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

Market

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”

BLUEPRINT VENTURES

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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.