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How to Build out your Management Team and Survive the “Valley of Death” from the Lab to the


Jim Huston
2nd Annual Lab2Market September 2006

Navigating the Valley of Death
• Lots of snakes and thirst along the way • It takes money, a good team, strong product, and a big market • How do you get there??? What IS “there”



The Money Valley Total Cash Inflow / Outflow $ time What shape is the curve for this venture. and where are you on it?? BLUEPRINT VENTURES 3 .

not UNIVERSITY spin outs • Primarily West Coast • 5 investment professionals – limit 5-6 board seats/partner BLUEPRINT VENTURES 4 .and early-stage IT Capital efficiency Early-Stage Corporate IP Spinout focus – We like CORPORATE spin outs.About Blueprint Ventures • • • • $200M in committed capital: 2 funds under mgt Seed.

Where Blueprint Invests Focus Area Information Technology Exceptional Mgt Teams Capital Efficiency & Corporate IP Spinouts Pssst:: Find this Venn for all investors BLUEPRINT VENTURES 5 .

Challenges with University Spin Outs • Founders may not want to give up their tenure track positions • Culture mismatch • Often VERY early stage – lots of $$$ required to know if it is really a product • IP may be encumbered • “Works in a petrie dish …” BLUEPRINT VENTURES 6 .

What’s Required to get Through the “Valley of Death” • • • • Money Time Intestinal Fortitude Luck Reality – VC funding is on the other side of the Valley – you have to survive the Valley first BLUEPRINT VENTURES 7 .

early revenue for early product. but usually not viable BLUEPRINT VENTURES 8 . PDC.Ways to Fund the “Death March” • Government grants (SBIRs.) • Credit cards and 2nd mortgages • Bootstrapping – consulting. STTRs. etc. contract development • Friends and family – FF&F • Angels and Angel Syndicates • Licenses / NRE from corporate “partners” • Sweat equity • Investment from strategic partners / customers • Possibly bank debt.

Clarifying some VC Misconceptions … • VC ≠ Buy-out • VCs are not necessarily “vulture capitalists” – but they are capitalist animals • VCs fill a key niche in economy. but don’t drive R&D – Govt. spends $70B+/yr. corporations spend $140B+/yr on R&D – VCs invest $10-20B/yr. with ~2/3 going to build marketing and infrastructure BLUEPRINT VENTURES 9 .

etc) Evaluate new deals Partnership overhead • 20/80 Rule: Most deals quickly rejected (takes 20% of VC time) so the VC can focus on just a few hot opportunities (80% of time) BLUEPRINT VENTURES 10 .VCs Rely on “Quick Filters” • Time is a VC’s scarcest resource – – – – Manage portfolio companies Generate deal flow (networking.

eBay…]” • We’ve never done this before.How to Become a Fast Reject • “We are sending our business plan to 500 VC firms …” • “Is Bluepreint [sic] Ventures currently reviewing business plans from start-up companies? Are you funding them? Who at Bleuprint?” [sic] • “We are the next Google [Microsoft. Skype. but are prepared to learn as we go along …” BLUEPRINT VENTURES 11 .

Blueprint’s Evaluation Process • • • • Personal referrals help immensely Read executive summary Invite entrepreneurs to “pitch” the idea Conduct “due diligence” – – – – – – Assess market and opportunity Assess competitive landscape Delve deeper into the business model Customer checks Personal reference checks Financial assessment BLUEPRINT VENTURES 12 .

Pain Killer (“Have to Have”) – Value proposition/ROI to customer – 2X vs. first-time entrepreneurs. Experience together. customers. the “hunger factor” • Product – is it real? – Problem it solves – Vitamins (“Nice to Have”) vs. partners • Market – Market size/growth – >$500M. CAGR >20% • How will they win? – Sustainable advantage – Unique/robust technology – Competition (large and small) BLUEPRINT VENTURES 13 .What Blueprint Looks For • Management Team – Serial vs. 10X – Traction to date – investors.

Keys to Success with VCs • Create some “buzz” • Get an intro to a VC from a trusted source • Show high commitment. but don’t expect to be CEO • Be able to demonstrate that customers WILL pay for <your stuff> • Know the MARKET (not just technology) • Only target those investors who have demonstrated interest in what you do • Reasonable expectations on valuation BLUEPRINT VENTURES 14 .

or will it always be a feature? – Can it grow non-linearly? • Experienced management team who is willing to “play ball” with VCs BLUEPRINT VENTURES 15 .What is a VC Backable Company? • In a “hot” MARKET with big potential – usually $500M minimum with big CAGR • Possibility to grow to $100M+ revenue w/in 5 years • Sustainable differentiators and barriers to entry • Usually technology based • Scalable – Can it become a family of products / services.

What is a VC Backable Mgmt Team? • Expert in a “hot” area • Proven track record of delivering sales and/or technical performance – with a solid reputation as well • Proven track record of building and leading teams • Tells a good story and is “presentable” • Hungry .Wants to get rich and be part of a successful company rather than be in control • Understands the cost of capital and typical deal structures – and is not offended by them BLUEPRINT VENTURES 16 .

What is “The Team”? 1. The CEO 2. The Board of Directors (can be changed as part of new investment) 5. Any other advisors BLUEPRINT VENTURES 17 . The rest of the C-level team (OK if some holes for early stage) 4. The key technologist(s) 3.

Network Start with some advisors who know people Investors CAN help – but don’t always deliver It will take longer than you think it will – a bad hire is far worse than no hire • Integrity – The Warren Buffett Rule of hiring Pssst: intellectual honesty helps a lot BLUEPRINT VENTURES 18 . Network.Hiring the Right People • • • • Network.

Management Team Mistakes • Want to be in charge – Better to want to see your technology succeed in market and/or to get rich • • • • No “skin in the game” Distrust everyone Too much focus on initial valuation Thinking you can take money from other people and it is still “your company” • Make a founder your CFO because he took an accounting class 20 years ago BLUEPRINT VENTURES 19 .

What to Look for in a VC • Think PARTNER – They will be with you for a long time – But remember they are investing in the COMPANY – not in you personally • Experience at this investment stage and in this sector • Brings much more to the table than just $ – – – – – Facilitate customer and partner relationships Craft sustainable business models Recruit management Create strategic marketing plans Evaluate alternatives for developing intellectual property/licensing models BLUEPRINT VENTURES 20 .

Science “Your facts are impressive. but we need instinct to back them up.” BLUEPRINT VENTURES 21 .VC: Art vs.

com BLUEPRINT VENTURES 22 .contact: jim@blueprintventures.