kbs+ Ventures Fellows #8: Business Acceleration and Acquisitions

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FELLOWS CLASS #8: BUSINESS ACCELERATION AND ACQUISITIONS

JANUARY 28TH, 2015

Wednesday, January 28, 15

• LAST WEEK’S READING / VIDEO• BUSINESS ACCELERATION & ACQUISITIONS LECTURE• REAL WORLD PERSPECTIVE: BURTON MILLER, ROOST• QUESTIONS

IN TODAY’S CLASS...2


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“A STARTUP IS A TEMPORARY ORGANIZATION IN SEARCH OF A SCALABLE, REPEATABLE, PROFITABLE

BUSINESS MODEL”

LET’S DO A QUICK REFRESHER...

-‐ STEVE BLANK


THE MVP:

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BUILD

MEASURE

LEARN

LET’S DO A QUICK REFRESHER...

VALIDATED LEARNING:

• GROUND UP: FINE TUNE BASIC FEATURES• CREATE ACTIONABLE METRICS• DEMONSTRATE CAUSE AND EFFECT• TEST HYPOTHESIS• FAIL FAST, FAIL CHEAP• ADDRESS KEY RISKS UPFRONT• LET THE DATA TELL A STORY• LISTEN AND LEARN FROM CUSTOMERS


LET’S DO A QUICK REFRESHER...5

“THE ONLY THING THAT MATTERS IS GETTING TO PRODUCT/MARKET FIT. WHEN YOU ARE BPMF, FOCUS

OBSESSIVELY ON GETTING THERE””-‐ MARC ANDREESSEN


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SO... NOW WHAT?

COMPANIES HAVE DIFFERENT GROWTH RATES OVER THE FIRST 3 YEARS:

NATURAL: THE “NORMAL” RATE OF GROWTH GIVEN THE BUSINESS MODEL, MARKET OPPORTUNITY, AND AMOUNT OF FUNDRAISING*MOST US BUSINESSES, E.G. FRANCHISES OR GENERAL SERVICE COMPANIES

ACCELERATED: RAPID GROWTH PLANS & PARTNERSHIPS - “NATURAL” ON STEROIDS


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AREAS OF ACCELERATED GROWTH

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STRATEGIC CORPORATE PARTNERSHIPS

STARTUP ACCELERATORS

ACQUISITIONS


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CORPORATE PARTNERSHIPS


CORPORATE PARTNERSHIPS 9

EARLY STAGE COLLABORATION WITH BIG BRANDS

PROS:

• EARLY PROOF OF CONCEPT (VALIDATION)• BUILD A BETTER MOUSETRAP• POTENTIAL TO DISCOVER NEW USE CASES OR REVENUE STREAMS• BRANDS (SOMETIMES) LOVE FIRST MOVER ADVANTAGE• PRESS OPPORTUNITIES• BARTER PILOT COSTS FOR INCREMENTAL EXPOSURE (E.G. FACEBOOK POSTS, EMAIL BLASTS, ETC.)• LEVERAGE BRAND’S CRM FOR USER ACQUISITION• RELATIONSHIP BUILDING

CONS:• PARTNERSHIPS CAN CAUSE DISTRACTIONS• REQUIRE SIGNIFICANT BANDWIDTH• PILOTS ARE TYPICALLY LOW/NO REVENUE• OFTEN SLOW TO EXECUTE• LIKELY MINIMAL ON-GOING, OR LONG TERM COMMITMENT


CORPORATE PARTNERSHIPS: GOLDILOCKS PRINCIPLE10

“TOO HOT” .... (“STRATEGIC” OR “CORE”) “TOO COLD” ....

✓ POTENTIAL PARTNER BUILDS IT IN HOUSE

✓ POTENTIAL PARTNER SAYS YES, BECAUSE THE PRODUCT IS SO DEFENSIBLE

✓ POTENTIAL PARTNER ACQUIRES TECH

✓ NOT USEFUL TO POTENTIAL CUSTOMERS

✓ NOT USEFUL TO POTENTIAL PARTNERS

✓ RE-LOOK AT YOUR PRODUCT/MARKET, AND LIKELY PIVOT THE BUSINESS

TO BE A SUSTAINABLE BUSINESS, YOU NEED TO BE “JUST RIGHT”

TO BUILD A LONG TERM BUSINESS WITH CORPORATE PARTNERSHIPS, IT’S BEST TO BE USEFUL TO LOTS OF PARTNERS - BUT NOT SO STRATEGIC THEY’RE UNWILLING TO RENT IT


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CORPORATE PARTNERSHIPS

BUT WHAT’S MORE INTERESTING....

25 OF THE 30 FIRMS ON THE DOW JONES INDUSTRIAL AVERAGE NOW HAVE CORPORATE VENTURE UNITS.

http://www.businessinsider.com/the-year-of-the-tiny-tech-acquisition-2015-1

WHAT DOES THAT MEAN?BRANDS HAVE BECOME INVESTORS = MORE $$$$$, AND OPPORTUNITIES FOR STRATEGIC FUNDING.




CORPORATE PARTNERSHIPS 12

9 PORTFOLIO COMPANIES12 PORTFOLIO COMPANIES

20+ PORTFOLIO COMPANIES25+ PORTFOLIO COMPANIES

*COMMUNICATION AND INVOLVEMENT BETWEEN THE VENTURE ARM AND CORE BUSINESS VARIES BY COMPANY*


ACCELERATORS13

DESIGNED TO FOSTER RAPID GROWTH OVER A SPECIFIC TIME PERIOD:

• SMALL AMOUNT OF FUNDING IN EXCHANGE FOR EQUITY• ON-GOING GUIDANCE ON BUILDING A BUSINESS AND FINDING PRODUCT/MARKET FIT • ACCESS TO ROBUST MENTORSHIP NETWORK (E.G. SUCCESSFUL FOUNDERS, INVESTORS)• TYPICALLY 3-5 MONTH PROGRAM, WITH 2-3 STARTUP CLASSES (“COHORTS”) PER YEAR• # OF STARTUPS IN EACH CLASS VARIES BY ACCELERATOR• OFFICE SPACE• ACTIVE ALUMNI NETWORK

ACCELERATORS.


TOP ACCELERATOR PROGRAMS14

NOW OVER 4,900+ ACCELERATORS AROUND THE WORLD: 1,100+ IN THE US

http://www.f6s.com/programs




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STARTUP ACCELERATORS

HOUSEHOLD NAMES WERE ONCE IN TOP ACCELERATOR PROGRAMS...•STARTUPS COMING OUT OF ACCELERATORS TEND TO HAVE A HIGHER EXIT RATE, FEWER FAILURES, AND RAISE MORE CAPITAL THAN THE AVERAGE STARTUP INDUSTRY•WHICH ALSO TENDS TO LEAD TO HIGHER VALUATIONS FOR INVESTORS :)


STARTUP ACCELERATORS16

YCOMBINATOR GETS 5,000+ STARTUP APPLICATIONS... AND ACCEPTS ~85.

AND ACCEPTS ~10.TECHSTARS GETS ~1,500+ APPLICATIONS PER CLASS...

TOP ACCELERATORS ARE INCREDIBLY COMPETITIVE...!TYPICALLY LESS THAN 2% GETS ACCEPTED


ACQUISITIONS17

TYPICALLY DRIVEN BY THE DESIRE FOR RETURNS BY SHAREHOLDERSEXITS.

TALENT“THE ACQUIHIRE”

TECH“TALENT + PRODUCT”

ARE DESIRED(OFTEN PRE-REVENUE)

BUSINESS“FINANCIAL BASIS” (REAL REVENUE/PROFIT, DEFENSIBLE PRODUCT)


ACQUISITIONS18

2014 WAS A YEAR OF MAGICAL UNICORNS....


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ACQUISITIONS

ONE OF THE MOST ACTIVE YEARS IN TECH M&A:

5 $BILLION+ EXITS: *10 COMPANIES, $32B+ LATER...(DROP THE MIC HERE)

$3B

$3.2B

$555MM

$2B

$19B

$970MM

$640MM$2.5B*2014 Google acquisitions DeepMind ($500MM+) and Skybox ($500MM) not shown




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ACQUISITIONS

BUT IT’S NOT JUST THE “USUAL SUSPECTS” ANYMORE...TRADITIONAL HOUSEHOLD BRANDS ARE ACQUIRING STARTUPS TO REACH END USERS BETTER AND CREATE GREATER EFFICIENCIES IN THEIR OWN BUSINESS

15 STARTUP ACQUISITIONS!


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ACQUISITIONS

“BOUTIQUE” ACQUISITIONS:DEALS UNDER $100MM TRANSACTION SIZE WHERE BOTH THE PRODUCT AND SELLING TEAM EXPERIENCE IS THE PRIMARY DRIVE OF THE DEAL, INVESTORS AND SELLING TEAM MEMBERS BOTH SEE FAVORABLE GAINS.


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ACQUISITIONS

NATIONAL VENTURE CAPITAL ASSOCIATION IS SHOWING STRATEGIC INVESTMENTS BY CORPORATES ARE AT LEVELS NOT SEEN SINCE 2000 - AND IS EXPECTED TO REACH ~$3.5B IN 2014.





ACQUISITIONS23

BUT... WILL ENTREPRENEURS WANT TO SELL FOR THAT AMOUNT?

MAYBE, OR MAYBE NOT.• DESIRE TO BUILD A BIGGER, LONG TERM COMPANY• MAY THINK YOU CAN SELL FOR MORE (“THE UNICORN SYNDROME”)• YOUR INVESTORS AREN’T SATISFIED WITH THE SALE PRICE (AND THEY HAVE MAJORITY CONTROL)• DON’T WANT TO HAVE YOUR STARTUP SHUT DOWN• DON’T WANT TO GIVE UP CONTROL TO NEW BUYER• MIGHT NOT BE A FIT WITH THE BUYER• “INVINCIBLE” ENTREPRENEUR PERSPECTIVE


ACQUISITIONS24

YOU GOTTA KNOW WHEN TO HOLD ‘EM...

✓ TURNED DOWN $1B OFFER BY YAHOO IN 2006...✓ ZUCKERBERG IS NOW PERSONALLY WORTH $13B+✓ MORE THAN 1,000 EMPLOYEES ARE MILLIONAIRES

✓ TURNED DOWN $3B OFFER FROM FACEBOOK✓ ROLLING OUT MUSIC FEATURES✓ ACQUIRING STARTUPS

✓ RUMORED TO HAVE TURNED DOWN $300M+ OFFER FROM GOOGLE✓ PROJECTED TO BE WORTH BILLIONS✓ USER GROWTH AND ENGAGEMENT REMAINS HIGH

http://www.businessinsider.com/startups-that-rejected-100-million-offers-2013-5




ACQUISITIONS25

(AND PERHAPS?), KNOW WHEN TO FOLD ‘EM...✓ TURNED DOWN $100MM OFFER✓ LOST TRACTION, LAID OFF STAFF✓ ACQUIRED FOR ~$20MM... ✓ IN 2012 IT HAD A $370MM VALUATION.✓ COMPETITOR SOCIALCAM SOLD FOR $60MM QUICKLY AFTER THE LAUNCH

✓ TURNED DOWN GOOGLE’S $100MM OFFER✓ LATER SOLD TO YAHOO FOR A FRACTION OF THE PRICE (~$40MM)

✓ TURNED DOWN YAHOO, FACEBOOK’S $100-120MM OFFER IN 2010✓ 4 YEARS LATER... STILL PROVING THEIR BUSINESS MODEL✓ RAISED $162MM+ FROM INVESTORS

✓ TURNED DOWN GOOGLE’S $100MM OFFER 3 MONTHS AFTER LAUNCH✓ IN CONVERSATIONS WITH APPLE✓ RAISED $75MM+ FROM INVESTORS





ACQUISITIONS26

THE TALE OF OMGPOP AND DRAW SOMETHING...

A STRUGGLING MOBILE GAMING STARTUP...

FINALLY HIT IT BIG... 35MM DOWNLOADS, 1BILLION DRAWINGS - IN 6 WEEKS...

~$180MM LATER... OH, AND IT’S SINCE SHUTTERED THE NY OFFICE, AND LAID OFF MOST ITS STAFF

KNOW WHEN TO WALK AWAY... KNOW WHEN TO RUN!





ACQUISITIONS27

WHAT ARE THE LESSONS LEARNED?

• TIMING IS EVERYTHING.• RAISING LESS MONEY CAN RESULT IN HIGHER RETURNS• WITH CONSUMER APPS, SOMETIMES ITS BEST TO SELL QUICKLY IF THERE’S TRACTION POST LAUNCH• HAVE OPEN AND HONEST CONVERSATIONS WITH YOUR INVESTORS AND ADVISORS ABOUT ACQUISITION OFFERS• THE MORE YOU RAISE, THE HIGHER THE ACQUISITION PRICE INVESTORS WILL EXPECT

• DONT FORGET... THE ODDS AS A STARTUP ARE STILL STACKED AGAINST YOU!


ACQUISITIONS28

THINGS TO CONSIDER:

IT CAN BE DIFFICULT TO SELL WHEN...

✓ STARTUP HAS RAISED TOO MUCH $$, AT AN INFLATED VALUATION✓ CORE PRODUCT HAS LOST TRACTION✓ CORE PRODUCT NOT DEFENSIBLE✓ STARTUP IS DIFFICULT TO VALUE✓ KEY SHAREHOLDERS DON’T WANT TO SELL

IT HELPS TO GET ACQUIRED WHEN...

✓ STARTUP ISN’T OVER-FUNDED✓ TEAM HAS A GREAT TRACK RECORD IN PREVIOUS COMPANIES✓ STARTUP TECH/TEAM ARE CONSIDERED EXCELLENT, DIFFICULT TO REPLACE✓ THERE’S A CORE BUSINESS


IPOS29

A FINAL APPROACH TO RAISING MONEY AT A GOOD VALUATION.IPOS.

“WITH GREAT POWER COMES GREAT RESPONSIBILITY...”

BUT “GOING PUBLIC” HAS NEW CHALLENGES...

✓ FOCUS SHIFTS TO SHORT TERM QUARTERLY GOALS✓ ADDITIONAL REPORTING AND DISCLOSURES CAN BE A DISTRACTING BURDEN✓ VALUATION DISCONNECT BETWEEN THE PUBLIC AND PRIVATE MARKET✓ PUBLIC MARKETS CAN BE DEMANDING, AND UNFORGIVING✓ VERY LONG, EXPENSIVE, TIME CONSUMING PROCESS


REAL WORLD PERSPECTIVE30

BURTON MILLER• CO-FOUNDER AND COO• YCOMBINATOR GRADUATE• STARTED CODING AT 12 YEARS OLD• BUILT PRODUCTS ACROSS MULTIPLE INDUSTRIES- FROM SOFTWARE TOOLS TO MISSILE SYSTEMS

FOUNDER SPOTLIGHT!


• FEBRUARY 5TH: PERFECTING YOUR PITCH! • BREAKOUT SESSIONS WITH OUR PORTFOLIO FOUNDERS• HAVE THE ROUGH DRAFT OF YOUR PITCH DECK READY• CLASS WILL BE IN THE HYDE SPACE AND GO UNTIL 130P

NEXT WEEK...31


CONTACT:

JESSICA PELTZ, [email protected]

JOSH ENGROFF, MANAGING [email protected]

QUESTIONS?32


mailto:[email protected]




kbs+ Ventures Fellows #8: Business Acceleration and Acquisitions

Technology

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