Deep Dive, Day Two

Brian Jacobs, General Partner, Emergence Capital Partners

24 years as a VC

- initially semicondactor investments
- 2003 focused SaaS & Cloud Computing (PaaS, SaaS, IaaS) - invested in sf.com and success factors
- 3 partners -> really fast decision making
- invest in companies with paid customers
- work where opportunity is emerging (technology & other changes over time)
- finding in the past 7 years: consumer SaaS - more media based, decided to focus on B2B SaaS
- synergy between portfolio companies - executive network (all CFO talk about recurring revenue model, etc)

Typical deal flow

- 100 entrepreneurs -> 80 pass, 20 meet
- 20 meet -> 10 pass, 10 meet for again for details
- 10 -> invest 1 or 2    

to invest VCs want start to be aligned ;)

- strong management team
- large potential market
- BM validated by customers
- high margin and capital efficiency    

goto market strategy is very important:

- sf.com blueprint is quite slow ;)
- sf.com -> $2bln in 10 years
- success factors -> $200mln
- freemium model found extremely usefull to penetrate biz environment    

freemium examples:

- yammer - growing very fast (1.5 mln registered -> 150.000 paid)
- yousendit - 15 mln registered -> 300.000 paid
- sf.com - chatter in freemium model
- sf.com might acquire dimdim.com - good freemium product, possible feature in CRM    

 toll booth - very good way to think about freemium

- where do you put your toll booth ?  right at the entrance ? will users show up? deeper inside? what are users action ? what is the conversion ?
- you always ask yourself these questions and balance between users activity & revenues / conversions
- putting the toll booth in the right place is always about analyzing human behaviour

shall you talk to customers as you build SaaS product?

- SaaS has a lot of similarities to online consumer products
- you have to use data & statistics to understand customer behaviour

what sales model should be used?

- to sell $100k+ software you are to fly ;) - classical software sales approach
- SMB & divisional sales - common approach to use telexsales for less then $50k deals
- inside sales $500k quota, $100k OTE
- very expensive field sales still needed for enterprise deals
- comission paid for first 12 months of the contract
- devide sales to hunters (win new clients) and farmers (watch customers, analyze, retain existing)

presentation discussion comments:

- bottom-up approach can be used to better calculate market potential
- remember about estimating market vs estimating segment
- top-down approach - how many people buying today?
- existing market - differentiating factor is the key! 
- new market - market potential / adoption is the key 
- different options to charge: per # conferences, # people per conference, space used
- how many companies are using? what are the usage patterns?
  - storage per user? 2TB for 200 customers?
  - $$ to store one hour of video? 10MB per 1 hour conference?
  - what is scale-up cost structure of the business?
  - customer acquisition cost ?
  - how much $$$ you invested in datacenter? $100k ?
  - how many customers request storage? 20% ?
- overall impression - early to invest :)

From Mark Iwanowski, Partner, Trident Capital
* analytics http://www.the451group.com/, Gartner, IDC
* metrics: EPS, CPS
* stay focused & agile: challenge yourself with ROI questions, but always look for opportunities!
* make it happen vs let it happen

Download slides HERE:
http://www.tecglobal.org/blog/20101202_mark_iwanowski

Books to read:
- The Innovator's Dilemma: The Revolutionary Book that Will Change the Way You Do Business (Collins Business Essentials) by Clayton M. Christensen
- Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter

Next: Marylene Delbourg, Serial Entrepreneur, one of the first women entrepreneurs coming form Europe (France!), experienced CEO and a coach (very much recommend!)

Main points on company presentations:
* first 30 sec - directly to the point, rehearse it 30 times! Play your role well, you are an actor!
* remove words with no energy - adjectives, "permit", "allows", "possible"
* let me show you what our product does
* we work with ... , our competitor is ...
* be direct! straight forward! be proud of what you do!
* script everything you say - every word, every slide, rehearse !!
* very simple, small words

  relate to a usecase / life situation. visualize !!!

* "graphical relational database" vs
* "imagine you have a lot of files ... "
Download slides HERE:
http://www.tecglobal.org/blog/20101202_marylene_delbourg

Have a look at our great series of 2-week seminars with Russian entrepreneurs. For our awesome speakers: Steve Blank, Jim Smith (Partner, MDV), Mark Iwanowski (Partner, Trident Capital), Brian Jacobs (Founding Partner, Emergence Capital), Vivek Mehra (Partner, August Capital) - have a look at http://www.tecglobal.org/tec_20101129.

Deep Dive Day One:
Steve Blank - Why Accountants Don't Run Startups
customer discovery comments:
- Maverick - for disruptive innovation it is required to have mavericks inside the corp
- IBM PC disruptive innovation (IBM PC division with 12 engineers)
- Microsoft+IBM story :) CPM guy's wife declined to sigh NDA -> MS got Seattle Silicon QDOS for $25k+$25k
- customer discovery done by founders !! - psychological aspect. in a large company full support of CEO is required to Maverick
- 9 components canvas, 9 boxes, 9 building blocks
- product complements: "i am not making this, but this is essential to my business"
- stickers idea for working with the blocks
- pivoting via design rather then crisis ;)

entrepreneur is capable to frame the market type he wants to play:
- resegmenting - taking a piece of the market
- playing better/faster/cheaper game - existing market
- playing never-done-before game - new market
- TIVO replaced VCR (but never said "we are digital VCR")
- 1984 blackberry succeeded pager -> called "interactive pager"
- you decide if you want to define TLA - three letter acronym ;)

constantly learn:
- "i failed because"
- listen, look for patterns

innovation:
- technology innovation would be the easiest way
- cultural changes, changes in gov

4 steps helps you reduce mostly customer & market risks:
- competitive risk is another discussion to have
- you are to operate like it matters a lot!

For Steve's Presentation go to: http://steveblank.com/2010/04/15/why-accountants-dont-run-startups/

Next, we met with Jim Smith, Partner at Mohr Davidow Ventures. Some points he made for $500k seed investments case study:
- team is the most important thing that matters (not a perfect idea). The founders have to be aggressive, crazy and at the same time reasonable, and think big. :)
- always think about the customer (always ask what it takes for a customer to write a check to you as a company)
-monetazation: always experiment but don't do it at the cost of building the product or the customers

important things to consider for consumer:
- try really quickly, don't hold on with the launch
- simple concepts! needs - free, discount, socializing, ..

team patterns:
- infrastructure companies started by technology entrepreneurs
- consumer companies started by obsessive entrepreneurs

in between - SaaS, SMB
- simplicity
- low risk of exiting product
- quick TCO/revenue calculations
- quick sales results
- measurability!
- TCO - harder to sell

summary: three different usecases:
- infrastructure, consumer, in between :)
- all three are driven by technology and team
- enterprise - apply more science, position thru customer meetings
- consumer - just experiment, try&fail

evaluating entrepreneurs when investing early stage:
- WHO this person really is? Knows what he knows; knows what he doesn't know.
- what are the theses around him? capable to grasp a question? capable to handle?
- what are he milestones where value created? what the capital efficiency is?
- recognition of where you need to build the team is very important
- preparing your investment preso - what would be the key motivator for investor?

when replace CEO:
- ask CEO before invest or accept investment, where do you see yourself? what should be changed?
- when mgmt team has concerns
- ask what kind of business would you run?

Jim spent 7 years with Si Graphics. You need to be in the game:
- try, learn
- have relevant people around you
- be lucky :)

Marylene Delbourg-Delphis presentation at presentation at Deep Dive Seminar, December 3,2010
 

Mark D. Iwanowski (Managing Director, Trident Capital) presentation at Deep Dive Seminar, December 2,2010

CoolTech Club, which was founded in 2003, has grown from a small gathering of high-tech savvy friends to an internationally renowned organization with network of several thousand professionals and offices all over the world. Now it is not only a "cool" club to join, but a prestigious venue of "must join" if you want to do high-tech business, raise venture funding, find partners and peers both in the Silicon Valley and all over the world. It has now become an international entrepreneur's club and with this in mind, we are happy to announce that CoolTech is now being renamed into "The Entrepreneurs' Club" with a new website at www.tecglobal.org.

We are happy to serve the entrepreneurial community and welcome you to join our organization and attend our events!

Always yours,

TEC Team

A new English-language resource InFact.RU started publishing major  internet statistics for Russia. As it is usual , numbers show that Russia  is quite a different place from whatever we see in the “West”.

While Internet penetration  in Russia ( 36.6% of population )  is comparable with 1999 in US , it is a country with probably highest share of broadband – 2/3 of internet users are preferring to use it . In US this share is only 1/3 of all internet users . In Moscow, virtually all internet users (87%) are using broadband.

Advertising dollars (the blood of free Internet content) are still quite low – only about $0.6b  or under $15 per user per year. US internet advertising market is 50 times larger – about $25b or about $90 per user per year.

Another interesting observation is that majority of western internet resources didn’t manage to successfully expand and attract attention of local users. (The only exception is Google who is somehow increasing its market share, but still trailing far behind the native Yandex ). Instead of localized Facebook, eBay and so on, Russians prefer to use their own ( quite often – “copy-cat”) resources , such as Vkontakte , Livejournal and so on. I don’t think that issue is only in unsuccessful localization to Russian language, but probably some can be explained by deep cultural differences. For example, while twitter-like short-blogging is not quite ( yet ?) popular, long articles blogging is extremely popular (US-born LiveJournal had been sold to Russians as it became a major audience).

My predictions:

• Considering level of Internet penetration similar to late 90th in USA and increased interest in Russian high-tech investments, we can expect an "Internet boom" in Russia.
• Russian internet will boom only with introduction of secure online payment and reliable goods delivery (Russian post service is beyond critic). But both systems will be probably quite different from one we know on the West.
• Russian Internet advertisement has a lot of space to grow – both in term of eyeballs and in terms of $ per each eye…
• Watch out for Russian Netflix and Hulu – they have a lot of “last mile” bandwidth to waste

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UPDATE, Oct 26,2010 : comScore just published interesting review of Russian Internet usage. Accordingly to this research, Russia is #1 in social networking engagement. During August 2010, almost 35 million Russians (75% of Internet users) visited at least one of popular social networks and spend in average 9.8h (monthly) – or almost twice of worldwide average ( 4.5h monthly). Not a big surprise with #2 - Israel’s Internet user waste in average 9.2h (Just listen for accent of Israeli Foreign Minister). Distant #3 – Turkey, with “only” 7.6h monthly – we can speculate about various aspects of Turkish culture, but did anyone check summer destination of not accounted 25% of Russian Internet users?

Yandex ( and its satellite properties) still the most popular destination for 79.3% of users visiting it at least once a month. Immediate second is DST (Mail.ru, Odnoklassniki, ICQ) with 78.1% popularity. Interesting to note that Google is catching up – attracting 68.8% of Russian internet population.

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UPDATE, Oct 26,2010 : comScore just published interesting review of Russian Internet usage. Accordingly to this research, Russia is #1 in social networking engagement. During August 2010, almost 35 million Russians (75% of Internet users) visited at least one of popular social networks and spend in average 9.8h (monthly) – or almost twice of worldwide average ( 4.5h monthly). Not a big surprise with #2 - Israel’s Internet user waste in average 9.2h (Just listen for accent of Israeli Foreign Minister). Distant #3 – Turkey, with “only” 7.6h monthly – we can speculate about various aspects of Turkish culture, but did anyone check summer destination of not accounted 25% of Russian Internet users?

Yandex ( and its satellite properties) still the most popular destination for 79.3% of users visiting it at least once a month. Immediate second is DST (Mail.ru, Odnoklassniki, ICQ) with 78.1% popularity. Interesting to note that Google is catching up – attracting 68.8% of Russian internet population.