Week 01. MS&E 273: Technology Venture Formation

Week 01 MS&E 273: Technology Venture Formation

Key Facts School of Engineering, Stanford University Fall 2016, 3-4 units Tuesdays, 4:30 7:20 PM, Thornton 110 2

Teaching team MIKE LYONS ADJUNCT PROFESSOR JACK FUCHS LECTURER GIB BIDDLE GUEST LECTURER PEDRAM MOKRIAN LECTURER LYNDA SMITH LECTURER ROBERT RUHLANDT TEACHING ASSISTANT FABIAN FRANK TEACHING ASSISTANT 3

Agenda SESSION PRESENTER TYPE TIME Course Introduction Mike & Jack Info 04:30pm 05:00pm Opportunity Assessment Mike & Jack Lecture 05:00pm 05:30pm Alumni Team Presentation Beyang Info 05:30pm 05:50pm Break - - 05:50pm 06:00pm Product-Market Fit Mike & Gib Lecture 06:00pm 06:45pm Team Idea Pitch Jack & Students Discussion 06:45pm 07:10pm TA Announcements Robert & Fabian Info 07:10pm 07:20pm 4

Course concept Create or Adopt a Tech-Based Business Concept - Execution by a Self-Created Class-Sourced 4 Person Team Build Out the Elements Needed to Launch and Finance the Business - Assess the Opportunity - Create a Product Dev Plan - Create a Go To Market Strategy - Create a Financial Simulation to Compute Resources Build and Deliver an Effective 45 min Presentation to Sand Hill Rd. VC s - No Rules/No Holds Barred - Forms Basis for Shorter Demo Day Style Briefings 6

Instructional Approach Tapping into the Valley Eco-System We Believe that Learning How to Build Early Stage Tech Businesses is Best Learned by Actually Doing It We Will Simulate the Process - Instructors are practitioners with years of experience - Experienced Mentors will Help Each Team - The Course Will Give you a First Meeting with Key Investors - You Must Convince Sophisticated Investors That They should take another meeting with you - You must convince sophisticated valley CFO s that your execution strategy makes sense Office Hours with Instructors and TA s Will Provide a Rich Environment to Improve Your Business Strategy and Execution 7

Some specifics Technology: IT, Big Data, Machine Learning, Analytics, Med-Tech, Bio- Tech, Clean-tech, Advanced Materials, etc. Venture Scale: Means Company Can Create Exits Attractive to Venture Investors - Implications on Market Size or Ultimate Market Disruption - No Consulting Companies or Body Shops Demonstrate Approach to Launching the Company - Product-Market Fit - Initial Customers - Personnel and Funding Resource Requirements - Corporate Structures and Governance 8

Recent success stories 9

Testimonials (1 of 3) This class alone made coming to Stanford worth it! Student, Stanford University 10

Testimonials (2 of 3) MS&E 273 is hands down the best way to learn what life in a startup is like. [ ] This was the most useful class I took throughout my two years at Stanford. [ ] I'm putting learning into action by pursuing my own startup. Student, Stanford University 11

Testimonials (3 of 3) Beyond the tangible advice or skills learned, my biggest takeaway from the class was the impetus to stop talking about an idea and actually take steps to execute. Student, Stanford University 12

Aggressive timing: 10 short weeks Form a Team Come Up with an Idea Assess the Opportunity Deep Customer Knowledge Create a Plan Execute elements of the Plan Present it to real VC s Please DO NOT Take this Course If You Are Taking Another Team Project- Based Course Tues Night Double Session, Office Hours, Mentor Meets, Two Saturday Morn Workshops, Two Thursday Night Sessions 13

Venture Capital Venture Capital Venture capital is EQUITY financing, where an investment partner sits along side the entrepreneur and assists in strategically MANAGING RISK associated with building high potential, fast growth and capital efficient companies 14

~$129B in Global VC investments in 2015 Venture Capital ANNUAL GLOBAL FINANCING TRENDS TO VC-BACKED COMPANIES Source: Venture Pulse, Q4 2015, Global Analysis of Venture Funding, KPMG International and CB Insights 15

US High-Tech IPOs and M&A Venture Capital M&A AND IPO DEAL VALUE TOP TECH IPOS 2015 GoDaddy Square Shopify First Data Box Pure Storage Etsy Atlassian Fitbit Source: Renaissance Capital IPO; PWC Technology Deal Insights 16

Course outline Market Plan Product Development Plan Financial Operating Plan Opportunity Assessment Customer Discovery Go to Market Competitive Differentiation Product Validation Hardware/ Software/Mobile Development Product Roadmap IP Strategy Business Model Unit Economics VC Financing Multistage Financing Term Sheets Capitalization 17

Tech Venture Formation Eco-system Class Materials and Speakers Team Project 18

Admission ADMISSION OVERVIEW 43 students accepted - 5 spots left - Admission and waitlist posted tonight, 11:59 pm 12 teams of 4 students formed by Thursday! - Admission requires forming a team of 4 19

Forming your team (Part 1) Wed 7:00pm Huang building (open space) BRAINSTORMING SESSION 20

Forming your team (Part 2) Thu 6:30pm Thornton 110 (here) PITCH NIGHT Partially formed teams or singles can pitch Called in Alphabetical Order to pitch. Be ready! Waitlisted folks allowed to participate Come ready to pitch your ideas!! 21

Teaching team/ mentor support TEACHING TEAM MENTOR Teaching team will hold weekly office hours - Instructors: Tuesday by sign-up, 3:15-4:15pm - TAs Robert: Wednesday by sign-up, 9:00am- 11:00pm Fabian: Thursday by sign-up, 9:00am- 11:00pm Each team will be assigned mentor(s) 22

Roadmap (1 of 2) WEEK 1 WEEK 2 WEEK 3 WEEK 4 WEEK 5 Opportunity Assessment Team Selection, Initial Concept, Mentor Customer Discovery Pitch Video, Concept Sign-off, Friday, Oct 7 at 5:00pm Go to Market Plan GATE I: Product/ Market Fit Saturday, Oct 15 Financial Operating Plan - Product Development - 23

Roadmap (2 of 2) WEEK 6 WEEK 7 WEEK 8 VC Financing GATE II Saturday, Nov 5 Capitalization & Equity - The Big Picture: Business Model Analysis & VC Pitching Business Model Analysis Friday, Nov 18 at Noon Thanksgiving WEEK 9 WEEK 10 Entrepreneurship An Extreme Sport - Final VC Presentations Team Equity Split Sunday, Dec 4 at Midnight Dry runs Dec 6 & 7 Final VC Presentations Dec 8 & 9 24

Getting to the Finish Line Weekly Assignments to Guide Your Team Written Feedback and Results Reviewed in Class Gate I: Product/Market Presentation - Sat, October 15th (CTO/CMO) Gate II: Financials/Business Model Presentation - Sat, November 5th (CFO/CEO) Written Business Model Analysis - Due Friday, November 18th 12 noon Final VC Presentations - Thursday, December 8th - Dry Run Tuesday December 6nd - Friday, December 9th - Dry Run Wednesday December 7th 25

Final VC Presentation 26

Grading GRADING DELIVERABLES Participation, Assignments, Gate I & II 25% Written Business Model Analysis 25% Final Presentation to VC Panel 50% 27

Expectations Commitment + Intensity = Reward 100% commitment: - Attend lecture, Office Hours and Mentor meetings - Get out of the building. Make this part of your life, not just a class for a grade. Intensity: - Sprint to the finish line each week! Reward: Your team has the chance to deliver a compelling business opportunity to real VCs! 28

Entrepreneurs and opportunity assessment 30

What is entrepreneurship? Opportunity Assessment [ ] the pursuit of opportunity without regard to resources controlled [ ] Howard Stevenson, Harvard Business School 31

What is an opportunity? Opportunity Assessment A product or service around which you can build a profitable business and generate a positive return to all stakeholders 32

How are opportunities created? Opportunity Assessment CUSTOMER MOTIVATION ADDRESSED BY MARKET DISRUPTION Disruptive New Technology Market Shift (Unmet Need) New Business Model Societal Shifts (Entertainment) 33

What is an assessment? Opportunity Assessment A quick way for you to evaluate whether your opportunity is worth spending years of time and money on. 34

Business opportunity assessment framework Opportunity Assessment 1 WHY A well defined market need 6 WHO: Team WHY: Customer Motivation 2 WHAT: Solution WHAT A viable product or service that coherently addresses the need WHO WHERE The core execution expertise (both internal and advisors) WHEN Why is this the right time to address this? 5 WHEN: Trends Opportunity 4 HOW: Business Model 3 WHERE: Market An interesting existing or new emerging market HOW How your solution reaches the customer and you make money 35

1 WHY: Customer Motivation Opportunity Assessment WHY does a customer care? Outline the market need that needs to be filled 36

1 Need-to-Have Opportunity Assessment Who has hair-on-fire? Segment of market that absolutely needs your product Customers thank you for coming to them with your product/service Customers act as partners willing to put up with much 37

1 Introducing The Halo Tire Inflator Opportunity Assessment THE HALO TIRE INFLATOR DESCRIPTION EXAMPLE A novel device, which utilizes a wheel s rotational motion to automatically inflate its tires and maintain optimal tire pressure, increasing fuel economy, extending tire life, and eliminating blowouts. 38

2 WHAT: Clearly defined solution Opportunity Assessment WHAT is the coherent solution that addresses the customer need? It is not sufficient to have only identified the problem 39

2 WHAT: Clearly defined solution Opportunity Assessment 40

2 Product meets market Opportunity Assessment MARKET PRODUCT Unique value proposition to a target market ROI and satisfaction Novel product and/or market invention that links to that value proposition 41

Low Quality of Service High 2 On-demand, high quality platform EXAMPLE Low On-Demand High 42 42

3 WHERE: Interesting Market Opportunity Assessment WHERE are your customers? Are you addressing a need in an interesting emerging market? 43

3 WHERE: Interesting Market Opportunity Assessment 44

3 Interesting markets are forgiving Opportunity Assessment Total Addressable Market What if everybody who could, bought my product? Served Market How many can reasonably be expected to buy something like my product? Target Market Who is my base camp? 45

3 Served Market as a series of potential target markets Opportunity Assessment Served Market Potential Target I Potential Target II Potential Target III Unlikely Target A Potential Target B.. 46

4 HOW: Business Model Opportunity Assessment HOW does the business make money? How does the product or service reach customers and how is it monetized? 47

4 HOW: Business Model Opportunity Assessment 48

4 Business Model Opportunity Assessment EXAMPLE HOW YOU MAKE MONEY Typical transaction $ Customer Acquisition User All parties involved $ Your company $ Product flows To vendor Customer $ flow 49

5 WHEN: Supporting trends Opportunity Assessment WHEN is the ideal time for this product? Are there any events or developments that make this the optimal time for the business to come to market? 50

6 WHO: Core Team Opportunity Assessment WHO are the masterminds behind this opportunity? Are there the unique insights, skills, and access to execute the business 51

MS&E 273 Alumni SOURCEGRAPH BEYANG LIU Beyang Liu 2012, Co-Founder & CEO Sourcegraph - Stanford MS in CS, 2013 - beyang@sourcegraph.com 53

Wrap-up before break If you have not completed an application, please fill this out online! http://bit.ly/mse273fall2016 Final admission decisions will be made immediately after class. 54

Break BREAK DESCRIPTION We ll Take a Short Break We ll Discuss Product-Market Fit Then We ll Wrap Up with a Pitching Session to Continue to Develop a Following Thanks for Coming! 55

Product-Market Fit Gib s presentation 58

Student pitches 60

TA Announcements Activities - Wednesday Brainstorming Session (7:00pm 8:30pm, Huang Building, Open Space) - Thursday Pitch Night (6:30pm 8:00pm, Thornton 110) Announcements - Final enrollment announced via Google Docs by teaching team Tuesday 09/27 (11:59pm) Deliverables - Students submit final teams, roles and mentor preferences via link (red box below) as soon as teams are formed, by Thursday 09/29 11:59pm at latest - Assignment 1a (uploaded to website later tonight) - Team Concept Memo - Submit via 273msande@gmail.com to the TAs by Sunday 10/2 11:59pm at latest - Assignment 1b (uploaded to website later tonight) - Positioning and Branding Statement - Submit via 273msande@gmail.com to the TAs by Sunday 10/2 11:59pm at latest - Submit weekly pulse check (https://www.surveymonkey.com/r/ngf63cf) - Each student send a picture, her or his major and a Twitter like description (140 characters) to 273msande@gmail.com https://drive.google.com/drive/folders/0b2ky9mxxrf7qwefldmy3d3lyrlk?usp=sharing ruhlandt@stanford.edu fabfrank@stanford.edu 62

Final teams and mentor preference process BACKUP https://drive.google.com/drive/folders/0b2ky9mxxrf7qwefldmy3d3lyrlk?usp=sharing 63

Office hours sign-up process BACKUP https://drive.google.com/drive/folders/0b2ky9mxxrf7qwefldmy3d3lyrlk?usp=sharing 64

Weekly pulse check (week ending, October 2nd) EXAMPLE COURSE NPS PULSE CHECK FEEDBACK/PROPOSED ACTIONS What should the teaching team continue to do? Actionable coaching Great content discussions Etc. What should the teaching team start/stop to improve course NPS? Provide more context and examples Take more time to define full scope of assignments Etc. Promoter Passive Detractor Strongly agree Agree Neither agree/disagree Disagree Strongly disagree Quotes of the week: [Quote] 65

Weekly pulse check - Questions BACKUP SECTION DIMENSIONS QUESTIONS Course NPS NPS How likely is it that you would recommend this course to a friend/ other student? Pulse Check Value Teach & learn Prioritization Does the teaching team create value for the students teams? Do you receive sufficient coaching, are your problems addressed and do you learn new skills during this course? Does the teaching team focus on the most important issues? Communication Does the teaching team communicate effectively? Process Does the teaching team have an efficient team collaboration process in place? Feedback/ proposed actions Continue Start/ stop Quotes What should the teaching team continue to do? What should the teaching team start/ stop to improve course NPS? Quotes of the week 66

Awards for students (1 of 2) THE PITCH AWARD THE PIVOT AWARD Definition: Any team who has presented their business idea to the investors during the final presentations and has received the best feedback from the investors and the teaching team Definition: Any team who has changed their startup idea/ business model dramatically during the 10 weeks and still performed well during the final presentations 67

Awards for the teaching team, mentors, etc. (2 of 2) THE COACH AWARD THE EINSTEIN AWARD Definition: Any member of the teaching team, mentors, outsiders, etc. who has provided great coaching during the 10 weeks and has invested time and efforts beyond the average level Definition: Any member of the teaching team/ mentors/ etc. who has meaningfully contributed to cracking something very difficult regarding your startup/ business model 68