Start-Ups (a/k/a What I

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Start-Ups(a/k/a What Im Working On)
Business, Law, and Innovation

• Lecture 4
• Spring 2014
• Professor Adam Dell
• The University of Texas School of Law

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Stages of Financings
Private Equity Growth Equity
Seed/Angel
Venture Capital
IPO
PIPE
Icahn )
Stage Sources Form Size Seed / Angel Friends
Family, SBC Common / Loan 100-2MM Venture
Capital Institutional Firms Preferred
Stock 1-10MM Private Equity Institutional
Firms Preferred Stock 10-50MM Growth
Equity Re-Cap
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Venture Capital 6 Simple Questions
Precisely what is the product or service you are
offering? Precisely what is the market you are
targeting? Who are the competitors in this
market? What is the competitive advantage of
your offering and is it sustainable? What are
the economics of the business opportunity? How
will the public markets value this business?
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Venture Capital
WHATs MISSING FROM THIS LIST??????
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Venture Capital
One Simple Truth
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Ex. Civitas Learning
I tend to pick sectors and go deep. I look for
new innovations that will cause creative
destruction. And I focus on team. Very few
start-ups come fully baked. Many pivot and
evolve. If the team is strong and the market is
ready, you may have something.
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Civitas Learning The Story
I went on an education jihad. I met the CEOs of
every education technology company I could
find. Came away with a few core beliefs The
teams in edu generally stink Content is not the
problem Schools move slowly, unless they have
to The hybrid model (online and offline class)
will dominate the market The incumbents
(Pearson, etc.) are not going to let their
businesses be taken away from them. They are
acquisitive
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Civitas Learning First Pitch
Overview .? Civitas Learning will disrupt the
20B For-Profit Higher Education Market by
partnering with Community Colleges to provide
high quality, white-label online Associates
degree programs for less than half of the annual
tuition of currently available programs. .? The
leadership team combines successful
start-up experience with deep expertise in
for-profit education. Team members have
designed, implemented, and managed the systems
used by leading online universities.
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Civitas Learning First Pitch
Austin Ventures, First Round Capital and
Floodgate Capital Invested 4.0mm into this
idea, March 2011
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Civitas Learning Today
Products deliver current, personalized,
data-informed advice to the front lines of higher
education. Students, faculty, advisors, and
administrators interact with these clean,
user-friendly apps, which distill deep analytical
insights into straightforward, actionable
guidance. By helping to improve a million small
decisions across a college or university, we
enable big improvements across the institution.
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Civitas Learning Today
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Civitas Learning
What questions would you have for the CEO?
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Venture Capital Dynamic Fit Analysis
Technology
Team
Sales/ Marketing
The Economics
Partners
VC ?
Value Proposition
Market Opportunity
Competition
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Market
Do you want to be in this business? What is
exciting about the opportunity? Is the market
new and rapidly growing?
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Value Proposition
How clear is it to the customer the problem you
are solving? How do they do it today? Is that
effective?
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People / Management
How well do these people work together? How well
suited are they to compete in the market? How
effective are they at getting to the right
answer? Assess managements judgment. Where do
they sit within this industry? How well does
management understand the marketplace? What are
the distinctive competencies of management? Does
management have the right characteristics? What
competencies are missing? How intense is the
management team? Track record, done it before,
know how to win, refuses not to win. Assess their
strategy, strengths, and weaknesses. How are
their references? How will they treat their
investors, their partners, their customers? How
well does the CEO understand the details of the
business? How well does the team understand
integrity, honest, commitment?
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Sales and Marketing
Are you having to push (evangelical sales) it
into market or is there pull (Uber)? How is it
sold? Direct or Indirect? Over the phone? How
long are the sales cycles? How in the
organization are you selling to? Who in the
organization is benefitting from what you are
selling? How much authority does your champion
have in the organization? How will you market to
these customers? How expensive is it to reach
these customers? Can you effectively get to
enough of them to make the business scalable? How
much noise in the market from others with similar
offerings?
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Barriers to Entry
What are the barriers to entry? Is the
process patentable? How defensible is the
business? - Against who? - Who are likely
entrants into the market?
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Technology
How difficult is it to build what theyve
built? How unique is it? How defensible? How
well can it scale? How robust is it? Was it
built on standards? Or is it proprietary?
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Business Model
What are the average price of a deal? How long
are deals? What kind of gross margins? What
kind of operating margins can you achieve? How
many customers before you are profitable?
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Competitors
Who are the competitors? What are the
substitutes? What are the barriers to
entry? Who are likely entrants into the
market? Who are the incumbants? If there are
only likely to be a few winners, can we be one of
them?
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Partners
What partnerships are key to success? How
critical are they for your success? Are you
dependent on them? Can they put you out of
business? What is the bargaining power of
suppliers? What is the bargaining power of
buyers?
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Financing Requirements Exit
How much will it cost to finance the business to
cash flow positive? How well thought out is
managements financing plan? At what point will
you know the economics of the business
works? How much ownership will I have after
all the rounds of financing are done? Is this
company a take public kind of opportunity? How
will Wall Street view the cash flow generated by
the business? What kind of operating margins can
we achieve? Who is likely to buy this business
if I cant access the public market? At what
multiple?
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Venture Capital Decision Tree
Project Origination
Screen
No
Yes
Yes
Decision
Market/Strategic Analysis
Expert Review
No
Yes
Yes
Decision
Technology Analysis
Expert Review
No
Yes
Business Model Success Factors
Decision
No
Fund
Yes
Yes
Yes
Analyze Need for Syndicate
Decision
Decision
Management Assessment
No
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All the Pieces Need to Work Fit Together
Technology
Team
Sales/ Marketing
The Economics
Partners
VC ?
Value Proposition
Market Opportunity
Competition
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Product Marketing as a Proxy for Venture Capital
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If you think carefully about what venture
capitalists look for, youll note that its not
that dissimilar from the ever important role of
PRODUCT MARKETING
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Product marketing in a business addresses four
important strategic questions What products
will be offered (i.e., the breadth and depth of
the product line)? Who will be the target
customers (i.e., the boundaries of the market
segments to be served)? How will the products
reach those customers (i.e., the distribution
channels to be used)? Why will customers prefer
our products to those of competitors (i.e., the
distinctive attributes and value to be provided)?

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What does the product need to do? What does it
need to have to differentiate from the
competition? Who is going to buy it? How much
will they pay for it? How can we sell it /
position it in the market?