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Copyright 2010 Venture Mechanics, LLC WHAT WE DO This the “Priceline for Wholesale Perishables" or The “Norton Anti-Virus for Cell Phones" [OK. I’ve.

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Presentation on theme: "Copyright 2010 Venture Mechanics, LLC WHAT WE DO This the “Priceline for Wholesale Perishables" or The “Norton Anti-Virus for Cell Phones" [OK. I’ve."— Presentation transcript:

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2 Copyright 2010 Venture Mechanics, LLC

3 WHAT WE DO This the “Priceline for Wholesale Perishables" or The “Norton Anti-Virus for Cell Phones" [OK. I’ve looked at 10 companies today. What am I going to be looking at for the next 45 minutes? Why should I get excited about this?] Copyright 2010 Venture Mechanics, LLC

4  Your total addressable market (TAM). In other words, 100% of the total potential revenue for products/services like yours. (e.g., for encryption software, 100% of global sales of encryption products).  Your total serviceable market (TSM). 100% of the market you could actually sell to. (e.g., North American encryption software sales to small and mid-sized financial services companies).  Is this market big enough to be interesting compared to everything else one could invest in these days?  For a Venture Mechanics deal, can this business conceivably deliver 7-figure distributable profits to the shareholders within 3-5 years? Copyright 2010 Venture Mechanics, LLC

5  Who is the customer? Do they matter? What problem does the customer have today? Why is that a big problem? Why is it their biggest problem?  Ideal: We solve the most important problem for customers who are high gross margin, high growth companies in high growth sectors who move very quickly and frequently buy products from startups. Copyright 2010 Venture Mechanics, LLC

6  What is your solution? Why is it unique? Why has nobody done this before?  What has changed that allows room for a startup here?  Ideal: You have come up with a solution that you found due to exclusive domain expertise that is really hard for others to match. Copyright 2010 Venture Mechanics, LLC

7  If IP is critical to the business plan, several slides on the state of technology development.  Is there a lot of "R" left, lots of "D" left, or is the product done?  Ideal: All the risk of research is done, no major unsolved problems remain.  [For a Venture Mechanics deal, big “R” is a non-starter. Seek VC or alternative capital sources. Remaining “D” required before the company can generate revenue would typically be in the range of $100K-$200K] Copyright 2010 Venture Mechanics, LLC

8  What kind of market surveys have been conducted?  Are there customers that matter with high willingness to pay?  Ideal: Reference-worthy prospective customers who are falling over themselves to get the product or service. Copyright 2010 Venture Mechanics, LLC

9  How will you get in front of the customer? Direct, indirect, distribution, etc.  Is there a channel that can allow this company to get their product to customers profitably?  Is anyone in the way of this startup reaching their customers?  Ideal: Product flies off the shelf; very easy, short sales cycle. Copyright 2010 Venture Mechanics, LLC

10  What they will pay?  What will it cost us to acquire them? What will it cost us to service them?  Ideal: You can reach customers very inexpensively, yet still generate massive revenue. Copyright 2010 Venture Mechanics, LLC

11  What happens when? Beta, first customer shipment, breakeven cash flow, etc.  What information does each round of $$ buy? ◦ Can the business be launched for a <$250K initial round? ◦ Can the business reach breakeven cash flow on less than $1M total capitalization? Copyright 2010 Venture Mechanics, LLC

12  Why this is a world-class team with relevant skills to pull this off? What have they done before that is special and relevant? Have they done it before or are they learning on the job?  Include mug shots and their LinkedIn profiles.  Ideal: Done it before, recruiting is easy, key team in place, success follows all these guys yet they are hungry to build a company that they can keep growing over a longer term, not risking all-or-nothing upside for 5-10 years. Copyright 2010 Venture Mechanics, LLC

13 Forecasts: P&L, Balance Sheet, Cash Flows. Monthly detail for Year 1 and 2; quarterly Years 3 and 4; annual Year 5. More important... Key metrics: # customers, big revenue lines, COGS, gross margins, etc. How competitive are the gross margins? How quickly does the company ramp? How much $$ invested before reaching profitability? Do these guys understand how a company ramps? Ideal: Healthy ramp, not too much $$ and not too long to profitability, great gross margins. Copyright 2010 Venture Mechanics, LLC

14 2 x 2 matrix of the competition with the two variables that matter on the X and Y axes. How is the company positioned in the landscape with all the other companies I've seen? How are companies in this category valued? Do I know about competitors that these guys don't have listed? No big uglies to eat the startup’s lunch. Not a bunch of $$ already invested by other investors in companies attacking the same over-capitalized space. Copyright 2010 Venture Mechanics, LLC

15  The top 2 or 3 competitors, one/two liner on their story (funding, etc.), one/two liner on why you can beat them.  Do I believe these other guys can win? Who are the two or three competitors to focus due diligence efforts on?  Ideal: No one else has raised significant $$ yet. Copyright 2010 Venture Mechanics, LLC

16  Companies in and around the space, valuations, revenues and gross margin benchmarks.  Will this be a valuable company if they execute?  Ideal: There are a number of large, high- valuation companies around who would try to buy the company. All valued at very high multiples, but an underserved segment that allows a startup to build a valuable company. Copyright 2010 Venture Mechanics, LLC

17  Ideally, delivered directly to a Venture Mechanics partner or associate through a known referral source.  Otherwise, to


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