1. Screening Venture Opportunities

2. Anchors of Superior Businesses
Create or add significant value to a customer or end user
Solve a significant problem, or meet a significant want or need, for which someone is willing to pay a premium

3. Anchors of Superior Businesses
Are a good fit with the founder(s) and management team at the time and marketplace and with the risk-reward balance

4. Anchors of Superior Businesses
Have robust market, margin, and moneymaking characteristics
Large enough ($50 million+)
High growth (20 percent +)
High margins (40 percent +)

5. Anchors of Superior Businesses
Have robust market, margin, and moneymaking characteristics
Strong and early free cash flow (recurring revenue, low assets, and working capital)
High profit potential (10 to 15 percent + after tax)
Attractive realizable returns for investors
(25 to 30 percent + IRR)

6. Screening Methodologies
QuickScreen
Provides a broad overview of an idea’s potential
Enables the entrepreneur to conduct a preliminary review and evaluation of an idea in a short period of time
See page 170

7. Adams On Customers Before you build it, validate the market
Don’t have a solution looking for a problem
The ready-fire-aim approach
Common illusion – I know my customers
Limited feedback and personal experience generate the illusion
Why validate?
Get the product right the first time
A beta community emerges
You generate a ready-made contact list of first customers
You can more easily raise smart investment capital
You use capital more efficiently
You clarify your competition

8. Market Validation You cannot sell to everybody Pyramid of influence
A target market is a limited, discrete subset of companies or individuals whose pain is so great without the product that they will readily buy it
Your solution should be a “must-have” for your targets
Pyramid of influence
Stage 0: Secondary research
Stage 1: Primary market research
Stage 2: Quality influencers
Stage 3: Leverage influencers

9. Stage 0-1 Secondary research Primary research
Market size, trends, growth
Research competitors, customers
Read the industry press & specialized reports
Remember that secondary research is not validation
Primary research
Who needs the product most?
Who has the worst pain?
What does this market look like?
Test at least 3 hypotheses with data
Be prepared to revise hypotheses and start again
Interview at least 100 customers
Understand the customers and develop a sense of their pain
Make it everyone’s job to interview – even engineers!
Get a professional firm to develop questions and analyze data
Eliminate temptation to lead customers or offer solutions

10. Stage 2 Quality influencers Presentation & prototype Results:
Have high pain, interested in a solution, a willingness to be contacted again
Also use thought leaders (speakers, writers, analysts) who also understand the pain
Presentation & prototype
Outline the pain, the target segment, and solution
Demo a prototype
Results:
Feedback on essential product features
Cultivate core customers
Fine-tune presentation and prototype

11. Stage 3 Leverage influencers Results:
Analysts, thought leaders, editors, consultants
Get them excited!
Results:
Visibility in analyst reports & publications
Revenue possibilities (from consultants)
Easier financing
Customers change – keep validating
Build what the customers want and only what they want

12. Screening Methodologies
Venture Opportunity Screening Exercises (VOSE)
Segments the screening of ideas into extremely detailed but manageable pieces
I have mixed feelings
These are best screening instruments available
Is it possible to know all the answers to these questions so early?
Gives a roadmap for end of semester