h3 presentation - 20 years of investing in and operating technology companies
TRANSCRIPT
HOW DO YOU GET AN ENTREPRENEUR
TO DO THE IMPOSSIBLE?
Dude, you couldneverdo that.
CV
§ Investor § 70+ direct & fund investments
§ Entrepreneur § 5 funded start-ups
§ Vencast.com
§ Bump.com
§ Events.com
§ CRS
§ Fitmoo.com
§ EchoInvest (not funded)
§ Tech rights to:
§ Advisor 25+ early stage companies
§ Operator of numerous small businesses, tech and non-tech.
§ Board of UCSD von Liebig School of Entrepreneurship.
3 Start-Ups as Founder & co-founder
2 are still operating
1 sold to Instinet
CEO of Private Equity – Genspring
Created the first PE FOF
CIO of The Drax Group
Generated $50M in excess return
Founded Venture Capital Distribution business for Merrill Lynch
KPCB first client
Founded Vencast.com
Founded Fitmoo.com
Personal
2001 HBS Entrepreneur of the Year finalist
Ironman triathlete
Kiteboarder
Writer / Blogger
Cook
JEFF DYMENT
SOCIAL
DISTRIBUTION
1 product / 100,000 store fronts
FITMOO A SOCIAL AFFILIATE
MARKETPLACE
DESKTOP https://youtu.be/S4DGlr5szQQ
MOBILE https://youtu.be/JjWxUSZoC4c
Fitmoo Introduction youtube: https://youtu.be/dE2aD5Z4T18
MY DESK
An entrepreneur is an investor in their own business,
therefore
A venture capitalist is also an entrepreneur.
Nic B**t – MD @ f**T**** Partners Path to Success for Startups
§ There’s a great product idea – typically an exciting use case or exciting solution to a difficult problem, backed up by some objective desk research
§ There’s a deep understanding of the market – customer behaviours and motivations, supply chain, pricing, go-to-market etc.
§ The competitive environment is benign – competitors are properly understood and differentiation is clear (note the properly…)
§ Business fundamentals are strong – there’s a clear picture of how margins, customer acquisition costs, and customer life time value will look at scale
§ Basis for long term competitive advantage – barriers to entry are clear, at least at scale
§ Right skills – the founder is well suited to the opportunity
§ Compelling plan for the first year
WHAT IS AN ENTREPRENEUR?
§ Owner of a small business, deli or cupcake store?
§ A CEO of a technology start-up?
§ An investor into private businesses?The maker of efficiency application.
§ Employee of a technology start-up.
§ DJ or musician?
§ Pro-athlete who manages their own brand?
John Doerr - KPCB
§ Entrepreneurs used to START new businesses.
§ Now they INVENT new business models.
ENTREPRENEURIAL ATTRIBUTES?
ENTREPRENEURIAL ATTRIBUTES? § Risk taker?
§ Calculated rick taker?
§ Knows how to make money?
§ Wants to change the world?
§ Disruptor?
§ Problem solver?
§ Job creator?
§ Savant?
§ Flexible hours?
§ Works for himself?
§ Poverty?
§ Business purchasers?
§ Small business?
§ New Division within a larger business?
§ Sold their company?
§ Works alone?
§ Works with a few other people on something new?
§ Works for a higher purpose?
§ Works at a coffee shop?
Who’s Right?
Bill or Nic?
Who’s Right? Marc Andreessen?
§ a product innovator
§ an entrepreneur
§ a potential CEO
§ biased towards people who “never give up”
Eric Ries “Lean Startup”
§ Successful entrepreneurs work in a
“context of extreme uncertainty”
“NEVER GIVE UP?” Marc andreessen
“Blissful ignorance”
“Narcissism” Jeff dyment
Who’s Right?
§ “Extraordinary benefits also accrue to the tiny majority with the guts to quit early and refocus their efforts on something new.”
§ Vince Lombardi: “Quitters never win and winners never quit.”
§ “Bad advice. Winners quit all the time. They just quit the right stuff at the right time.”
§ “Most people quit. Most people just don’t quit successfully.”
An entrepreneur is an investor in their own business,
therefore
A venture capitalist is also an entrepreneur.
Story about Dan Wensley
• 1,500,000 downloads in first 3 months
• Offered $100 million from Google + $25M earn out.
• First liquidity event. Turned it down.
Instead Raised $19.5 million instead with Kleiner Perkins & Greylock at a $25 million valuation.
Sale Price to Google $125,000,000 Investment $ 2,500,000
Return 19,600%
Multiple on invested capital 25 x
3-Month Return
IRR
TIME
Video https://youtu.be/YybTsH1vCyI
Video https://youtu.be/YybTsH1vCyI
Dave Morin
Dustin Mierau
10-Jan-14 25,000,000$&&&&&&&&
16-Apr-12 30,000,000$&&&&&&&&
1-Feb-11 10,800,000$&&&&&&&&
1-Feb-11 8,700,000$&&&&&&&&&&
1-Nov-10 2,500,000$&&&&&&&&&&
TOTAL FUNDING 77,000,000$
• Add Free Social Network, sort of like Ello
• Anti-Facebook
• 50-150 friends allowed
• 23,000,000 registered users
“Arun Thampi of Singapore discovered that Path uploads users' address book information to Path's servers. This action isn't in Path's Terms of Use, and it's enraged a user community concerned about privacy rights….”
Whoops!
"We don't want to connect you with just
anyone on Path," Morin says.
"Without the contact list information, some
of these features just don't work."
Raised $77,000,000
Users 23,000,000
User Acquisition Cost $3.00
Revenue $0.00
Sale to Daum Kakao $25,000,000*
* rumored
Cash%Returned Return Waterfall10-Jan-14 25,000,000$&&&&&&&&& 25,000,000$&&&&&&& 0.00% 1 x
16-Apr-12 30,000,000$&&&&&&&&& $0 ,100.00% 0 x
1-Feb-11 10,800,000$&&&&&&&&& $0 ,100.00% 0 x
1-Feb-11 8,700,000$&&&&&&&&&&& $0 ,100.00% 0 x
1-Nov-10 2,500,000$&&&&&&&&&&& $0 ,100.00% 0 x
TOTAL&FUNDING 77,000,000$&&&&&&&&&
LESSONS FOR VENTURE INVESTORS AND ENTREPERNEURS
§ 4,000 tech startups each year that attempt to raise venture money
§ Andreessen Horowitz, funds 20.
§ The venture capital industry as a whole funds about 200 tech startups a year, but as few as 15 will generate approximately 95 percent of the returns.
E&Y Venture Report 2015 17,855 rounds / 6 years = 3,000 rds / year
3,000 rds/yr / 2 rds / company = 1,500
companies / year
1,500 companies / year * 10% tech = 150 / tech year (energy, healthcare, industrial goods, consumer services,
consumer goods, IT)
OH SHIT!
SUCCESSFUL VENTURE
INVESTING
FUNDS?
$31,107 $29,993
$25,054
$16,103
$13,282
$19,060 $19,838 $17,702
$30,161
0
50
100
150
200
250
300
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
2006 2007 2008 2009 2010 2011 2012 2013 2014
Venture Capital Fund Raising
Venture Capital ($M) Number of Funds
DIRECTS?
DIRECTS?
543,000 START EACH MONTH
3,500 PRIVATE COMPANIES GET VENTURE CAPITAL / YEAR
<300 STARTUPS FUNDED BY VCS
99.94% DON’T’ GET VC FUNDING
SECONDARIES?
SECONDARIES BENEFITS
HINDSIGHT
DISCOUNT PRICING
CLOSER TO LIQUIDITY
POSITIVE SELECTION
SECONDARIES?
$32 BILLION RAISED IN 2014
$45 BILLION DRY POWDER
$37.9 BILLION INVESTED IN 2014
LESSONS
DYMENT PHILOSOPHY ABOUT ENTREPRENEURSHIP § Ideas are different from businesses.
§ Visionaries are not entrepreneurs
§ Operators are hired
§ Emotional attachments are hard to break
§ Make money from Day 1
§ Sell more Day 2
§ Follow the winners § Companies
§ Industries
§ Investors
§ Odds are against you so have fun.
1 idea a day – 300+ ideas / year
10 make it to paper
1 every 2 years makes it into
a plan
1 every 5 years gets funded
2 of 3 usually succeed
Most successful businesses start
FROM ONE
§ One paying customer
§ One product sale
§ One download
§ One car ride
§ One room rental
§ One enterprise sale
LESSONS
SCALE it
FUND it
AND…
LESSONS
Adjust holding periods when you can.
Use the secondary market.
Sell into structure products.
Entrepreneurs: Take the money.
Investors: Manage your holding period.
LESSONS
LESSONS
Philosophy
§ Liquidity is the new gold.
§ The secondary market will be bigger than the primary.
§ Valuation adjustment has already started.
§ More and more companies will remain private longer and longer.
§ LPs, investors and entrepreneurs better buckle up 2x long holding periods.
Business Models
§ Freemium (Strava)
§ Saas (Slack)
§ Recurring Revenue (ClassPass)
§ Efficiency (Canva)
§ Wed apps
§ Consolidator / Organizers
GENERAL TRENDS
NOT A WINNER TAKE
ALL MARKET PLACE
APPS VS
WEB APPS
BIGGEST IDEAS
New Thinking New Conduit
VENTURE INVESTMENT
BIGGEST IDEAS
New Thinking New Conduit
VENTURE INVESTMENT
A NEXT GENERATION DISTRIBUTION CHANNEL. ACCESS TO THE NETWORKS OF BILLIONS OF PEOPLE TO DISTRIBUTE
PRODUCTS AND SERVICES GLOBALLY. EVERYTHING WILL EVENTUALLY BE USING SOCIAL DISTRIBUTION FROM CARS, HOUSES, TO
RESTAURANT RESERVATIONS AND CONFERENCE TICKETS.
GOAL
New Codec: 6 gigabytes in 1 second
over today’s bandwidth
All Lossless
6 billion bytes of data in 1 second
4,800:1
BIGGEST IDEAS
New Thinking New Conduit
VENTURE INVESTMENT
TRANCHES
OF VENTURE THROUGH
STRUCTURED PRODUCTS
DIRECT, INDIRECT AND SYNTHETIC EXPOSURE TO THE BEST FUNDED, LARGEST, MOST SUCCESSFUL PRIVATE COMPANIES, CLOSEST TO A
LIQUIDITY EVENT.
Venture Fund Universe
Largest and Most Repetitive Best Performers
Best Vintage Year Fund
Best Deals From Best Vintage Years
Strongest Balance Sheets
Companies Closest to Liquidity
Discount to Last Valuations
Best Funded Companies with Top-Tier Sponsors,
Shortest Holding Period, All With The Advantage of Hind-Sight
Preferred late-stage private company Investing methodology
ACCESS TO WORLD CLASS PRIVATE COMPANIES THROUGH UNIQUE RELATIONSHIPS WITH
FUNDS AND CO-INVESTMENT INTERMEDIARIES
EXAMPLE OF AN INVESMTENT STRUCTURE FOR LATE-STAGE DEAL ACCESS
Loan to Founders, Executives, Early Investors
Interest = Prime + 300bp-500bp
3X-5X over collateralized
Stock Incentives
Outright grant or options on underlying with discounted strike
= 10% of collateral value
BIGGEST RISK MOVING FORWARD
MURMURATION
https://youtu.be/xJ9LfZZnYIQ
MURMURATION
Trend following
Organized chaos
Contagion
CREATING UNICORNS
§ “Part of the problem seems to be that nobody these days is content to merely put their dent in the universe. No, they have to fucking own the universe. It’s not enough to be in the market, they have to dominate it. It’s not enough to serve customers, they have to capture them.”
§ The term startup has been narrowed to describe the pursuit of total business domination. It’s turned into an obsession with unicorns and the properties of their “success”. A whole generation of people working with and for the internet enthralled by the prospect of being transformed into a mythical creature.
§ David Hansson – Ruby on Rails, Basecamp
STARTUP MANIA
§ The startup PR machine is crazy. If you’re not VC funded then you don’t matter. Your success is measured in money raised, not money earned. If you’re not “scalable”, then you don’t exist. It took me some time to start ignoring this. I understood that so many well funded startups never take of the ground and my bootstrapped business has.
Matt Kubiczek – Amazon engineer, now runs a software company that employs 60 people
Leave Behinds
CONTAGION
§ 1998 - Long-term captial management – over leveraged hedge fund where negatively correleated assets all of a sudden started to correlate a little to much or a little to long.
§ 2008 - Global Financial Crisis. Complete liquidity crisis for the entire world.
§ Today – Europe migrant crisis, Middle East meltdown, hyperinflation in Latin America, Puerto Rico debt crisis, Greece, Venezula, Argentina, China, Russia
Rules
§ Look for trends and either lead or don’t follow
§ Stay fluid, nimble
§ Liquidity
§ Exit
§ Barbell approach
§ New approaches to traditional non-traditional investing
Help
§ Don’t listen to Jim Cramer
§ Public equity vs Private equity § Liquidity is becoming less
and less an issue except for investing in no-name directs.
§ If you need some help, call me.
PROTECTION
Investment $2,500,000
19,600% AR
5 Years instead of 3 months
$7,530,692,405,000,000
JEFF DYMENT
§ Cell: 203-515-9686
And watch some of the other videos on
www.institutionalconsultants.com
END OF PRESENTATION
Enhancement of Return by Shortening Holding Period
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 IRR(100)$ -$ -$ -$ -$ 300$ 25%(100)$ -$ -$ -$ 300$ 32%(100)$ -$ -$ 300$ 44%(100)$ -$ 300$ 73%(100)$ 300$ 200%
Positive effect of Negative effect ofPositive effect of Negative effect of % Change of return % Change of return
% Change of return % Change of return per unit of time per unit of timeper unit of time per unit of time (5 Uts to 1 Uts, (1 Uts to 5 Uts,
IRR (5 Uts to 1 Uts) (1 Uts to 5 Uts) in increments of 2 Uts) in increments of 2 Uts)5 Yr. Hold 25% -22% -44%4 Yr. Hold 32% 29% -29%3 Yr. Hold 44% 40% -40% 80% -78%2 Yr. Hold 73% 66% -63%1 Yr. Hold 200% 173% 352%
Negative Effects of Time
1 Year => 2 Years
(63%)