & EMEA’s leading VCs • Discuss with VCs their portfolio and other interesting companies • Not biased, no agenda, helping AWS startup customers succeed
- 3. What is Venture Capital? How has the Cloud Impacted Venture Capital?
- 4. What is Venture Capital?
- 5. 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 VC Fund
- 6. The Venture Capital Process
- 7. “2 and 20” So how does a VC make money?
- 8. “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 profits 20%
- 12. 01 04 idea MVP monetisescale Product Risk Market Risk Financial Risk 02 03
- 13. 01 04 idea MVP monetizescale Product Risk Market Risk Financial Risk 02 03 • Incubator / Angel: $0-250K for ‘Product Viability’ • Seed: $250-$1M to ‘Expand Market Distribution’ • Venture: $1M-$5M+ to ‘Maximize Revenue’
- 14. 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
- 15. How the Cloud has Impacted Venture Capital? “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 Partner at Upfront Ventures (US)
- 16. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011+ 1995 – .com Technology 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
- 17. 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 Source Open 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
- 18. 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 Cloud Pioneered by Amazon drove total operating costs down significantly $500K- $3M •Staff – the battle for talent •Customer Acquisition •Explosion in experimentation, innovation, and Startups
- 19. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011+ 2007: Micro VC / Seed Public Cloud led to explosion in the number of Startups and the emerging of “micro VCs” Angels Incubators VC’s Angels 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
- 20. Why do VC’s care? Faster Experimentation More available deals Shorter time to scale Faster time to revenue (or fail) Lower ‘burn rate’ Higher valuation at exit
- 21. Other Reading Books • Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist - Brad Feld and Jason Mendelson • Term Sheets & Valuations: A line by line look at the Intricacies of Term Sheets and Valuations – Alex Wilmerding • The Hard Things about Hard Things – Ben Horowitz • The Lean Startup: Eris Reis Blogs & Newsletters • Dan Primack’s Term Sheet • Mark Suster’s Both Sides of the Table • Data Soources - CB Insights / Crunchbase / Dealroom • New cool products/apps - Product Hunt Tweets • @awsstartups - obviously • @firstround – solid early stage fund, platform • @karaswisher– Re/Code, breaks a lot of news • @benedictevans – A16Z, data hound
- 22. Questions?
Hinweis der Redaktion
- Work across many startups, working with many leading VC’s Key activity = connect VC’s and startups on AWS I see many pitch decks & actually get the feedback from VC’s So…I know what they like and don’t like Not biased, no agenda, helping AWS startup customers succeed We win when you win – and only when you win
- Professional investors. They get paid to invest. Subset of PE Not all businesses are right for VC. You should always consider other options first depending on your business, your growth plans and your ultimate goals for your business. Can get more into the pros and cons of taking VC dollars later VCs are willing to invest in private businesses with massive growth potential because of the outsized returns that are possible. High Risk, High Growth, High Reward Unlike most PE investments, VC almost never takes a majority (>50%) ownership stake. Typically, a VC will own 15-25% of a company when they initially invest (and more on this later, too).
- MOST STARTUP FAIL Fred Wilson - The 1/3, 1/3, 1/3 rule Venture Capital is a portfolio of distributed, probalistic outcomes Its all about your one or two big winners!
- Commitment Period – 5 years + time supporting the portfolio to exit (fingers crossed) Investment period – total life of the fund.
- Anna Vital You need to decide whether VC funding is the right thing for you (i.e. Bootstrapping, Angel networks, crowdfunding options) A hypothetical startup will get about $15,000 from family and friends, about $200,000 from an angel investor three months later, and about $2 Million from a VC another 6 to 12 months later. Splitting of a pie. When you start, your pie is really small. You have a 100% of a really small, bite-size pie. When you take outside investment and your company grows, your pie becomes bigger. When Google went public, Larry and Sergey had about 15% of the pie, each. But that 15% was a small slice of a really big pie.
- Angel = <250K Seed = 250k-1M Series A = 1-5M
- Invest in startups using incremental investment, iterative development. Start with lots of small experiments, filter out failure, and expand investment upon success.
- Angel = <250K Seed = 250k-1M (Traction, market fit) Series A+ = 1-5M (growth PE/VC Mix IPO
- Oracle database licenses, UNIX servers, a Sun Solaris operating system, web servers, load balancers, EMC storage 1-3 year fixed hosting agreements
- LAMP stack: Linux (instead of UNIX), Apache (web server software), MySQL (instead of Oracle) and PHP. Open source became a movement. We paid 10% of the normal costs - for software support (e.g. Red Hat)
- Started with Storage & Virtual Servers in the Cloud – then database, tools, etc Retail mentality – large volumes, low margins. Driving scale economies to lower prices continuously Amazon allowed 22-year-old tech developers to launch companies without even raising capital. Amazon sped up the pace of innovation because in addition to not having to raise capital to start I also didn’t need to wait for hosting to be set up, servers to arrive, software to be provisioned.