That's right: the majority of investors - is dinosaurs, and the World Wide Web - is.
An asteroid crashed on the planet. Which resulted in a huge explosion 15 years ago. It will take another 5 years for the ash clouds, nuclear winter, browsers, search engines, social networks and mobile devices to do in tyrannosaurs, but this is inevitable. Sumchastye begin to dominate, and in 2015 will be a lot more investors, such as.
Jeff Claviere. ,.
First Round Capital. ,.
Y-Combinator. ,.
TechStars. ,.
Betaworks. ,.
Founder Collective. What all sorts Sand Hill VC ( funny, it turns out that all innovators are outside the Valley, is not it?).
Now let's look at the changes and how you can adapt to it and become a modest investor 2. 0:.
Approval number 2: There is a wonderful opportunity to create.
focused on profit internet start-ups. $ 1 -5M, which a) have become commercially viable, and b) predicted would attract customers through online channels (search, social networks, mobile platforms ), and c) could be sold for $ 25 - $ 250M.
Historically, the.
venture capital. associated with large, risky, capital-intensive investments in order to achieve two major, often costly, purposes:.
create a Product.
attract Clients.
Now, in the past, PRODUCT means the creation of many expensive things (lots of iron, drives, workstations, packaged software, chips, network equipment, browsers, search engines, and so sotsialok. Dr.. ), Involving a large number of people for many years. I mean the 50-100 people who create stuff that is not profitable for a long time. Have a lot of hassle and expense before you get the first client.
And still more to aggravate the many startups that received venture capital funding, targeting the customers among large technology corporations or government agencies to sales dliiiiiinnymi cycles requiring expensive, direct, dedicated sales force. which also requires a lot of time and money. Our massive sales and marketing campaigns carried out by means of expensive print, radio and TV facilities. The sales cycle - annual, requiring sustained action to achieve the quarterly or annual targets by receiving income from licensing, support, upgrades.
Finally, many of these companies were created to go public after many years of work and several rounds of investment, after which the share of entrepreneurs in the business remained negligible (often a few percents ), and the expected amount of sales transactions were enormous, hundreds of millions if not billions .
Looking back in 2010, let's take a look at these bases through the prism of the Internet start-ups:.
PRODUCT now that basically means your website or service that runs on cheap / free open source software that is hosted in the cloud or on the cheap servers, designed for a few months ( or weekend! ), A small group of 1.5 developers who are constantly testing and improve the .
Market / Marketing now often means using a variety of online distribution channels via the paid / organic search (SEM / SEO) in Google, viral / social advertising in new media and social networks like Facebook, Twitter and YouTube, as well as the growing market for mobile platforms, Apple . With the exception of search, most of these channels did not exist five years ago, while now their audience reach 100M-500M users with inexpensive and measurable marketing campaigns that allow even a small team to reach billions of people.
REVENUE can now be obtained easily through a variety of online payment systems, transaction systems, virtual goods, subscriptions, generating contacts, advertising CPM / CPC / CPA. Many people are now buying goods online, and many companies are bought only for the user base, regardless of profitability. In other words, the guys start getting paid! .
To summarize: the product development cycle is shorter, the necessary materials and resources - cheap or free, team less, and new services and their combinations are created on top of existing ones, which are already extremely useful in the cloud due to its functions, data, network effects,.
programming interfaces. Marketing costs are now lower, due to a variety of widely available, inexpensive online distribution channels, which can be used in a transparent and predictable than it has ever been. High-speed channels allow the use of home video and other rich content of all who have in the house cable or satellite TV. INCOME can be obtained easily and reliably, through direct business models and online payment systems that are becoming mainstream all over the world. such as mobile payments, even in the most remote countries with low levels of economic development.
Finally, when more and more technology and Internet companies are profitable, they, in turn, is converted into potential customers for startups with innovative technologies, products and services necessary. With its larger customer base to raise the level of sales, they can buy smaller companies that are looking for a cheap way for new customers. However, since an increasing number of companies grow and compete for the right to be bought, more and more startups are bought earlier and for less money than if they had grown to the size required for IPO. Because even technology companies seeking to buy innovation and experience in online services, increases the tendency to a lot of growing small business sales.
Okay, this is all guessing about the future of the tea leaves, but let's review the basics and the best approaches to ivestirovaniyu in consumer internet startups.
Adoption of the number 3: The process of investing in start-ups can be divided into three distinct phases with specific goals and outcomes:.
PRODUCT = finding the customer's problem and its solution (minimum viable ), ease of use / usability.
MARKET = estimate of market size, the testing campaign, the cost of bringing the client and the conversion.
INCOME = an increase in income and / or market share, optimize for profit.
In many ways, it concerns the application of techniques of Customer Development (.
Steve Blank. ) And The Lean Startup (.
Eric Ries. ) To invest, in particular, how to examine, improve, and to determine the acceptance of the product market (.
Sean Ellis. ,.
Marc Andreesen. ), In other words, ...
This is, in fact, the basis of my investment principles: Invest up to the adoption of the product market, measure / test, if the team turns out to achieve it, if so, take advantage of its ability to invest in proportion to the project to the next stage after the successful conclusion of the product on the market. This is akin to a game of blackjack: you make low interest rates early in the game, and by the mid- deck where you can see that at the hands of the good cards, you begin to raise rates.
Let's put up with this - most venture investors are sheep. They like to play unfairly. We want to be sure that there are already customers, revenues, and even an exclusive thing called ADHESION. Unfortunately, it is obvious that if you already have customers, revenue and traction, then the trough will be a lot of investors, the struggle for the right investment will be tough, and the price is high.
So how do you invest small amounts, and then know when to continue and invest more?.
It's not so hard, I'm serious.
INVEST EARLY, and a small amount of people you feel smart, which created a promising products. Find out if they know how to improve, to get feedback to improve the product or its promotion. Learn how you can measure the conversion of their business and the value of a customer. Then, if you see that the metrics are improving, and the value of customer base / business grows. then raise rates.
Whatever it was, it occurs in three specific stages:.
PRODUCT. : Find a [ large enough ] customer segment with a significant problem / an acute need for something and develop a functional solution for them ( Minimum Viable Product - MVP). I call this stage ACTIVATION. You should also make sure that the use of your product exciting enough to do it again ( HOLD ).
MARKET. : Try a scalable distribution channels that will allow you to attract a large number of customers for the money, less than what you earn (ideally,. <20-50% годового дохода, чтоб оставался какой-то резерв). Вы также можете вернуться к пункту №1, чтобы пересмотреть кое-что, или проверить совершенно иные маркетинговые кампании и концепции масштабирования. Если вам повезёт, вы можете найти способ заставить пользователей говорить о вас, распространяя информацию всё шире и шире.
INCOME. : Hopefully your MVP is. significant enough that people will be willing to pay more for it than nothing. Regardless of this, the aim is to test and optimize combinations of product / marketing to generate positive cash flow when scaling in short time intervals (or longer if you have a source of funding ). I prefer a simple business model, for example, transaction models and e-commerce, subscription, partnership models.
Ideally, if you have the opportunity to invest in the finished product AFTER the entrepreneur made it work, but sometimes they do not have time to do it, and they often have to anyway to turn to find an interesting segment, which allows to scale and make a profit. Anyway, I believe that entrepreneurs who understand their customers, are able to create a minimum viable product for 3-6 months. <$100K. Иногда это требует больше времени и денег, но в основном так оно и есть. Если вам кажется, что предприниматели справляются, увеличивайте ставки.
Next, you should be able to improve the user experience and retention, to force them to love your product more. If you will do well, your customers will replace your marketing department. low- cost. Even if you can not get publicity, you can still reduce the cost of attracting customers through the social multiplier. Regardless, you need to find a scalable distribution channel, which subsequently could bring positive cash flow. Hopefully, it will cost less than $ 1 -2M, and will require less 6-12 months. But all of these costs should be focused on marketing channels and hypothesis testing, rather than improving the product. you can adjust to find new ways to use, but not on adding new features. In fact, you must be willing to remove them (read KILL FUNCTION ). If you have a scalable distribution, even without the self-sufficiency, increase the rate.
This period for many businesses can become very expensive, but I prefer to think that for my start-ups will be enough $ 1 -5M and 1-2 years. Again, if all goes to what you can do it, raise rates.
To summarize, you need to think about the following steps to reduce risks and the value of the company:.
Product: $ 0 -100K, 3-6 months to develop a minimum viable product, at least not how many customers. Get the suitability of the product of a small market.
Market: $ 100K-$ 2M, 6-12 months to check the marketing and distribution channels, understanding the scalability and cost of customer acquisition, conversion to some events with nonzero income. Achieve substantial compliance of the product market.
Revenue: $ 1 -5M, 6-24 months to optimize the suitability of the product to market needs in order to achieve positive cash flow.
I'll have to edit this text nemngo, as he wrote it in a hurry for a speedy return to other projects, but I think that is expressed most of what was going to say at this point.
I would be grateful for comments and suggestions to anything that seems nonsense, can be corrected or simplified.
Translated for the blog dennydov. blogspot. com.
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