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A Return to Fundamentals: From Hype to Hard Facts

Facts and guidelines for successful VCs and startup companies to thrive in turbulent times. Tips for profitable growth, financing guidelines, and market opportunities. Lessons from Charles Schwab and a culture shift towards work/life balance and high quality of life.

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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 Managing Director Artemis 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@artemisventures.com

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