Post on 21-Feb-2017
Master ClassLessons from the
0.3%Highest Performing
Companies2.5.17
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CONFIDENTIAL | 3
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4 Start-ups & Co-Founded two Venture Firms
Chris Albinson @chrisalbinson #breakawaygrowth
Co-Founder & Managing Director Founders Circle Capital
Years to IPO: 3Peak Market Cap: $18BPeak Revenue/Profit: $2B/$0.2BSold: $7B
Years to IPO: 5Peak Market Cap: $12BPeak Revenue/Profit: $0.56B/($0.2)BSold: $0.34 B
Companies Staying Private Longer – 11 years
Source: SVB (Dr. Jay Ritter, Univ. of Florida, U.S. Unicorns) 9
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$3.7B$2.7B$1.0B$1.0B
The Circle #Breakawaygrowth
29 Investments
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#Breakawaygrowth
Question: When do you have 90% confidence in an outsized outcome?
Quantitative Analysis
Qualitative Analysis
30 - 40 Investments
40,000
Companies
510
Companies
120
Companies
Performance and Velocity Analysis
Proprietary Algorithm, SVB Data, External Data
Quantitative Analysis: $40/40%/40%+
• FCC analysis • RBC Insights
• SVB insights • GP Insights
Proprietary Algorithm, Public and Private Data
Founders Circle Diligence
• Circle Unique Insight
• Domain Experts
• Management Referencing
Proprietary Data
Founders Circle Capital
Quantitative Analysis
Qualitative Analysis
40,000
Companies
20% of outcomes = 77% of value(75% via IPO)
*Total Value of venture-backed exits defined as Market Cap at IPO or Acquisition Price Sources: NVCA and Public IPO/M&A Data
30-50 IPOs & 100 M&A Exits/yr
Quantitative Analysis
Qualitative Analysis
30-50 IPOs & 100 M&A Exits
40,000
Companies
4,000 Financings/year
Companies
510 Breakawaygrowth
Companies
40,000 companies Which will be the 0.3%?
1,500 new companies/year
Median Age1
5
11
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The 40 Rule:Minimum $40M in revenue with 40%
Growth with 40% Gross Margin With < 1.5X Revenue/Capital Expended
= #Breakawaygrowth
Only 510 on the planet
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#Breakawaygrowth InsightsI. AmbitionII. Product Market Fit/MoatsIII. MarketIV. Unit EconomicsV. People
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Product Market Fit
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Unit Economics
What does a customer value
CAC = Customer Acquisition Cost• How much does it cost to get a paying
customer• BGC Insight: Get the toughest
customer firstLTV = Lifetime Value (of a customer)- How much will a customer pay for
value over time- BGC Insight: Retention is
everything
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Unit Economics Rules
40 Rule: Founders Circle (revenue+GM+Growth with < 1.5X Capital Invested/Revenue)
70 Rule: Redpoint (combination of growth + profit % > 70BGC Insight: #1 Cause of Startup Death? Premature ScalingBGC Insight: VC Fund My life or http://www.vcfml.com/
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Quality+feedback really really matters#Breakawaygrowth Insights: • Alignment with mission• Work in customer support for first
month• CEO meets every hire• CEOs have coaches; teams have
coaches• Open 360s twice a year minimum• Feed back loops, feed back loops• Measurement BGC Insight: #2 Cause of Startup Death? People issues
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Pattern Recognition
I. AmbitionII. Product Market Fit/MoatsIII. MarketIV. Unit EconomicsV. People
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Ambition
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Product/Market Fitavg 2.5 billion Snaps were created every day 4Q ended
December 31, 2016
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MarketIDC projects that worldwide advertising spend will grow by 18% from $652 billion in 2016 to $767 billion in 2020. Mobile advertising is the fastest growing segment of this market, and is expected to grow nearly 3x
from $66 billion in 2016 to $196 billion in 2020
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Moats
Snapchat is free and easy to join, the barrier to entry for new entrants is low,
and the switching costs to another platform are also low. Moreover, the majority of our users are 18-34 years old. This demographic may be less
brand loyal and more likely to follow trends than other demographics. These
factors may lead users to switch to another product, which would
negatively affect our user retention, growth, and engagement.
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Unit EconomicsFor the year ended December 31, 2016, we recorded revenue of $404.5 million, as compared to revenue of $58.7 million for the year ended December 31, 2015, representing a year-over-year increase of more than 6x. Our Adjusted EBITDA was $(459.4) million, as compared to $(292.9) million for the year ended December 31, 2015. For the year ended December 31, 2016, net cash used in operating activities was $611.2 million as compared to $306.6 million for the year ended December 31, 2015. For the year ended December 31, 2016, our Free Cash Flow was $(677.7) million as compared to $(325.8) million for the year ended December 31, 2015..”• Roughly $2.50 to acquire and monetize a new user (and getting more expensive fast with v
low and slowing growth)• Each user generates $3 in ad revenue per year• Each user costs them $3.25 in Google data center costs per year to store their pictures (so
negative gross margin still at 150M users)• Plus another $1+ per user a year in R&D costs• Plus another $1+ per user a year in G&A costs• NET: Loss of ($2.75) per user per year• Today the more users they get, the more money they lose.• Facebook makes $12/user/year in ad revenue and is world-class at advertising with the
best technology, the most data for targeting, the best reach, and the best target demographic: Moms, who control the household budget. Snap has more tweens and teens with lower disposable incomes, so the path may be difficult to get the $3/user/year to 2x, and 3x, and 4x. They may achieve it, but they haven’t yet done it. It is too early for an IPO.
• ($677,686)/year burn with $987,368 for remaining cash = 17 months of cash remaining
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PeopleI. Evan Spiegel, 26 Co-Founder, Chief Executive Officer &
DirectorII. Robert Murphy, 28 Co-Founder, Chief Technology Officer &
Director
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Founders Circle Filter
Capital Efficiency of Growth• Revenue over $40M – GOOD [$404]• Revenue growth over 40% - GOOD
[ 600%]• GM over 40% - FAIL [ (12%)]• Revenue/Capital Expended – FAIL
[ 2.9X 1.2B/$0.4]• FAIL