Chris Maresca

Continuing education – 2010-01-30 edition

• OECD Oil Demand has peaked – http://bit.ly/94jxCG – It's interesting that demand will be in decline from now on in industrialized countries #

Tags: continuing education, short, twitter

Continuing education – 2010-01-26 edition

• China running out of people? http://bit.ly/8QUxex – Apparently the 20-25 population will drop by half by 2020 to only 68 million… #
• China running out of people? http://bit.ly/8QUxex – Apparently the under 25 population will drop by half by 2020 to only 68 million… #

Tags: continuing education, short, twitter

Continuing education – 2010-01-22 edition

• Great meeting today at Visa of SV Innovation Execs, with Stanford's d.school leading the discussion #
• had an great lunch yesterday at a private equity firm, lots of interesting data – off to an innovation meeting at Visa this afternoon…. #

Tags: continuing education, short, twitter

Client Success – Wavemaker

It’s always good to see a past client become successful.   In this case, it’s WaveMaker, a company for which I did business model, licensing and community strategy several years ago.   Looks like that work has finally paid off, thanks to good execution on the part of Chris Keene and the rest of the exec team.    They just announced profitability and that their community had grown to 15,000 participants.

Congratulations all around.

Link: http://dev.wavemaker.com/blog/2010/01/06/wavemaker-rides-the-cloud-computing-tsunami/

Continuing education – 2010-01-13 edition

• Is Google big enough to have impact on policy? Google to confront Chinese censorship directly- http://bit.ly/4Ymnml – (via @johnmark) #

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VC Math – Or why you’ll never get funding…

Yet another cleaned up post from a startup thread on LinkedIn.  This one is about VC math and TAM’s.

One thing that’s very much missing in most entrepreneur’s understanding of the fundraising process is the notion of total addressable market (TAM) and it’s relationship to fund size. Basically, it’s the understanding that fund size vs number of partners drives the available investment size.

An overview of how this works

Since partners can only typically manage at most 10 companies simultaneously, 2 partners at a $100million fund will invest in a maximum of 20 companies. Usually, the first five years of a fund are devoted to new investment, and the last five to supporting existing portfolio companies. Money is usually allocated 50/50 to new vs support, so this hypothetical fund would have about $50m to invest in 20 companies. $50m divided by 20 gives you roughly what the investment amount would be about $2.5m.

The flip side of this are rough calculations about TAM and exits. If the TAM of a company is $100 million and you assume they can capture 10% of the market in 10 years, then their revenue will be around $10m, with a valuation of somewhere between 3x to 15x revenue depending on the vertical. At the lower end of that, it would be a company worth $30m if everything works out.

Going back to fund size, if the fund is targeting a 10x return, then investing $2.5m in a company that might be worth $30m at exit is just about right, assuming no other dilution. Of course, this leaves out a lot of details and is uber-simplistic, but I can guarantee that every VC you talk to is doing these sorts of rough calculations in their head.

However, what’s really important about all of this is understand your company’s TAM and doing your homework about size and lifecycle of funds investing in your vertical. If your TAM is $100m and you approach NEA ($2b raised for their latest fund), then you will likely never get funding. A lot of entrepreneurs don’t seem to be willing to do the legwork in researching investors/funds/etc, but that’s one of the keys to success. I would add that the VC tool of choice for doing research is VentureSource – yes, it’s not cheap, but if you are looking for funding, it’s a goldmine of information on valuation and fund status

This is a very common mistake made by a lot of entrepreneurs, even experienced ones. I’ve given a presentation at a bunch of conferences about this very topic and it’s always shocking how many people don’t understand these dynamics.

Continuing education – 2010-01-12 edition

• Best Slashdot comment of the year? Why copyright is irrelevant – http://bit.ly/6jYBD3 #

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Startup growth metrics for Silicon Valley

Last December, I was in an interesting meeting where the Bureau of Labor Statistics (BLS) presented a bunch of interesting stats several days before they were due to be released.

The most interesting statistic, however, was one that was generated specifically for this particular meeting and is not part of the regular dataset.  It was statistics about company growth in Silicon Valley, and it revealed the lack of companies growing to significant size.   For me, it just reinforced my gut feeling that the VC model was broken and that the real target should be lower exits, not monster hits.

First some definitions, in BLS terms:

• Small company – less than 50 employees
• Medium company – 50 to 250 employees
• Large company – 250+ employees

I would note that the BLS looks at payroll to determine employees, so contractors don’t count.

The BLS had put together data about companies growing from small to medium to large over the 8 year period from 2000-2008, it was summarized in the following table:

	2008
2000		S	M	L
	S	4400	214	8
	M	219	292	50
	L	34	45	119

What’s surprising about this is that only 8 companies became ‘large companies’ in 8 years. That’s one a year, and if you think of company size as a proxy for revenue, then it’s pretty stunning.

P.S. Sorry for the crappy table, turns out tables in WP are a huge pain in the ass….  The vertical numbers represent the state of affairs in 2000, whereas the horizontal numbers represent the state in 2008, so reading from left to right gives you the changes from 2000 to 2008…

What I look for in a pitch

Over the years, I’ve gotten many requests from people wanting help raising funds.   Most of the time, I find that they have failed to do their homework and that even the most basic elements are missing from their pitch.   I recently posted in a forum describing what I would look for in a pitch, so I thought I’d re-post it here, a bit cleaned up and expanded.

What I look for in a pitch

A pitch is several stories.  It’s the story about how you will successfully run your company if you get money and it’s much like a sales pitch.   But it’s not just your company’s story, it is also the story of you and the people on your team, the industry you are targeting, the story of your customers and finally, the ending chapter of your company.   Like every good story, these should have arcs that meet at some logic point.   And, like most good stories, it needs to be cogent, logical and progress along path.   All that said, what are the tangibles that I would look for in a pitch?  Well, here are some:

• Entrepreneurs should know everything about their business/market and I consider it a bad sign if I know even just a little more
• Know who I am, why you are talking to me and what your expectations are from me
• Have done their homework about investors, funds and criteria.
• Polished presentations & financials
• Business plans in the traditional sense are a waste of everyone’s time – I don’t really care if you have one
• A good, clear slide deck that lays out the future of the company (the story, see above)
• Detailed financials that are in sync with the deck
• Polished, articulate delivery of both the deck and financials (you need to know this stuff cold)
• A clear understanding of real and potential competitors, with a view of competitive differentiators
• A clear and complete executive summary that someone can grok in less than 10 min.
• A good website
• Finally, there should be some sort of working prototype or demo, esp. if it’s software.

There are tons of online and offline resources for learning how to do all of this and there really is no excuse for not doing it.  I would also point out that I don’t expect everything to be in the deck, just a good, compelling story about the future of your business, industry and customers.  That said, I expect you or your team to be able to answer every question I ask, in detail if appropriate.  And if you don’t know, don’t make it up.

So there it is, a basic outline of what should be in the pitch.   I would point out that there is a lot of other detail about what should be in there and that you should understand what your target investors are looking for when putting together your pitch.

Continuing education – 2010-01-05 edition

• 2009 was apparently the year of elephants in the room – http://bit.ly/8zrCMW #

Tags: continuing education, short, twitter