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AccelerateOTT
May 2016
VC Insights
A Pulse on the Ecosystem:
Where & Why I’d Invest
VC InsightsVC101
What is Venture Capital (VC)?
VC is financial capital provided to early-stage,
high-potential growth start-ups.
A VC fund earns money by owning equity in the
companies it invests in.
Investors in VC funds are called limited partners.
LPs are high net worth individuals, family offices,
pensions, endowments, fund of funds, etc.
VC101
Limited Partner
General Partner
EXIT (IPO, Acquisition, etc.)
Portfolio
Company 1 ………. Company n
VCs distribute
cash for equity
Fund
LPs “pay” management
fees to GPs
LPs are “repaid” and
earn 80% profit
GPs earn carry (20%
profit) from liquidation
VC101
What does it mean to be “VC fundable”?
Version One I is a
$20M seed fund.
VC101
For this fund size, we’re looking for $100M+ companies.
One unannounced
VC101
Fund size $20M
Return target 3-4x
$80M
Avg. stake / company 3-5%
$1.6-2.0B
20# of portfolio companies
Avg. exit value / company ~$100M
Larger venture funds look for “unicorns” ($1B+
opportunities) to deliver acceptable returns.
e.g. To return the initial capital of a $400M fund,
that might mean needing to own:
1) 20% of two $1B companies; or
2) 20% of one $2B company
at acquisition or IPO.
VC101
It’s ridiculously hard to find unicorns.
They are rare.
Since 2003, there have been 84 unicorns.
This is 0.14% of VC-backed startups.
lose money
break-even
make good money
(5-10x)
Typical portfolio
return assumption
1/3 1/3
1/3
VC101
Source: Welcome to the unicorn club: 2015 by Aileen Lee
It’s ridiculously hard to find unicorns.
There is a lot of noise.
500 intro meetings per year
(or 10 per week)
50 follow-up
meetings
10 due
diligence
5-6 funded
per year
0.5-1%
“funding” rate
VC101
800-1000 seen per year
500 intro meetings per year
(or 10 per week)
50 follow-up
meetings
10 due
diligence
5-6 funded
per year
VC101
50,000+ startups
800-1000 seen per year
500 intro meetings per year
(or 10 per week)
50 follow-up
meetings
10 due
diligence
5-6 funded
per year
VC101
VC InsightsThe startup ecosystem today
The Canadian VC ecosystem is healthy…
Canadian VC fundraising
Data source: 2016 Thompson Reuters
$1,433
$1,220 $1,212
$929
2013 2014 2015 Q1 2016
In
Millions
Raised
(CAD)
… with more and more startup financings, …
Canadian VC investments
+7%
+12%
Data source: 2015 Canadian Venture Capital Market Review - CVCA Report
$1,897
$2,022
$2,259
2013 2014 2015
In
Millions
Invested
(CAD)
$1,062
$1,379
$272
$647
$394
$135
$14 $42
$0
$500
$1,000
$1,500
2013 2014 2015
In Millions
Invested
(CAD)
… especially in ICT and life sciences.
Canadian VC investments
ICT
Life Sciences
Clean Tech
AgriBusiness
Data source: 2015 Canadian Venture Capital Market Review - CVCA Report
2013 2014 2015
In Millions
(CAD)
Other
IPO
M&A
We’re also seeing more exits.
Canadian VC investments
$1,343 $1,457
$4,263
Data source: 2015 Canadian Venture Capital Market Review - CVCA Report
But all this is still only a fraction of that of the US.
US VC investments
+46%
Data source: 2015 US Venture Capital & Startup Traction Report - Mattermark
$39.9
$58.3
2014 2015
In Billions
Invested
(USD)
USD:CAD
invested is 30:1
Population ratio
suggests it
should be 10:1
Popular themes
Web & Mobile Apps Leading Technology
Software-as-a-Service
Social Networks
Marketplaces
IoT & The Connected World
Messaging-as-a-Platform
Machine Learning & Artificial
Intelligence
Virtual Reality &
Augmented Reality
Bitcoin & Blockchain
Drones & Robotics
What is the future of computing?
In between platforms
Source: What’s next in computing? by Chris Dixon
19941981 2007
2018?
“Some of the hottest venture deals these days are being
done in a field that is mostly low-tech or even no-tech…”
In between platforms
Source: Heat Death: Venture Capital in the 1980s by Jerry Neumann
Is history repeating itself?
“VCs were investing in startups […] unlike the ones that
generated the phenomenal 1980 VC returns. The new
wisdom was to lower risk by investing in well-understood,
slower growth markets […and…] by shunning technology.”
- Wall Street Journal, 1989
In between platforms
Web & Mobile Apps Leading Technology
Software-as-a-Service
Social Networks
Marketplaces
IoT & The Connected World
Messaging-as-a-Platform
Machine Learning & Artificial
Intelligence
Virtual Reality &
Augmented Reality
Bitcoin & Blockchain
Drones & Robotics
What are the next
big unique ideas?
What are the
killer use cases?
VC InsightsWhat we look for
Our investment thesis
Strong founders who are
leveraging network effects to
solve an important problem in a unique way for
a market that many people care about
Strong founding team
Talent
Passion+
Storytelling+
What we look for
Our investment thesis
Strong founders who are
leveraging network effects to
solve an important problem in a unique way for
a market that many people care about
What we look for
What are network effects?
When a new user/member increases the value of the
product or service to all other users
High number of
quality suppliers
Attracts more
customers
Brings more
suppliers
They create a high degree of defensibility
Network effects ≠ virality (rate of adoption)
marketplace virtuous cycleHelps to draw even
more customers
Our investment thesis
Strong founders who are
leveraging network effects to
solve an important problem in a unique way for
a market that many people care about
0 to 1
What we look for
vertical or
intensive progress
doing new things
horizontal or
extensive progress
copying things that work
1 to n
Source: Zero to One by Peter Thiel
Highly-regulated industries can be still disrupted.
Can we take a bottoms-up network-driven approach?
What we look for
Permissionless
innovation
Mostly
permissionless
innovation
People
regulation incumbents
Employees
incumbents legacy
Patients
Doctors
regulation incumbents legacy
Clinics, Carriers & Pharma
Healthcare Fintech Government
Education Insurance Manufacturing
Our investment thesis
Strong founders who are
leveraging network effects to
solve an important problem in a unique way for
a market that many people care about
MVP
The “What”
Vision
The “Why”
Distribution Strategy & Scale
The “How”
Total Addressable Market TAM Expansion
Initial Target
Market
Market 2
Market 3
Market 4
All addressable markets / distribution
channels / customer segments / verticals
.
.
.
.
.
What we look for
Our investment thesis
Entrepreneur
Business
Model
Market
Opportunity
Category Leader
Strong founders who are
leveraging network effects to
solve an important problem in a unique way for
a market that many people care about
VC InsightsKey takeaways
Larger funds expect greater returns, so the bar for
“VC fundable” startups is higher than ever.
We’re in between mature and emerging platforms.
There are still many opportunities to become a
category leader by solving a clear pain point and
building a defensible asset with network effects.
Key takeaways
Angela Kingyens
Version One Ventures
ThankYou
Twitter: @ATKingyens
Email: angela@versionone.vc

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A Pulse on the Ecosystem: Where & Why I'd Invest

  • 1. AccelerateOTT May 2016 VC Insights A Pulse on the Ecosystem: Where & Why I’d Invest
  • 3. What is Venture Capital (VC)? VC is financial capital provided to early-stage, high-potential growth start-ups. A VC fund earns money by owning equity in the companies it invests in. Investors in VC funds are called limited partners. LPs are high net worth individuals, family offices, pensions, endowments, fund of funds, etc. VC101
  • 4. Limited Partner General Partner EXIT (IPO, Acquisition, etc.) Portfolio Company 1 ………. Company n VCs distribute cash for equity Fund LPs “pay” management fees to GPs LPs are “repaid” and earn 80% profit GPs earn carry (20% profit) from liquidation VC101
  • 5. What does it mean to be “VC fundable”? Version One I is a $20M seed fund. VC101 For this fund size, we’re looking for $100M+ companies. One unannounced
  • 6. VC101 Fund size $20M Return target 3-4x $80M Avg. stake / company 3-5% $1.6-2.0B 20# of portfolio companies Avg. exit value / company ~$100M
  • 7. Larger venture funds look for “unicorns” ($1B+ opportunities) to deliver acceptable returns. e.g. To return the initial capital of a $400M fund, that might mean needing to own: 1) 20% of two $1B companies; or 2) 20% of one $2B company at acquisition or IPO. VC101
  • 8. It’s ridiculously hard to find unicorns. They are rare. Since 2003, there have been 84 unicorns. This is 0.14% of VC-backed startups. lose money break-even make good money (5-10x) Typical portfolio return assumption 1/3 1/3 1/3 VC101 Source: Welcome to the unicorn club: 2015 by Aileen Lee
  • 9. It’s ridiculously hard to find unicorns. There is a lot of noise. 500 intro meetings per year (or 10 per week) 50 follow-up meetings 10 due diligence 5-6 funded per year 0.5-1% “funding” rate VC101
  • 10. 800-1000 seen per year 500 intro meetings per year (or 10 per week) 50 follow-up meetings 10 due diligence 5-6 funded per year VC101
  • 11. 50,000+ startups 800-1000 seen per year 500 intro meetings per year (or 10 per week) 50 follow-up meetings 10 due diligence 5-6 funded per year VC101
  • 12. VC InsightsThe startup ecosystem today
  • 13. The Canadian VC ecosystem is healthy… Canadian VC fundraising Data source: 2016 Thompson Reuters $1,433 $1,220 $1,212 $929 2013 2014 2015 Q1 2016 In Millions Raised (CAD)
  • 14. … with more and more startup financings, … Canadian VC investments +7% +12% Data source: 2015 Canadian Venture Capital Market Review - CVCA Report $1,897 $2,022 $2,259 2013 2014 2015 In Millions Invested (CAD)
  • 15. $1,062 $1,379 $272 $647 $394 $135 $14 $42 $0 $500 $1,000 $1,500 2013 2014 2015 In Millions Invested (CAD) … especially in ICT and life sciences. Canadian VC investments ICT Life Sciences Clean Tech AgriBusiness Data source: 2015 Canadian Venture Capital Market Review - CVCA Report
  • 16. 2013 2014 2015 In Millions (CAD) Other IPO M&A We’re also seeing more exits. Canadian VC investments $1,343 $1,457 $4,263 Data source: 2015 Canadian Venture Capital Market Review - CVCA Report
  • 17. But all this is still only a fraction of that of the US. US VC investments +46% Data source: 2015 US Venture Capital & Startup Traction Report - Mattermark $39.9 $58.3 2014 2015 In Billions Invested (USD) USD:CAD invested is 30:1 Population ratio suggests it should be 10:1
  • 18. Popular themes Web & Mobile Apps Leading Technology Software-as-a-Service Social Networks Marketplaces IoT & The Connected World Messaging-as-a-Platform Machine Learning & Artificial Intelligence Virtual Reality & Augmented Reality Bitcoin & Blockchain Drones & Robotics
  • 19. What is the future of computing? In between platforms Source: What’s next in computing? by Chris Dixon 19941981 2007 2018?
  • 20. “Some of the hottest venture deals these days are being done in a field that is mostly low-tech or even no-tech…” In between platforms Source: Heat Death: Venture Capital in the 1980s by Jerry Neumann Is history repeating itself? “VCs were investing in startups […] unlike the ones that generated the phenomenal 1980 VC returns. The new wisdom was to lower risk by investing in well-understood, slower growth markets […and…] by shunning technology.” - Wall Street Journal, 1989
  • 21. In between platforms Web & Mobile Apps Leading Technology Software-as-a-Service Social Networks Marketplaces IoT & The Connected World Messaging-as-a-Platform Machine Learning & Artificial Intelligence Virtual Reality & Augmented Reality Bitcoin & Blockchain Drones & Robotics What are the next big unique ideas? What are the killer use cases?
  • 22. VC InsightsWhat we look for
  • 23. Our investment thesis Strong founders who are leveraging network effects to solve an important problem in a unique way for a market that many people care about
  • 25. Our investment thesis Strong founders who are leveraging network effects to solve an important problem in a unique way for a market that many people care about
  • 26. What we look for What are network effects? When a new user/member increases the value of the product or service to all other users High number of quality suppliers Attracts more customers Brings more suppliers They create a high degree of defensibility Network effects ≠ virality (rate of adoption) marketplace virtuous cycleHelps to draw even more customers
  • 27. Our investment thesis Strong founders who are leveraging network effects to solve an important problem in a unique way for a market that many people care about
  • 28. 0 to 1 What we look for vertical or intensive progress doing new things horizontal or extensive progress copying things that work 1 to n Source: Zero to One by Peter Thiel
  • 29. Highly-regulated industries can be still disrupted. Can we take a bottoms-up network-driven approach? What we look for Permissionless innovation Mostly permissionless innovation People regulation incumbents Employees incumbents legacy Patients Doctors regulation incumbents legacy Clinics, Carriers & Pharma Healthcare Fintech Government Education Insurance Manufacturing
  • 30. Our investment thesis Strong founders who are leveraging network effects to solve an important problem in a unique way for a market that many people care about
  • 31. MVP The “What” Vision The “Why” Distribution Strategy & Scale The “How” Total Addressable Market TAM Expansion Initial Target Market Market 2 Market 3 Market 4 All addressable markets / distribution channels / customer segments / verticals . . . . . What we look for
  • 32. Our investment thesis Entrepreneur Business Model Market Opportunity Category Leader Strong founders who are leveraging network effects to solve an important problem in a unique way for a market that many people care about
  • 34. Larger funds expect greater returns, so the bar for “VC fundable” startups is higher than ever. We’re in between mature and emerging platforms. There are still many opportunities to become a category leader by solving a clear pain point and building a defensible asset with network effects. Key takeaways
  • 35. Angela Kingyens Version One Ventures ThankYou Twitter: @ATKingyens Email: angela@versionone.vc