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What VCs look for in a business plan?
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Agenda
• Background/ vSpring Plug• Venture Capital 101• What VCs look for in a business
plan?
2
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Background Information
Gavin Christensen• Principal & Head of NM office, vSpring Capital• Managing Director, Kickstart Fund • Boards: Symbiot, Intelisum• Board Observer: Aspen Avionics, Veralight, Exagen
Diagnostics
Previous Experience • Fidelity Investments, Monitor Group, vSpring analyst &
associate, Google• MBA, Kellogg School of Management• BS Economics, Brigham Young University• Married with two children
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vSpring Overview - 60+ deals since 2000 - Top Decile Returns
$200,000,000+ - vSpring Direct Investment $450,000,000+ - Co-investors$650,000,000+ - Total (since 2000)
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vSpring Capital
• Systems Management Solutions
• Internet and Communications
• Life Sciences
Sector Expertise
Regional Advantage
Arizona
Colorado
New Mexico
Utah
Mountain West
Stage Focus
Early Stage—first institutional money in
$3-6M pre-money (Series A)
Invest $1-5M up front, $10-12M over life of deal
Target ownership of 15-30% at exit
Governance rights
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What is Kickstart Fund?
• Fund Size. $5-$10 MM fund• Investors: Aligned self interest of eco-system:
Universities, Angel Investors, VCs, Entrepreneurs• Focus: Launch 20-30 seed-stage technology deals at
$50-$200K per investment• Management: New Seed fund is managed by venture
fund with investment committee of: university, venture capitalists, and angel investors
• Carried Interest: Much of carried interest profits going back to the community (Universities & community)
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Venture Capital 101
7
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• Divas Hair Streaks
What VCs don’t look for in a Business Plan
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?
• Space Tug – $500 million Seed Investment
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What hope is their for students?
10
Software/ Internet
Energy?
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When? Personal Balance Sheet
11
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What VCs are Looking For
12
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What VCs don’t look for in a Business Plan
China Syndrome: “We estimate a conservative 1% of the Chinese market…”
Naiveté: “The company has a first mover advantage and therefore will have no competition.”
Engineer – Group Think: “Since we have the most brilliant engineers we are sure to have the best technology and become the market leader.”
False Precision (MBA group think): “In year 5, we will have revenues of $50.23 MM, generating a ROI for investors of 55.45% IRR”
Lack of “do-er” fallacy: “With consultants from each of the top strategy firms our management team is built for success.”
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A word about business plans
• Substance over form• Business plans don’t get funded,
businesses get funded• Do your homework
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Key Investment Criteria: What VCs look for in a business plan
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Market Analysis
• What is the size of the market? Have you narrowed down the market size for your product?
• What is the market structure? Channels? Buying patterns?
• Is the market growing?• Who are the competitors in the market?
How do you plan on obtaining market share?
• Exit Multiples in the market?• What is the market pain? Pain Killers vs.
Vitamins. What do customers want?
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Market – Understand adoption curve
*
Adoption Curve
Time
Ad
op
ters
Innovators2.5%
EarlyAdopters
13.5%
EarlyMajority
34%
LateMajority
34%Laggards
16%
From Diffusion of Innovation
Everett Rogers
Pragmatist: Stick with the herd!
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Market – where startups fail
*
High-tech Adoption Curve
Time
Ad
op
ters
From Crossing the Chasm
Geoffrey Moore
Most Literature
focuses on this phase
Most startups
don’t make it through the this stage
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Market – early stage orbit
*
Ideas
Teams
Market Forces
QuickTime™ and a decompressor
are needed to see this picture.
QuickTime™ and a decompressor
are needed to see this picture.
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are needed to see this picture.
QuickTime™ and a decompressor
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Concept
Go-To-MarketModel
Plan
SalesValidation
Product
Slingshot
TheChasm
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Management
• What are Management’s attributes and capabilities?– Smart, flexible?– Airplane test? – Complementary skill sets?
• What is management’s background?– Have they had entrepreneurial
experience?– Does the team have industry experience?– Has the team worked together before?
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Technology / Product
• What is the product?
• Does is solve the customers pain?– How do you know it solves the customers pain?– How do you know the demand for the product?
• What is the IP position for the product?– Have patents been filed?– What is your IP strategy?
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Deal Structure
• Debt versus Equity• Investment amount• Deal terms• What is the pre-money value?
– What stage is the company?– Are they generating revenue?
• Control provisions e.g. Board Structure
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Traditional Venture Funding Continuum: Where does your company fit?
VALUATIONS INCREASE
BUSINESS RISKS DECREASE
MENTORING NEEDS DECREASE
SEED/START-UPFUNDING
DEVELOPMENTFUNDING
EXPANSIONFUNDING
OPPORTUNITYDEVELOPMENT
$5M-20M$500K-5M$50K-500K
CONTINUEDGROWTH
>$20MSweat
ANGELS & FOUNDERS
VENTURE CAPITAL
PUBLIC MARKETS
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Momentum
• Can be, but not necessarily, revenue traction– Momentum can be at the
development stage (pre-revenue)– Is the market excited about the
product?– What is the input from customers?
• Trade Shows• Focus Groups• Industry Experts• Articles/ Blogosphere• Online traffic indicators
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Key Investment Criteria: What VCs look for in a business plan
