The Road to Investing and Building High Growth Companies - Presentation by Jose Marin, Co-Founder & MD of IG Expansion at the NOAH 2013 Conference in London, Old Billingsgate on the 14th of November 2013.

1. NOAH
CONFERENCE
2013
The
road
to
inves:ng
and
building
high
growth
companies

2. Our Approach
2

3. 2 Business Strategies
ANGEL
INVESTING
PROJECT
BUILDING
Sinergies between both strategies
Many small investments spread & pray approach
Awareness of new business models and
market trends
3

4. Consumer Facing Businesses in Certain Regions
• We only look at consumer facing businesses we feel
capable of evaluating:
– Marketplaces
– Ecommerce
– Travel
– User Generated Content
• We’ll invest in new innovative projects in the US (e.g.;
Virool & Getaround)
• We only invest in proven models in countries such as
Brazil, Russia, Germany, and Turkey
4

5. Investment Heuristics
We need to like:
Team
Business Model
Product
Deal Terms
1.
2.
At least $1 billion in potential revenues
3.
A valid business model understood from the get-go
4.
Does not require more than $2 M in seed or $15 M in first
round VC money
5.
A business where there is a real shot at being one of the top
players – at least in the region targeted
6.
A scalable idea
7.
A business with little or no risk of disintermediation and/or
margin compression by suppliers and/or customers
8.
A business that is in a rapidly growing market
9.
Our
Selection
Criteria
The company is live and has some traction
An idea that we know how to execute on or can learn how to
execute on
10. An idea that we like and want to do!
5

6. 10 Mistakes to Avoid when Creating a Start-Up
1. Single founder or fights between co-founders
2. Choosing a marginal niche with the hope to avoid competition
3. Hiring bad programmers and choosing the wrong platform
4. Launching too early or launching too late
5. Having no specific user in mind
6. Raising too little or too much money
7. Spending too much
8. Poor investor management
9. Sacrificing users to (supposedly) increase profit
10. Half-hearted effort, the most common reason for failure
6

7. Angel Investing: In Search of the Next Big Hit
Some example of our strong current portfolio:
7

8. Angel Investing: Our Successful Exits
Private sales - Brazil Online Travel Agency* - Brazil
In: 2009 | Exit: 2012
IRR: 68%
(5.7x)
OTA - Southern Europe
In: 2000 | Exit: 2006
IRR: 52% (15.5x)
In: 2010 | Exit: 2011
IRR: >1000%
(31.0x)
C2C Auctions - India
Online payments - LatAm
Classifieds Markeplace** - Global
In: 2006 | Exit: 2012
In: 2006 | Exit: 2010
IRR: 53%
IRR: 93%
(13.1x)
Interactive Advertising - France
Online Glasses - Germany
In: 2000 | Exit: 2004
In: 2001 | Exit: 2006
In: 2009 | Exit: 2013
IRR: 60%
IRR: 82%
IRR: 51%
(8.2x)
(20.1x)
*This represents a passive angel investment by Fabrice Grinda in Viajanet, but not Jose Marin’s founder’s equity
** This represents a passive angel investment by Jose Marin in OLX, but not Fabrice Grinda’s founder’s equity
8
(16.6x)
(5.5x)

9. Lessons Learned from Angel Investing
 Creativity is overrated: tenacity and passion are more important than
intelligence!
 Don’t overthink – iterate, iterate, iterate!
 Make sure you select the right business idea!
 Ideas that work in one country, typically work in another country
 Stick to your investment principles
 Diversity is good
 It pays to be lucky
 Exits can take a long time, and most exits are below $30 M
 Just do it!
9

10. Project Building: Setting Solid Foundations for Growth
10

11. Project Building: Strong Track Record
Concept
Social Media
Marketing for Brazil
Online Travel Agency
for Brazil
Free Global
Classifieds
Mobile Media
Provider
Entrepreneur
Emilio Maciel
Jose Marin
(Chairman)
Fabrice Grinda &
Alec Oxenford
Fabrice Grinda
Founded in
2011
2010
2006
2004
Total Funding Combined: c. $100 million
Revenues Combined: > $400 million yearly run rate
Ownership: 15%-55%
11

12. Lessons Learned from Project Building
• Focus on proven models
 Allows for more focus on execution
 Avoids combining market risks with business model risks
• Capacity for local execution is key
 Adapting to local markets can be a great advantage
against global players
 Profound knowledge of “Know-How” and “Know-Who” is
key
Proven
Business
Models
12
> USD 100 M in revenues (US / EU)
5-10 years old
EBITDA positive
Consolidated projects

13. How Big Can it Get?
13

14. Being part of a big hit: What everyone is looking for
•
In the last decade 39 U.S. software companies reached over $1 billion valuation
– They only account for 0.07% of venture-backed software startups
•
Facebook was the “mega hit” (worth >$100 billion)
•
Every recent decade has witnessed between one and three “mega hits”
•
Consumer-oriented companies have created more value in aggregate
•
Enterprise-oriented companies have reached higher valuations on average
– Also raised less private capital, providing higher return on investments
•
Four major business models:
– Consumer audience, e-commerce, software-as-a-service, and enterprise software
•
These companies waited over 7 years on average for a “liquidity event”
•
Companies with co-founders in their thirties, with top-degrees, and previous history have
built the most successes
•
14
San Francisco (not the Valley) is the hot spot for most of these big hits
Source:
Tech
Crunch
ar:cle
by
Aileen
Lee
(Founder
of
Cowboy
Ventures).

15. How to Assess Potential Growth
• Market size
– Is the target market big enough to allow for growth?
– How fast is this market growing?
• Potential market penetration
– What is the online market penetration?
– How does it compare to mature online markets such as the US?
– What share of the pie am I likely to get?
• Competition
– Are there already clear winners in the market?
– What are the barriers to entry for potential competition?
• Scalability
– Is my business model cost effective to scale?
• Potential expansion to new markets
– What other markets should I keep in the rear mirror?
– Is it realistic to think that I will be able to expand to those markets before
someone else takes over?
15

16. Potential Issues Arising from Growth
• Operational complexity
– Dealing with increasing SKUs, new logistics requirements,
etc, increase the complexity of running larger businesses
efficiently
– Personnel structure is rarely prepared for rapid growth
before growth occurs (timing is key)
• Overspend
– Capex increases require new funding
– Companies that raise more capital than is required have a
tendency to overspend
– Hiring is expensive (make every hire count)
These issues create the need to adopt professional management systems
16

17. Growth Requires Discipline: Management Systems
Financial and Strategic Planning:
• Operating budget
Product Development Management:
• Product concept testing process
Financial Evaluation:
• Performance against target
Sales/Marketing Management:
• Market research projects
Human Resources Planning:
• Written performance evaluations
Partnership Management:
• Partnership milestones
These systems provide managers with timely and accurate information for
better decision making within an increasingly complex organization
17

18. Disciplined Businesses Grow Faster
Source:
“Building
Sustainable
High-­‐Growth
Startup
Companies”
–
A.
Davila,
G.
Foster,
N.
Jia
Businesses with higher adoption of professional management systems are
better prepared to deal with the potential issues arising from rapid growth,
thus more likely to experience Venture Capital-backed like growth
18

19. Growth is being limited by the Series A crunch
Source:
PitchBook
Increasing number of seed rounds (and follow-up seed rounds)
are overtaking Series A rounds
19

20. Companies that get through the crunch grow twice as fast
Source:
“Building
Sustainable
High-­‐Growth
Startup
Companies”
–
A.
Davila,
G.
Foster,
N.
Jia
VC backed companies are usually better funded and have higher
management systems adoption than non VC backed ones, making it
easier for such businesses to grow into large companies
20

21. In emerging markets, discipline is even more necessary
Success in emerging markets is possible and can be
achieved by adhering to the following five simple rules:
1. Avoid pro-cyclicality:
• Resilient long-term commitment
2. Survive the crises:
• Maintain a lean and flexible work force
• Be operationally efficient and avoid high levels of leverage
3. Be bold when others panic:
• The greatest opportunities often arise in the darkest of moments
4. Read Tomorrow’s newspaper:
• Developed markets have been there, making it possible to see what the future holds
5. Choose the right partners:
• Many risks in emerging markets are mitigated by local knowledge from trusted,
experienced partners
21

22. A few Companies are Generating
Most of the Value
22

23. The PayPal network: shaping and developing the sector
Key alumni of the
online payment
company PayPal
have formed one of
the most influential
networks of
entrepreneurs and
investors that
Silicon Valley has
seen during the
Internet age. These
are some of the
most prominent
members
Source: Endeavor Global
23

24. Silicon Valley is not the only example…
Buenos Aires
Tech Network
Amman
Tech Network
Source: Endeavor Global
24
The top 3
entrepreneurs
ultimately influenced
>80% of the other
successful firms in
their networks and
are key drivers of
their country’s
economy
Istanbul
Tech Network

25. Key Takeaways
25

26. Key learnings from our network of entrepreneurs
What were their biggest mistakes?
• Trying too many things at the same time
 Amazon only sold books for 4 years before expanding
• Overestimated market growth at early stages of market development
 As a consequence over invested in marketing
• Didn’t fundraise aggressively enough and didn’t manage the cash balance properly
• Hiring the wrong people, too senior and too early, and not firing them fast enough
What were key factors for success?
•
•
•
•
•
•
26
Get relevant backers on board early and build a strong relationship
Hiring the best people and continuously thinking about upgrading the team
Create a product that stands out and solves a problem better than the alternatives
Define current milestones and remain focused
Concentrate in long-term goals, think big
Be perseverant, iterate
Source:
Interviews
with
Kevin
Ryan,
Alec
Oxenford,
Kamil
Kurmayev,
and
Xenios
Thrasyvoulou.

27. Key Takeaways
 It’s easier and cheaper to create an internet startup than it’s ever been!
 Hire the right team and choose strong partners
 Creativity is overrated: tenacity and passion are more important than
intelligence!
 Don’t overthink – iterate, iterate, iterate!
 It pays to be lucky – big hits are rare, “mega hits” are even more so
 Growth requires discipline
 Adopt professional management systems
 Plan for the best, and prepare for the worse – be well funded as it is
challenging to reach Series A financing rounds
 Exits can take a long time, and most exits are below $30 M
 Creating a strong network within your industry is
 Just do it!
27

28. Thank You!
José Marín
jmarin@igexpansion.com
www.igexpansion.com