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Session 7: Building a Thesis

This session talks about how to go about building a thesis on fund investments in a venture fund. The session was conducted by Prayank Swaroop, Partner @ Accel

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Session 7: Building a Thesis

  1. 1. 1 Building an investment thesis THINKING THROUGH TRENDS Prayank Swaroop, 16th May 2020 prayank@accel.com For Pi Fellows programme 1 Photo by James Pond on Unsplash
  2. 2. The goal is to turn data into information, and information into insight. - Carly Fiona 2
  3. 3. A thesis is a point of view to invest or not to invest in a business area or technology field - ahead of the curve. What’s a thesis? 3
  4. 4. Thinking ahead Disruptive technologies unlock new value creation opportunities • Cleantech • Biotech • Cloud • Mobile • APIs • Blockchain • AI/ML • AR/VR • 3d printing • IoT • Satellite tech • Electric cars Separating the wheat from the chaff. • Wearables • Smart homes • Artificial meat • Autonomous Vehicles • Drones • Social Media 4
  5. 5. What is the goal of a thesis? Lay foundational thought process for value creation • As investors we want to find large spaces which enable a business to become a multi-billion dollar franchise. In revenues - not just valuations. Identifying large enough markets. • Practically a company takes 7-10 years to reach a sustainable scale and then compound, so true value realization take 10-15 years. And companies are staying private longer too. Identifying long term trends. • We are all time is a constrained - we need to prioritize. Be prepared. • A good entrepreneur can choose his investors. What is our unique point of view? • Conviction. Path of a startup is never straight to success, at times of lows our foundation of thesis helps keep the faith. 5
  6. 6. CYBERSECURITY A SAMPLE THESIS 6For illustrative purposes only Photo by Clint Patterson on Unsplash
  7. 7. Executive Summary • Cybersecurity is a large market - $1B in 2019 to $1.6B in 2021 at a 16.9% CAGR • Cloud security is a significant trend with high growth • India has a number of IAM startups, less so in cloud security • Need to find the right startups in the cybersecurity space 7 For illustrative purposes only
  8. 8. In search of a market that is here to stay … This in the last 30 days 8 For illustrative purposes only
  9. 9. Is this a big market? GLOBAL CYBERSECURITY SPEND 9 For illustrative purposes only
  10. 10. Is this a big enough market? INDIA CYBERSECURITY MARKET 2019 2022 CAGR Data Security encryption, tokenisation, data masking, data loss prevention, information rights management, file and data access monitoring 115 210 22.2% Endpoint Security anti-virus and antispam software, host intrusion prevention software (HIPS), exploit protection, behavioural analysis of memory and continuous monitoring. 241 406 19.1% Identity & Access Mgmt Defined as a combination of software, hardware, and networking technologies such as firewall, unified threat management, network intrusion detection and prevention, virtual private network (VPN), content inspection, web content security. 83 130 16.3% Network Security a suite of solutions related to user and device identities. 257 394 15.3% Security IDR a variety of product categories such as SIEM, threat analytics, forensics, vulnerability management among others. 333 504 14.8% $1B $1.6B 16.9% https://www.dsci.in/sites/default/files/documents/resource_centre/Cyber%20Security%20India%20Market.pdf 10 For illustrative purposes only
  11. 11. Are large outcomes possible? BILLION+ EXITS IN CYBERSECURITY https://www.cbinsights.com/research/cybersecurity-billion-dollar-exits-infographic/ 11 For illustrative purposes only
  12. 12. Are enough $$ available to build $180B+ deployed across M&A & financing over last decade 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 $27.6B $16.1B $20.4B $22.2B $11.3B $13.6B $9.0B $4.7B $5.9B $13.6B $8.9B $6.4B$5.7B $4.5B$3.9B $2.5B$1.7B$1.2B$0.9B$0.8B 2010-2014 Financing $7.1B M&A $46.8B 2015-2019 Financing $29.5B (314%) M&A $97.5B (108%) 12 For illustrative purposes onlyMomentum Cyber - Cybersecurity Almanac 2020
  13. 13. Understanding the market problems MULTIPLE THEMES. WHICH ONE TO CHOOSE? Cybersecurity Talent Gap • 3.5M Cyber job vacancies expected by 2021 • 44% of alerts are not investigated. 54% of investigated alerts are not remediated Shifting To Next-Generation Security Products • Many ML / AI technologies are features, but are not truly core to the platform • It is difficult for customers & buyers to make sense of the market hype around ML / AI Increased Hybrid Cloud Adoption • 83%of workloads are virtualized today • More than half of enterprises are running hybrid cloud environments Proliferation Of Security Products & Vendors • The average enterprise environment has 75 security tools • Many product companies offer point solutions, but are not true platforms Zero Trust Framework • Exponential increase in attack surface, identities, devices, network endpoints • Rise of insider threats, treat each request so that it doesn’t have access privileges Third Party Risks • Increased sophistication of attacks that leverage third party providers • Need for risk assessment of third party suppliers for security and privacy practices Rise of DevSecOps • The “Shift-Left” movement, incorporate security early in the code • Increasing co-operation between developers and DevOps to have security feedback loop 13 For illustrative purposes onlyMomentum Cyber - Cybersecurity Almanac 2020
  14. 14. TOOLS TO SOLVE THE PROBLEMS • Pick very large impact technologies • Technologies that are still evolving • Picks: Password-less authentication Zero Trust Networking Cloud security posture management Container-based network defense Available technologies https://www.gartner.com/en/documents/3975191/emerging-technologies-and-trends-impact-radar-security 14 For illustrative purposes only
  15. 15. 15
  16. 16. Password-less authentication What is Passwordless authentication? Any method of verifying the identity of a user that does not require the user to provide a password. Instead of passwords, proof of identity can be done based on possession of something that uniquely identifies the user (e.g. a one-time password generator, a registered mobile device, or a hardware token), or the user’s biometric signature (e.g. fingerprint, face, retinal scan, etc.). It is also possible to authenticate based on something the user knows (e.g. knowledge-based authentication), so long as that something is not a password. https://doubleoctopus.com/blog/how-does-passwordless-authentication-work/ Possible systems: • Software tokens • Biometrics scanners • SMS delivered codes • Hardware tokens Indian startups Most funded $32M $212M 16 $40M $38M $22M https://dzone.com/articles/how-passwordless-authentication-works https://www.marketsandmarkets.com/Market-Reports/identity-access-management-iam-market-1168.html $15B market in 2021
  17. 17. Picking a space that can become big THEMES x TECHNOLOGY MATRIX Passwordless authentication Decentralized Identity Cloud security posture management Process, Application & Behavioral Monitoring Cybersecurity Talent Gap Shifting To Next-Generation Security Products (AI/ML) Increased Hybrid Cloud Adoption Proliferation Of Security Products & Vendors Zero Trust Framework Third Party Risks Rise of DevSecOps 17 For illustrative purposes onlyMomentum Cyber - Cybersecurity Almanac 2020
  18. 18. Validation “Hackers have begun to take the advantage of the anxiety by unleashing COVID-19-themed phishing attacks.” - Siddharth Vishwanath, Partner and Leader- Cybersecurity, PwC India Need to talk to more customers 18 For illustration purposes only - From various media clippings Momentum Cyber - Cybersecurity Almanac 2020
  19. 19. Make the marketmap INDIAN CYBERSECURITY LANDSCAPE 19
  20. 20. Companies we are tracking (1/1) 20 Company Description Location PIC Scale Comments Druva Backup and data loss prevention solution for enterprises Bangalore $330M >$100M NA Uniken Secure & unified digital access solutions based on mutual authentication and encryption Pune $29M NA NA For illustration purposes only - From various media clippings
  21. 21. Appendix 21
  22. 22. Cybersecurity exits in India 22 Company Acquirer Value Aujas Networks NSE NA Nevis Networks Qualys NA For illustration purposes only - From various media clippings
  23. 23. Let’s build a thesis STEP BY STEP 23 Photo by Jannes Jacobs on Unsplash
  24. 24. MARKET 24
  25. 25. In search of a market that is here to stay … Is there a problem? 25 For illustrative purposes only
  26. 26. Is this a big enough market? Do people care to spend money on this problem? • Willingness to spend money is on a problem is defined by whether its a painkiller or a vitamin. • Business loss, regulatory compliance and reputational risks are some of the reasons people could spend on cybersecurity. 26 For illustrative purposes only
  27. 27. Is this a big enough market? INDIA CYBERSECURITY MARKET 2019 2022 CAGR Data Security encryption, tokenisation, data masking, data loss prevention, information rights management, file and data access monitoring 115 210 22.2% Endpoint Security anti-virus and antispam software, host intrusion prevention software (HIPS), exploit protection, behavioural analysis of memory and continuous monitoring. 241 406 19.1% Identity & Access Mgmt Defined as a combination of software, hardware, and networking technologies such as firewall, unified threat management, network intrusion detection and prevention, virtual private network (VPN), content inspection, web content security. 83 130 16.3% Network Security a suite of solutions related to user and device identities. 257 394 15.3% Security IDR a variety of product categories such as SIEM, threat analytics, forensics, vulnerability management among others. 333 504 14.8% $1B $1.6B 16.9% https://www.dsci.in/sites/default/files/documents/resource_centre/Cyber%20Security%20India%20Market.pdf 27 For illustrative purposes only
  28. 28. Is this a big market? GLOBAL CYBERSECURITY SPEND 28 For illustrative purposes only
  29. 29. Are large outcomes possible? BILLION+ EXITS IN CYBERSECURITY https://www.cbinsights.com/research/cybersecurity-billion-dollar-exits-infographic/ 29 For illustrative purposes only
  30. 30. Are enough $$ available to build $180B+ deployed across M&A & financing over last decade 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 $27.6B $16.1B $20.4B $22.2B $11.3B $13.6B $9.0B $4.7B $5.9B $13.6B $8.9B $6.4B$5.7B $4.5B$3.9B $2.5B$1.7B$1.2B$0.9B$0.8B 2010-2014 Financing $7.1B M&A $46.8B 2015-2019 Financing $29.5B (314%) M&A $97.5B (108%) 30 For illustrative purposes onlyMomentum Cyber - Cybersecurity Almanac 2020
  31. 31. Commercially viable checklist Painkiller Willingness to pay Large outcomes possible Enough money available to build 31
  32. 32. WHERE TO INVEST? 32
  33. 33. Understanding the market problems Customers buy products to solve problems. MULTIPLE THEMES. WHICH ONE TO CHOOSE? Cybersecurity Talent Gap • 3.5M Cyber job vacancies expected by 2021 • 44% of alerts are not investigated. 54% of investigated alerts are not remediated Shifting To Next-Generation Security Products • Many ML / AI technologies are features, but are not truly core to the platform • It is difficult for customers & buyers to make sense of the market hype around ML / AI Increased Hybrid Cloud Adoption • 83%of workloads are virtualized today • More than half of enterprises are running hybrid cloud environments Proliferation Of Security Products & Vendors • The average enterprise environment has 75 security tools • Many product companies offer point solutions, but are not true platforms Zero Trust Framework • Exponential increase in attack surface, identities, devices, network endpoints • Rise of insider threats, treat each request so that it doesn’t have access privileges Third Party Risks • Increased sophistication of attacks that leverage third party providers • Need for risk assessment of third party suppliers for security and privacy practices Rise of DevSecOps • The “Shift-Left” movement, incorporate security early in the code • Increasing co-operation between developers and DevOps to have security feedback loop 33 For illustrative purposes onlyMomentum Cyber - Cybersecurity Almanac 2020
  34. 34. UNDERSTANDING TECHNOLOGIES 34
  35. 35. TOOLS TO SOLVE THE PROBLEMS • Pick very large impact technologies • Technologies that are still evolving • Picks: Password-less authentication Zero Trust Networking Cloud security posture management Container-based network defense Available technologies https://www.gartner.com/en/documents/3975191/emerging-technologies-and-trends-impact-radar-security 35 For illustrative purposes only
  36. 36. Password-less authentication What is Passwordless authentication? Any method of verifying the identity of a user that does not require the user to provide a password. Instead of passwords, proof of identity can be done based on possession of something that uniquely identifies the user (e.g. a one-time password generator, a registered mobile device, or a hardware token), or the user’s biometric signature (e.g. fingerprint, face, retinal scan, etc.). It is also possible to authenticate based on something the user knows (e.g. knowledge-based authentication), so long as that something is not a password. https://doubleoctopus.com/blog/how-does-passwordless-authentication-work/ Possible systems: • Software tokens • Biometrics scanners • SMS delivered codes • Hardware tokens Indian startups Most funded $32M $212M 36 $40M $38M $22M https://dzone.com/articles/how-passwordless-authentication-works https://www.marketsandmarkets.com/Market-Reports/identity-access-management-iam-market-1168.html $15B market in 2021
  37. 37. Picking a space that can become big THEMES x TECHNOLOGY MATRIX Passwordless authentication Decentralized Identity Cloud security posture management Process, Application & Behavioral Monitoring Cybersecurity Talent Gap Shifting To Next-Generation Security Products (AI/ML) Increased Hybrid Cloud Adoption Proliferation Of Security Products & Vendors Zero Trust Framework Third Party Risks Rise of DevSecOps 37 For illustrative purposes only
  38. 38. Understanding attributes of what can become big Understanding market problems Understanding current and evolving technologies Prioritizing technologies that have maximum impact Choosing a technology that addresses multiple problems 38
  39. 39. VALIDATION 39
  40. 40. Sometimes you have intuitive insight about how you think things are going to be, and you write that. Other times you fantasize completely, which has nothing to do with predicting the future. - Ray Bradbury 40
  41. 41. Step into the wild • By reading reports and listening to podcasts one doesn’t become an expert • Need to talk to experts to validate our thinking • Need to identify who will pay for the problem to be solved • How much market education will we need to do for it to accept our solution (theme x tech) • This also helps in understanding the customer segment and attributes of a winning product - easy deployability, GTM, winner take all? 41
  42. 42. Talk to experts • Do they feel the pain of the problem identified by us? • Do they agree with the technology choice that we have in mind? • When do they need it? Right now or later? • Will they pay for it? How much - $5K, $15K, $30K? • Will it be easy for them to replace this technology with another one? • What other problems can this technology solve for them - can it become a platform? 42
  43. 43. Identifying customer segments • Which industry will the technology be adopted fast? • Should we sell to SMB, mid-market or enterprise? 43
  44. 44. Understanding of customer segments and GTM We validate that the technology solves customer problems Customer is willing to pay for the solution We understand which industry will be an early adopter of the solution We understand which size of customer will be easiest to sell to We have formed some sort of point of view 44
  45. 45. CHOOSING A COMPANY 45
  46. 46. Make the marketmap INDIAN CYBERSECURITY LANDSCAPE 46
  47. 47. The Choice • Research the companies that in the technology that we have picked • Meet all of them • Enhance our understanding of the solution • Enhance our understanding of the customers - industry and segment • Enhance our understanding of the GTM • Deal evaluation begins • Finally we will have an educated point of view 47
  48. 48. Thanks Mail me at: prayank@accel.com 48

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  • alekshendra

    Jul. 22, 2020

This session talks about how to go about building a thesis on fund investments in a venture fund. The session was conducted by Prayank Swaroop, Partner @ Accel

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