“2 and 20” Management Fee. [Webinar] AWS Activate Webinar Series for Startups, Funding, Pitching and Venture Capital

Venture Capital, Funding & Pitching Pieter Kemps Business Development & Venture Capital, APAC P_Kemps

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Venture Capital, Funding & Pitching Pieter Kemps Business Development & Venture Capital, APAC P_Kemps

Why do we talk about this? • Work with many startups & APAC’s leading VC’s • Discuss many startups with VC’s & get feedback on pitches • Not biased, no agenda, helping AWS startup customers succeed

Venture Capital Overview Impact of Cloud on Venture Capital What is a good pitch?

But first… Some questions for you

Venture Capital Startups!

Venture Capital VC Fund General Partners, Principals, VP’s, Associates, etc. Startups with need for capital and growth potential Limited Partners institutional & high net worth individuals

2-sided Platform model Startups with need for capital and growth potential Limited Partners institutional & high net worth individuals Capital & Value Creation connections, biz dev, GTM, mentoring, etc Risk & Return Reduce Risk & deliver Financial Returns

2-sided Platform model “2 & 20” So how does a VC make money?

“2 and 20” Management Fee. VC raises a fund of e.g. $100M and gets $2M per year to operate the fund (staff, expenses, etc.) 2% Performance Fee. VC returns the profits from the fund to the LP’s but gets to keep 20% of these profits 20%

Venture Funding

Source:www.fundersandfounders.com

100% of nothing 17% of a Big Companyis a lot less than

August ‘08 Nathan Brian Joe January ’09 $20K Accelerator Y Combinator November ‘10 $7.2M Series A: Sequoia Greylock SV Angel & others July ’11 $112M Series B Andreessen Horowitz General Catalyst & others April ’09 $600K Seed Round Sequoia Youniversity

01 04 idea MVP monetizescale Product Risk Market Risk Financial Risk 02 03 Product? Do we have a product? Can we ship? How to develop faster? Better? Cheaper? Market? Do people buy? Do they pay? Can we scale? Can we deal with spikes? Profit? Can we monetize? How to keep costs down? When can we break-even? Can we get & stay profitable?

01 04 idea MVP monetizescale Product Risk Market Risk Financial Risk 02 03 Startup 2.0: “Lean Investor” Model • Incubator / Angel: $0-250K for ‘Product Viability’ • Seed: $250-$1M to ‘Expand Market Distribution’ • Venture: $1M-$5M to ‘Maximize Revenue’

01 04 idea MVP monetizescale Seed RoundSeed Round Series A, B, C, etc.Series A, B, C, etc. Incubator / AngelIncubator / Angel Product Risk Market Risk Financial Risk 02 03 $0-250K $250-$1M $1M-$5M, or more

What caused the evolution towards the “Lean Investor”?

Q & A Pieter Kemps Business Development & Venture Capital, APAC P_Kemps

“Amazon Web Services is probably the most important thing that has happened to mobile and web app developers that the press just misses. Jeff Bezos has accidentally or maybe on purpose powered a whole generation of applications.” Steve Blank

“Amazon changed the VC industry. This is mind boggling. That online book company. Not … or anybody else. Amazon. 100% of the credit.” Mark Suster, serial entrepreneur and MD at GRP Partners

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1995 – .com Technology Startups require physical hardware and proprietary software to build their business Typical Series ATypical Series A Spent on…Spent on… InnovationInnovation 5-10M •$2.5: marketing, sales, etc. •$2.5M on infrastructure •Not a lot, since experimentation was costly

Typical Series ATypical Series A Spent on…Spent on… InnovationInnovation 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2000: Rise of Open Source Open source software drove technology costs down by 90%, which spurred innovation in technology 3-5M •Less on Software– LAMP •More on development •Still on infrastructure •A lot more, as experimentation is less costly now

Typical Series ATypical Series A Spent on…Spent on… InnovationInnovation 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2005: Enter the Cloud Public Cloud pioneered by Amazon drove total operating costs down significantly 500K- 3M •Staff – the battle for talent •Customer Acquisition •Explosion in experimentation, innovation, and Startups

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2007: Micro VC / Seed Public Cloud led to explosion in the number of Startups and the emerging of “micro VCs” AngelsAngels IncubatorsIncubators VC’sVC’s Angels unite in ‘Super Angels’ for Seed investments thru VC- like setup Boom in incubator programs, with micro investments, mentoring, etc. Venture funds that back early-stage startups with <$1M E.g. BANSEA, Angels Den, Angels Gate, etc E.g. TechStars, Ycombinator, JFDI, Kickstart Ventures, etc. E.g. Matrix Partners, A16H, 500startups

28 startups in Asia 21 startups on AWS 71%

Why do VC’s care? More deals Shorter time to scale Faster time to revenue Lower ‘burn rate’ Higher valuation at exit

Why is your pitch important? Because it shows you have a PLAN

What’s always there? Product Lots of product, product, product Rosy Forecast The infamous hockey stock

What’s always missing? Business Model not just WHAT, also HOW Metrics not just traction, also unit economics Strategy What will you DO? How will you GROW? Execution…

1.Problem 2.Solution 3.Business Model 4.Business Model Metrics 5.Growth Strategy 6.Status / Traction 7.Team 8.Competition 9.Roadmap / Forecast 10.ASK 10 / 20 / 30 Rule Pitch Outline

1. Problem Define the problem clearly Explain the impact. Why bother? What’s the opportunity? Market size? Problem Impact Market Chip design has gotten more complex, tools haven’t improved Product delays. Increased costs. Less collaboration US$5B market for Electronic Design Automation software

2. Solution

3. Business Model Business Model ≠ Pricing

Costs Structure Value Proposition Key Resources Key Activities Key Partners Channels CRM Customers Revenue Streams Capabilities you have How you use these Capabilities to make Money Change as little as possible HERE… …to maximize the impact HERE

4. Business Model Metrics “I look for signs in a pitch that the founders understand the mechanics of the business.” Phil Morle, Pollenizer

4. Business Model Metrics Acquisition  Install / Sign-up (by campaign / channel)  Conversion (by campaign / channel)  Customer Acquisition Costs (CAC) Activation:  Monthly Active Users (MAU)  Daily Active Users (DAU)  Usage (login times / length) Retention:  DAU/MAU  Day 1 / 7 / 30 retention  User lifetime

4. Business Model Metrics Revenue:  Average revenue per User (ARPU)  Av. revenue per Paying User (ARPPU)  % paying user  % buying in-app  % whale vs dolphin vs minnow  Life Time Value (LTV) Refer:  K-factor = nr of invites sent per DAU x % acceptance/conversion rate

4. Business Model Metrics Engagement • 30/10/1 rule*: 30% of registered is MAU, 10% is DAU, 1% is peak concurrent • This means DAU/MAU = 0.33 • DAU/MAU > 0.2 is good Profitability • 2 key metrics for subscription business models**: LTV >3x CAC Months to recover CAC *Source: https://avc.com/2011/07/301010/ **Source: http://www.forentrepreneurs.com/saas-metrics-2/ < 12 Months

???? 4. Business Model Metrics

???? 4. Business Model Metrics Avg Time on Site Avg Time on Site Average Basket Price Average Basket Price Advertising CTRAdvertising CTR

4. Business Model Metrics Metric / KPI Now Comp A Comp B Comp C Goal Advertising CTR 1.5% 3% 6% 2.5% 5% Average time on site 4 9 6 5 10 Average Basket Price $18 $75 $118 $45 $73 Metric 4 Metric N

5. Growth Strategy Metric / KPI Now Goal Growth Strategy & Actions 1. Advertising CTR 6% 8% 1. A/B test creatives 2. Continuously optimize campaign settings for CTR 3. Hire 1 marketing specialist 2. Website Conversion 5% 10% 1. A/B testing of landing pages 2. A/B testing signup flows 3. Run Marketing campaigns (marketing budget) 3. Conversion to Active Y% 70% 1. Automate email addition for known hosts 2. A/B testing of email account addition UX (UI and flow) 3. Hire UX/UI Designer 4. Conversion to Paid Z% 25% 1. Optimize the product package of Free and Paid 2. Make it easier to pay/transact 3. Develop the product to add new features to paid users 4. Deploy payment gateways & get PCI compliant 5. Hire 3 developers

10. ASK Metric / KPI Now Goal Growth Strategy & Actions Costs 1. Advertising CTR 6% 8% 1. A/B test creatives 2. Continuously optimize campaign settings for CTR 3. Hire 1 marketing specialist 75K 2. Website Conversion 5% 10% 1. A/B testing of landing pages 2. A/B testing signup flows 3. Run Marketing campaigns (marketing budget) 150K 3. Conversion to Active Y% 70% 1. Automate email addition for known hosts 2. A/B testing of email account addition UX (UI and flow) 3. Hire UX/UI Designer 75K 4. Conversion to Paid Z% 25% 1. Optimize the product package of Free and Paid 2. Make it easier to pay/transact 3. Develop the product to add new features to paid users 4. Deploy payment gateways & get PCI compliant 5. Hire 3 developers 180K My ASK for funding = $480K

WHEN do you need to have WHAT ?

01 02 03 04 idea MVP monetizescale Seed RoundSeed Round Series ASeries APitch for Angel Money Pitch for Seed Round Pitch for Series A Bootstrap / AngelBootstrap / Angel

Angel Pitch Show me a great idea! 1.Problem 2.Solution 3.Business Model 4.Business Model Metrics 5.Growth Strategy 6.Status / Traction 7.Team 8.Competition 9.Roadmap / Forecast 10.ASK

Seed Round Pitch Show me traction! 1.Problem 2.Solution 3.Business Model 4.Business Model Metrics 5.Growth Strategy 6.Status / Traction 7.Team 8.Competition 9.Roadmap / Forecast 10.ASK

Ash Fontana, Founder of AngelList

Series A Pitch Show me a business & show me returns! 1.Problem 2.Solution 3.Business Model 4.Business Model Metrics 5.Growth Strategy 6.Status / Traction 7.Team 8.Competition 9.Roadmap / Forecast 10.ASK

So before you pitch… Ask some important questions Where is my startup in its lifecycle? Do I understand my business model, metrics? Can I explain my growth strategy and justify my ask? Which TYPE of investor should I target?

So before you pitch… And do your homework… Decide what you look for in an investor Easy vs Hard, Dumb vs Smart Investigate who you want to ‘marry’ Which firm? Which Partner? Speak with people that know them Business partners (e.g. AWS), CEO’s in portfolio

Questions? Pieter Kemps Business Development & Venture Capital, APAC P_Kemps