Lecture 3 Flashcards
(40 cards)
What are the different venture firm differentiations?
- Stage
- Sector/Theme
- Service
- No-focus
What is stage venture firm? What are the pros/cons?
Experience at that stage
Pros: understanding of risk they are underwriting
Cons: Can’t follow on with more $$$ in a significant way
Incentive Model: Buy ownership at that stage, no chance to build it overtime
What is a sector/theme firm? What are the pros/cons?
Deep domain expertise
Pros: network of introductions in your field
Cons: Too much sector knowledge can harm innovation
Incentive Models: Build these about market change and find companies that match it
What is a service firm? What are the pros/cons?
Talent help, growth help, marketing help, etc.
Pros: If you tap into the resources, it could save you $$$
Cons: Limited value add, the service is “all marketing”
Devote a lot of time to companies to help add value (more time = more escalation of commitment)
What is a no-focus firm? What are the pros/cons?
Strategic thought partner, just capital
Pros: Broad scope of things they can be helpful with
Cons: too generalist
Incentive model: Do the best deals regardless of size, stage, what I can add
What are the different types of stages in VC?
Seed Stage
Series A
Series B
Growth Stage
What is Seed Stage?
No data
Just an idea
Portfolio Construction: more deals, high risk, own less
Looking for: massive market, great founder, early positive feedback
What is a Series A Stage?
Looking for and validating Product-Market fit
Someone willing to pull out a wallet
I found something that the market is willing to pay for and I need money to grow it (understand margins)
Spend money to get customers
What is a Series B Stage?
I have a formula for success
I’m not evaluating how to go to market
I know that when I spend a dollar you know how many will purchase or how many customers you will acquire
Looking for: repeatable growth
If I invest $1 in sales, how many dollars do I get back?
What is a growth stage?
Looking for: path to exit within 5 years
Opportunities to tangentially increase the market size or product offering
Start optimizing for margins here
Now you have to find the customers who will use the product
Portfolio Construction: fewer deals, lower risk
What does it mean if you do everything wrong as a founder, but your product still sells?
Product market fit is a market pull
- The need/requirement for a new product or a solution to a problem, which comes from the market place.
If you know you have product-market fit, what should you do as a founder?
Invest more capital in growing the business
How do you calculate product market fit?
Looking at TAM, SOM and SAM
What are the attributes of a Fintech Sector-Focused firm?
Payments, Lending, Banking infrastructure, real estate
LPs usually include major banks, strategic finance companies
Try to get a critical mass of companies that can benefit LPs
What are the waves of massive innovation in the past?
Internet
Mobile
Cloud
Social
What are the attributes of a Web3/Crypto/Blockchain-focused firm?
Can usually make investments in tokens or equity (most of them require an equity investment
before investing in tokens)
What are the attributes of an e-commerce firm?
Infrastructure of commerce, payments, checkout, returns, etc
Popular in last decade but have fizzled out
Retail businesses
On shopify so don’t own infrastructure
What are the attributes of an enterprise software firm?
Most popular type of fund
Metrics are standardized, everyone understands it
Lots of VCs ran software companies, so familiarity is high
Capital efficiency is high (80%+ margins)
What is the next waves of innovation that can be seen in 2023?
Web3
Quantum
What are the different types of service-focused firms?
- Talent
- Growth Playbook
- Corporate development
- CFO mentorship
What is a talent service-focused firm?
One of the toughest things for an entrepreneur to manage well
VC’s build talent platforms to help companies source talent
What is a growth playbook service-focused firm?
Helping companies benchmark their metrics against “best in class”
VC’s have access to lots of company data so they can help with this easily if they are organized
What is a Corporate Development service-focused firm?
VC’s often employ bankers, lawyers, corp dev people to help companies map their ecosystems, build relationships with acquirers, evaluate inbound acquisition interest, etc
What is a CFO-mentorship service-focused firm?
Many VC’s have finance background so can help on the governance, finance side of things to ensure things are in order and have proper oversight