Sequoia Capital Overview

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THINK BIG BUT START SMALL FEBRUARY 27, 2008
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FROM IDEA TO BUSINESS PLAN

• IDENTIFY A COMPELLING MARKET NEED
• HUMBLE BEGINNINGS (THINK BIG, START SMALL)
• WHAT WE HOPE TO HEAR FIRST
• HI-TECH MARKETING CAN BE DIFFICULT. SOME
  RESOURCES
• A COUPLE OF ANECDOTAL EXAMPLES
• WHAT WE HEAR WAY TOO OFTEN
• GETTING TO TECHNOLOGY, TEAM, and FINANCE
• MEETING MANAGEMENT WITH VCs
• SOME COMMON PITFALLS
• ENJOYING THE JOURNEY

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HUMBLE BEGINNINGS
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HUMBLE BEGINNINGS
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NEW PRODUCT STRATEGY
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WHAT WE HOPE TO HEAR FIRST
3. PRODUCT TECHNOLOGY
4. DEFINING TEAM
2. MARKET STRATEGY (UNFAIR ADVANTAGE)
5. CAPITAL EFFICIENCY
1. MARKET POSITIONING
ENTREPRENEURS CHALLENGE
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THE BIGGEST CHALLENGE.
A.K.A. THE ELEVATOR PITCH


We networks networks.
Sandy Lerner/Len Bozak Cisco
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HELP FROM GEOFFREY MOORE
For target customers Who have compelling
reason to buy Our product is a new product
category That provides key benefit (which
solves problem) Unlike competitor in new
product category We have key point of
differentiation Source Crossing the Chasm
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TWO DECLARITIVE SENTENCES
For movie producers Who have post-production
special effects Silicon Graphics provides
computer workstations That integrates digital
fantasies with film footage Unlike IBM or Sun
Microsystems SGI has made a no compromise
commitment to meeting film makers
post-production needs. Source Crossing the
Chasm
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INTIMATE WITH TARGET MARKET BULLSEYE CUSTOMER?
TRENDS
HOW PLUGGED IN ARE YOU?
VITAMIN? OR ASPIRIN?
STRUCTURE
SPEED
LEVERAGE
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CHANGE OR CREATE CATEGORY?
JOIN EXISTING CATEGORY
DEFINE NEW CATEGORY
MARKET DYNAMICS
Large Size, Strong Growth
Small Size, Explosive Growth
ADVANTAGE
Price/Performance
IP, Functionality, Brand
CUSTOMERS
Opportunistic
Loyal
MARKET SHARE
Lower (often less than 10)
Higher (often greater than 50)
GROSS MARGIN
Lower (often less than 50)
Higher (often greater than 65)
ACHIEVABLE GOAL
Acquisition
Public Company
LEGACY
Single Generation Reign
Dynasty
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YOUR PLAN OF ATTACK?
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CREDIBLE DIFFERENTIATION?
Competitor 10
Competitor 9
Y1
Competitor 11
Competitor 7
Competitor 1
Competitor 6
Y2
Competitor 2
Competitor 3
Competitor 8
Competitor 5
Competitor 4
X1
X2
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DEFENSIBLE BARRIERS?
3. PRODUCT TECHNOLOGY
PARTNERSHIPS
NETWORK EFFECT
SIMPLICITY
TECHNOLOGY
DOMAIN KNOWLEDGE
BUSINESS PROCESS
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MAGNETS? SCARS? PASSION?
NewCo. 555 Main Street Tim Jones Anywhere,
USA CEO [phone] chief2_at_newco.com
NewCo. 555 Main Street Bob Smith Anywhere,
USA Chairman [phone] chief2_at_newco.com
NewCo. 555 Main Street Barney Baker Anywhere,
USA CFO [phone] chief3_at_newco.com
NewCo. 555 Main Street Ajay Singh Anywhere,
USA COO [phone] chief4_at_newco.com
NewCo. 555 Main Street Vlad Krunis Anywhere,
USA General Counsel [phone]
chief5_at_newco.com
NewCo. 555 Main Street Karen Williams
Anywhere, USA President [phone]
chief6_at_newco.com
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CENTRAL CASTING
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DO THE S MAKE SENSE?
REVENUE TRAJECTORY
GROSS MARGIN
EBITDA
S RATIOS
CASH REQUIREMENT VS. OPEX
CASH FLOW TO BREAK EVEN
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GRASPING UNIT ECONOMICS?
REVENUE BY DAY/WEEK/SEASON

COST OF CUSTOMER ACQUISITION
GROSS PROFIT/TRANSACTION
LIFETIME VALUE
COST PER SKUS
INVENTORY TURNS
INCENTIVE PROGRAMS
PRODUCT/BRAND ASSORTMENT
SHRINKAGE
FREQUENCY PURCHASE TRENDS
PICK RATES
CUSTOMER CHURN/MO.
DELIVERY TIME
NEW CUSTOMERS/MO.
MRR
ITEMS PURCHASE TRENDS
COST OF CUSTOMER SERVICE
CLICKS TO CHECK-OUT
CUSTOMER CONTACT RATE

• ABANDONED CART RATE

TICKET SIZE PURCHASE TRENDS
ACTIVE CUSTOMERS/MO.
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TAKES LONGER, COSTS MORE
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FINANCIALS SAY A GREAT DEALABOUT HOW YOU THINK
FRUGALITY
MARKET SIZE
MARKET STRATEGY
SALES TACTICS
MARKET UPTAKE
MARKET VELOCITY
NOT A TIME TO BE NAÏVE UNREALISTIC OR MISLEADING
REALISM
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MEETING MANAGING WITH VCS
CONTROLLED?
CHAOS?
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MOST COMMON PITFALLS

• GORILLA ALUMNI AIRCRAFT CARRIERS
• LACK OF FOCUS
• OPPORTUNITY EXISTS BEFORE THE MARKET ARRIVES
• TOP HEAVY
• COMPELLING?, UNIQUE?
• SALES MODEL AND ASP DIVERGENCE
• INCINERATOR SCHEMES

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LEARN FROM OUR MISTAKES
TOO EARLY TOO LATE DECEIVED BY COMPARABLES DILUTIV
E IPOs FEELING TOO WEAK FEELING TOO STRONG POOR
CUSTOMER SELECTION STRETCHED TOO THIN NOT
ADDRESSING A TRUE PAIN CANT ARTICULATE THE
BUSINESS SMALL GROSS MARGINS SMALLER OPERATING
MARGINS NO MODEL FOR MAKING MONEY
A FEATURE, NOT A PRODUCT A PRODUCT, NOT A
BUSINESS LACK OPERATING CONTROLS GROWING TOO
FAST WRONG DNA BAD LISTENERS POOR CUSTOMER
SERVICE DECEIVED BY SUCCESSES DRUNKEN PARADE
LEADERS EYEBALLS CONVERTS TO s CAPEX CONVERTS TO
s IGNORING FUNDAMENTALS REPEATING HISTORY
MISREAD TEA LEAVES CLUTTERED MARKETS CAPITAL
INTENSIVE SLOPPY DUE DILIGENCE MOMENTUM
INVESTING WEAK SYNDICATE UNPREDICTABLE
DIRECTORS DAZZLED BY SCIENCE BOY SCOUT
REFERENCES TOO MUCH MONEY LONG EVALUATION
CYCLES SLOW PAYING CUSTOMERS GOING NATIVE
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WHAT WE LOOK FOR IN A PLAN

• 1. UNIQUE VALUE PROPOSITION/MARKET POSITIONING
  CLEAR, CONCISE, ABOVE THE NOISE CUSTOMER
  VALIDATION?
• 2. EXPLOSIVE MARKET SECTORS, FULL OF
  DISCONTINUITIES AMBIGUITY AND CONFUSION ARE GOOD.
  HOW BIG? DEFINING? STRUCTURE/ACCESSIBILITY?
  READINESS? DISCONTINUITYWHATS DIFFERENT? VALUE
  CAPTURE POTENTIAL? NO COMPETITION OFTEN NO
  MARKET ENTRENCHED PLAYERS INNOVATORS DILEMMA?
  STARTUPS HOW MANY? OUR TEAM? SOURCES FOR
  DIFFERENTIATION?
• 3. BREAKTHROUGH PRODUCTS/TECHNOLOGY SOURCES FOR
  DEEP SEPARATION AND ADVANTAGE? ORDER OF
  MAGNITUDE? DEGREE OF DIFFICULTY? ADOPTABILITY?
  COMPLETENESS? DEFENSIBILITY?
• 4. DEFINING TEAMS MAGNET QUALITIES? DOMAIN
  EXPERTISE? INTENSITY? DNA BLEND? SCAR TISSUE?
• 5. CAPITAL EFFICIENCY WHAT IS THE FULLY FUNDED
  PLAN? MARGIN? BUSINESS MODEL? DIRECT VS INDIRECT?
  EXPENSE MODEL? REVENUE ASSUMPTIONS?

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WERE ONLY AS GOOD AS OURNEXTINVESTMENT.
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