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A Return to Fundamentals: From Hype to Hard Facts

A Return to Fundamentals: From Hype to Hard Facts. Christine Comaford Lynch General Partner Novus Ventures. Agenda – Short and Sweet!. Facts/guidelines successful VCs and startup companies must embrace Tips to thrive, not just survive, in today’s turbulent times. VCs “Returning to Earth”.

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A Return to Fundamentals: From Hype to Hard Facts

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  1. A Return to Fundamentals: From Hype to Hard Facts Christine Comaford Lynch General Partner Novus Ventures

  2. Agenda – Short and Sweet! • Facts/guidelines successful VCs and startup companies must embrace • Tips to thrive, not just survive, in today’s turbulent times

  3. VCs “Returning to Earth” • 2 new deals/partner/year • 6 board seats, maximum • Active board participation, proactive corporate governance • Get profitable fast • Small can be beautiful • Burn rate metrics (headcount x $10-20k = monthly gross burn)

  4. Financing Guidelines • Make the $ last until you have significant business traction & can get more • Expect 9-12+ months fundraising process • Best case: pre-money valuation and round size are the same amount • Worst case: convert all previous investors to common stock, start again with new capital structure

  5. The Financing Net-Net • Enough “dry powder” for lifecycle investing • Aim for breakeven/slight profitability on first round • Expansion capital is a luxury • Hard ROI: Cost savings & Revenue Generation • Less competition • Better critique, Better ventures, Higher Bar • Longer Term View/Horizon

  6. Round Type Date Amount Raised (MM) Pre-Money Valuation (MM) IRR Multiple 1 Seed Jan-90 $ 0.50 $ 2 101% 32.53 2 1st Jan-91 $ 3.00 $ 10 70% 8.13 3 2nd Jan-92 $ 8.00 $ 32 50% 3.30 4 3rd Jan-94 $ 13.50 $ 100 32% 1.32 5 IPO Jan-95 $ 150 Total Private Capital $25 A Generic Early 90’s Model Million Today: get profitable with < $25 million and time rounds with business traction

  7. The Startup Net-Net • Get customers fast and scale accounts • Creative pricing strategies (70% maintenance, pre-pay, multi-year) • Marketing is only relevant to drive Sales • Outsource whatever you can • Engineering (some) • Finance (most) • Telemarketing/campaigns/”bursty” activities • Keep burn super low, gross margins high • Headcount increases only with “net positive” sales • COGS must be LOW • Have best, worst, expected case plans • Under promise, over communicate, over deliver

  8. IT Issues We’re Facing • Skills shortage • Budget shortage • Legacy architectures & “islands of info” vs. dynamic decentralized architecture • Expensive, deployment- intensive applications that have multi-year ROI • Low systematic productivity : batch vs. real-time • Random acts of productivity: everyday processes are sloppy/cumbersome/archaic

  9. Market Opportunities • Outsourcing & growth => a new (datacenter) infrastructure • Value-added services => new programmable network, IBM’s vision of “utilities” • Operations cost & complexity => Managed services, Business performance optimization etc. • A more decentralized IT architecture => “Real Time” enterprises, business continuity/risk management

  10. More Market Opportunities • Skills shortage & technology complexity => ASPs, technologies to reduce maintenance, Web services/management/integration/orchestration • Dynamic demand => Compute utilities, dynamic bandwidth, virtual server farms, Grid computing / distributed computing • IT going from 0.5% to 3.5% to ?% of a company’s sales

  11. Lessons from Charles Schwab • Great book by John Kador coming out late September via Wiley Books • Only subversive questions create new wealth. Entertain these questions and have the guts to act upon them. • 4 phases of an organization: Form, Storm, Norm, Perform. They will repeat in cycles as an organization evolves. • Don’t let the power of intuition be an excuse for laziness in doing analysis. • Eat/kill your young.

  12. Culture Shift • Workplace: • Satisfaction • Making a difference & feeling valued • Liking, bonding with our colleagues • Work/Life balance • Personal life: • Family & Friends • Giving back/volunteering • Values & beliefs • High quality of life with a lower burn rate

  13. How to Succeed • Find things that are broken and fix them • Do it anyway • Be “adequate”, “on par” • Have positive target fixation • Focus on things you can change or improve, let the rest go • Think of the worst case scenario – is it so bad? • Accelerate failure

  14. Resources • Go to our site (artemisventures.com): news & events, resources, etc • Volunteermatch.org: find a cause you care about and volunteer • Books: The Monk Who Sold His Ferrari (Sharma), Tuesdays with Morrie, anything by Brian Tracy (business/motivation), Burn Rate (Wolff)

  15. Thanks! Questions? christine@novusventures.com

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