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Think Big But Start Small

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Danuta Pysarenko
Danuta Pysarenko

1. Sequoia Capital is a 40-year-old venture capital firm that has invested in over 820 companies, including 150 IPOs and 150 acquisitions. 2. When evaluating startups, Sequoia looks for companies addressing large, disruptive markets; with unique, differentiated products that deeply alleviate customer pain; and exceptional founding teams focused on product excellence. 3. Sequoia advises startups to think ambitiously about market and company potential but to start small with minimal headcount, spending, and time to market in order to maximize efficiency and focus.

Relations avec les actionnairesÉconomie & financeBusiness
1  sur  22
Think Big But Start Small Mike Goguen Managing Partner Sequoia Capital
Topics 1. Sequoia Capital Snapshot 2. What We Look For In A Startup
SEQUOIA CAPITAL • 40 year old Venture Capital firm • US, China, India, Israel • Seed, Venture, Growth • 820+ companies • 150+ IPOs, 150+ M&As
Humble Beginnings Steve & Steve Trip Sandy & Len
Humble Beginnings Jerry & David Larry & Sergey Steve Chad Jawed
Humble Beginnings Brian, Joe & Nathan Reid & Jeff Drew & Arash
To Household Names > $500B Market Cap Created
Our Investment Ecosystem Energy/Cleantech Alternative, Conventional, Efficiency, Storage Financial Services Banking, Brokerage, Payments Healthcare Services Diagnostics, Drugs, Labs, Patient Care, Product Development Internet Advertising, Communications, e-Com, Gaming, Media, Search, Social Mobile Apps, Communications, Devices, Gaming, Monetization Technology Infrastructure, Data, Open Source, Saas, Security, Semi, Services, Storage
Yesterday
Today
Elements of a Sustainable Company ✔ Clarity of purpose ✔ Spectacular market ✔ Alleviate customer pain ✔ Team DNA ✔ Incredible product focus ✔ Real operating margins ✔ Frugality ✔ Inferno with a single match
What We Look For In A Plan 1. UNIQUE VALUE PROPOSITION/MARKET POSITIONING CLEAR, CONCISE, ABOVE THE NOISE; CUSTOMER VALIDATION? 2. EXPLOSIVE MARKET SECTORS, FULL OF DISCONTINUITIES AMBIGUITY AND CONFUSION ARE GOOD. HOW BIG? DEFINING? STRUCTURE/ACCESSIBILITY? READINESS? DISCONTINUITY—WHAT’S DIFFERENT? VALUE CAPTURE POTENTIAL? NO COMPETITION – OFTEN NO MARKET; ENTRENCHED PLAYERS: INNOVATOR’S DILEMMA? STARTUPS: HOW MANY? OUR TEAM? SOURCES FOR DIFFERENTIATION? 3. BREAKTHROUGH PRODUCTS/TECHNOLOGY SOURCES FOR DEEP SEPARATION AND ADVANTAGE? ORDER OF MAGNITUDE? DEGREE OF DIFFICULTY? ADOPTABILITY? COMPLETENESS? DEFENSIBILITY? 4. DEFINING TEAMS MAGNET QUALITIES? DOMAIN EXPERTISE? INTENSITY? DNA BLEND? SCAR TISSUE? 5. CAPITAL EFFICIENCY WHAT IS THE FULLY FUNDED PLAN? MARGIN? BUSINESS MODEL? DIRECT VS INDIRECT? EXPENSE MODEL? REVENUE ASSUMPTIONS?
One Revealing Metric: GROSS MARGIN Sustainable Companies = High Gross Margins (usually > 60%) High Gross Margins imply: • Real customer pain • Differentiated product / strong IP • Lower cash requirements • Higher growth potential • Higher profitability potential
Founder Attributes We Look For Very sharp, scrappy, frugal Obsessively driven, inquisitive, never satisfied Fixated on ―thrilling‖ customers Metric focused, always iterating and improving Not distracted by ego or title envy Not necessarily ―experienced‖
Startups Need Stealth, Speed and Focus
Focus & Alignment market pain strongest differentiation applying the best people taking the most risk
Ups and Downs S&P DECLINE 1973 – 74 43% 1980 – 82 17% 1987 30% 1973 1975 1977 1979 1981 1983 1985 1987 ATARI TANDEM APPLE AMCC LINEAR TECH ORACLE CISCO LSI LOGIC SYMANTEC 3COM EA 1990 15% 1998 15% 2000-02 44% 1989 1991 1993 1995 1997 1999 MICROCHIP ARBOR FLEXTRONCIS YAHOO! REDBACK PAYPAL GOOGLE DOCUMENTUM NVIDIA NETAPP NETSCREEN RACKSPACE INS 2007 – 08 16% 2001 2003 2005 2007 2009 2011 GREENDOT ARUBA SOURCEFIRE YOUTUBE ADMOB DROPBOX UNITY SQUARE ISILON ZAPPOS PALO ALTO FIREYE JIVE POCKETGEMS TUMBLR LINKED-IN KAYAK BUMP MONGO AIRBNB
Why Are Capital Efficiency & Market Waves Related? Microprocessors Computers Hard Drives Biotech Internet Cleantech
Is Your Business Dependant on the ―Kindness of Strangers‖? Government subsidies or (potentially temporary) regulations? The mass ―belief‖ in a market (before profits)? The presumed exuberance of later stage investors? The positive sentiment of the public markets?
Even For “Capital Intensive” Categories The Likely Winners Will Still Stand Out from the Pack: • Will use dramatically less capital • Will use less people • Will get to market faster • Will be more profitable For Startups, the ―Best‖ Technology Doesn’t Always Win
Conclusions  Think Big… market size, ultimate market dominance gross margins, operating margins value to customers, ultimate value of the company… But Start Small… headcount, burn rate, money required singular focus, short time to market, … If you have the ―right stuff‖, it’s always a great time to start a new company!
Think Big But Start Small

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Think Big But Start Small

  • 1. Think Big But Start Small Mike Goguen Managing Partner Sequoia Capital
  • 2. Topics 1. Sequoia Capital Snapshot 2. What We Look For In A Startup
  • 3. SEQUOIA CAPITAL • 40 year old Venture Capital firm • US, China, India, Israel • Seed, Venture, Growth • 820+ companies • 150+ IPOs, 150+ M&As
  • 4. Humble Beginnings Steve & Steve Trip Sandy & Len
  • 5. Humble Beginnings Jerry & David Larry & Sergey Steve Chad Jawed
  • 6. Humble Beginnings Brian, Joe & Nathan Reid & Jeff Drew & Arash
  • 7. To Household Names > $500B Market Cap Created
  • 8. Our Investment Ecosystem Energy/Cleantech Alternative, Conventional, Efficiency, Storage Financial Services Banking, Brokerage, Payments Healthcare Services Diagnostics, Drugs, Labs, Patient Care, Product Development Internet Advertising, Communications, e-Com, Gaming, Media, Search, Social Mobile Apps, Communications, Devices, Gaming, Monetization Technology Infrastructure, Data, Open Source, Saas, Security, Semi, Services, Storage
  • 10. Today
  • 11. Elements of a Sustainable Company ✔ Clarity of purpose ✔ Spectacular market ✔ Alleviate customer pain ✔ Team DNA ✔ Incredible product focus ✔ Real operating margins ✔ Frugality ✔ Inferno with a single match
  • 12. What We Look For In A Plan 1. UNIQUE VALUE PROPOSITION/MARKET POSITIONING CLEAR, CONCISE, ABOVE THE NOISE; CUSTOMER VALIDATION? 2. EXPLOSIVE MARKET SECTORS, FULL OF DISCONTINUITIES AMBIGUITY AND CONFUSION ARE GOOD. HOW BIG? DEFINING? STRUCTURE/ACCESSIBILITY? READINESS? DISCONTINUITY—WHAT’S DIFFERENT? VALUE CAPTURE POTENTIAL? NO COMPETITION – OFTEN NO MARKET; ENTRENCHED PLAYERS: INNOVATOR’S DILEMMA? STARTUPS: HOW MANY? OUR TEAM? SOURCES FOR DIFFERENTIATION? 3. BREAKTHROUGH PRODUCTS/TECHNOLOGY SOURCES FOR DEEP SEPARATION AND ADVANTAGE? ORDER OF MAGNITUDE? DEGREE OF DIFFICULTY? ADOPTABILITY? COMPLETENESS? DEFENSIBILITY? 4. DEFINING TEAMS MAGNET QUALITIES? DOMAIN EXPERTISE? INTENSITY? DNA BLEND? SCAR TISSUE? 5. CAPITAL EFFICIENCY WHAT IS THE FULLY FUNDED PLAN? MARGIN? BUSINESS MODEL? DIRECT VS INDIRECT? EXPENSE MODEL? REVENUE ASSUMPTIONS?
  • 13. One Revealing Metric: GROSS MARGIN Sustainable Companies = High Gross Margins (usually > 60%) High Gross Margins imply: • Real customer pain • Differentiated product / strong IP • Lower cash requirements • Higher growth potential • Higher profitability potential
  • 14. Founder Attributes We Look For Very sharp, scrappy, frugal Obsessively driven, inquisitive, never satisfied Fixated on ―thrilling‖ customers Metric focused, always iterating and improving Not distracted by ego or title envy Not necessarily ―experienced‖
  • 15. Startups Need Stealth, Speed and Focus
  • 16. Focus & Alignment market pain strongest differentiation applying the best people taking the most risk
  • 17. Ups and Downs S&P DECLINE 1973 – 74 43% 1980 – 82 17% 1987 30% 1973 1975 1977 1979 1981 1983 1985 1987 ATARI TANDEM APPLE AMCC LINEAR TECH ORACLE CISCO LSI LOGIC SYMANTEC 3COM EA 1990 15% 1998 15% 2000-02 44% 1989 1991 1993 1995 1997 1999 MICROCHIP ARBOR FLEXTRONCIS YAHOO! REDBACK PAYPAL GOOGLE DOCUMENTUM NVIDIA NETAPP NETSCREEN RACKSPACE INS 2007 – 08 16% 2001 2003 2005 2007 2009 2011 GREENDOT ARUBA SOURCEFIRE YOUTUBE ADMOB DROPBOX UNITY SQUARE ISILON ZAPPOS PALO ALTO FIREYE JIVE POCKETGEMS TUMBLR LINKED-IN KAYAK BUMP MONGO AIRBNB
  • 18. Why Are Capital Efficiency & Market Waves Related? Microprocessors Computers Hard Drives Biotech Internet Cleantech
  • 19. Is Your Business Dependant on the ―Kindness of Strangers‖? Government subsidies or (potentially temporary) regulations? The mass ―belief‖ in a market (before profits)? The presumed exuberance of later stage investors? The positive sentiment of the public markets?
  • 20. Even For “Capital Intensive” Categories The Likely Winners Will Still Stand Out from the Pack: • Will use dramatically less capital • Will use less people • Will get to market faster • Will be more profitable For Startups, the ―Best‖ Technology Doesn’t Always Win
  • 21. Conclusions  Think Big… market size, ultimate market dominance gross margins, operating margins value to customers, ultimate value of the company… But Start Small… headcount, burn rate, money required singular focus, short time to market, … If you have the ―right stuff‖, it’s always a great time to start a new company!