What is the BIG Idea? by Paul Ahlstrom

1
WHAT’S
THE
IDEAPAUL AHLSTROM
@PAULAHLSTROM

2
Building a Vibrant Entrepreneur Ecosystem
A critical mass of entrepreneurs, innovation, and connected
capital in a trusted, business-friendly environment.
Can these 3 key drivers of Silicon Valley’s success
be engineered and replicated elsewhere?
Entrepreneur
Activity
Innovation
Capacity
Investment
Capacity
Significant entrepreneurial
activity and high-trust culture,
deep bench strength, healthy
social dynamics (e.g., ok to
fail, ok to be rich, etc.)
Robust investment
capacity (i.e., full funding
continuum)
Significant
Intellectual capital
(e.g., Stanford,
Xerox PARC, IBM
Research Labs, etc.)
Trusted, Business-Friendly
Environment: Trusted
informal networks, trusted
service providers, shared
community vision, predictable
and supportive government.
Trust

4
INNOVATI
ON
ENTREPRE
NUR
CAPIT
AL

5
ENTREPRENUERSHIP
IT ALL STARTS WITH AN IDEA.

14
YOU CAN DIG
DITCHES
YOU CAN BUILD
ROCKETS.
OR

15
1CO’S
1
Wouldn’t it be more
fun to go to the moon?

16
WHERE IS THIS IDEA TAKING YOU?
THE
STARS?
A DEAD END?
IT’S BETTER TO SHOOT FOR THE STARS AND LAND
ON THE MOON THEN TO AIM FOR THE GUTTER AND
HIT IT.
“
“

17
“TOM”
(1988)
FOLIO
(4.5YRS)
KNOWLIX
(1993)

18
Source: NVCA Yearbook 2013.
VENTURE CAPITAL UNDER MANAGEMENT IN UTAH (millions)
0
200
400
600
800
1000
1200
1400
1600
18
Almost 3 million people, no startup $
Less than $20 million of Capital in Utah

19
Held 140+ meetings understand opportunities and challenges
of doing business in Utah and create a unified vision
Government
Industry
Co-Investors &
Angels
Research/Univ
ersities
LPs/Financial
Centers of Excellence, Departments of Commerce and Economic Development,
State Governor, Utah Office of Technology Development, Utah State Senate,
Utah Technical Finance Corporation
Dorsey & Whitney, Ernst & Young, Gamut Technology Group, Japan Works,
Jones Waldo, KPMG, Merrill Lynch, Silicon Valley Bank, Snell & Wilmer, UITA,
Utah Valley Venture Forum, Wayne Brown Institute, BizCradle, HP, Glen Media,
Studeo, American Express, Convergys, Discover Card, Next Page, Novell,
10Fold
Visited with more than two dozen of the most prolific co-investors and angel
investors in Utah, including Mt. West Venture Group, Utah Angels, Accel
Partners, Ash Capital, Benchmark, Cornerstone Capital Group, Dominion
Ventures, Draper Fisher, Granite Capital Partners, Canopy Group, Bain Capital
Brigham Young University, University of Utah, Utah State University, Westminster
College
Sterling Financial Group, Chase Capital Partners, Deutsche Bank, Alpine
Consolidated, APV, Boston Millenia Partners, Goldman Sachs, American Health
Plans, Utah State Retirement Fund, McMann and Associates
19
On-the-Ground Meetings

20
Source: United Way of Salt Lake and Stanford Social Innovation Review (Kanla and
Kramer)
20
Unified Vision Enables Real
Change

21
8 VENTURE
FUNDS
$1B RAISED
125 CO’S INVESTED

22
Buenos Aires
Lima, Peru
Mexico City
Monterrey
San Francisco
Lehi, UT
Santiago, Chile

23
Alta acts as a bridge accelerating Latin American innovation into global markets
LATAM Portfolio Companies
Alta Investment Strategy

24
US Portfolio Companies
Focused in LATAM
Alta accelerates distribution for proven technologies into Latin America
Alta Investment Strategy

25
CAPITAL
VENTUR
EINVESTMENT
MODEL

26
BABE RUTH
• 714 Home runs
• 1330 Strike Outs

2727
Typically 1/3 of VC Investments will
Fail
…Total Write-Offs Return
Investment
Drive Returns
1/3rd 1/3rd 1/3rd
Typically 1/3 of investments will fail

28
 Wrong people?
 Disharmony on team?
 Lose focus?
 Lack passion?
 Burn out?
 Poor product?
 Product mis-timed?
 Failure to pivot?
 Legal challenges?
 Poor marketing?
 No market need?
 Get out-competed?
 Need/lack business model?
 Pricing/cost issues?
 Run out of cash?
 No investor interest?
 Disharmony w/ investors?
 Bad advice?
Startups Fail for Many Different Reasons…

29
Source: Small Business Trends Published 2008. Data from Bureau of Census
Most Startups Fail!

30
AEROpriseEROpriseAAEROpriseEROpriseA
$500M – Direct Investment(8
Funds)
$850M – Co-Investors
$1.4B – Total Invested
X X
X X X
X
X
X
X
X
X
X
My Failure Credentials: 100+ Direct Investments

31
Building products before you nail the pain
Writing marketing materials before you nail
the solution
Hires sales teams before you know how to
sell
Spending money before you understand
the business model
Premature Scaling
#1 Cause of Startup Failure
70% of Startups Fail for this reason:

32
Entrepreneurs are doing good things, but
not doing them in the right order. More
than 80% of the time entrepreneurs are
ignoring customer demand the right
product mix until after they have started
to scale their business.
* Harvard Business Review: Beating the Odds When you Launch a New Venture by Clark G. Gilbert and Matthew J. Eyring
*
Entrepreneurs mis-prioritize key activities

33
“They spent so much money on all this infrastructure, which was
basically part of their business model. But what they hoped was going to
be their advantage turned out to be their downfall. They got big fast, but
size turned out to be an albatross when the demand wasn’t there.”
“One reason demand fell short was that Webvan wasn’t as convenient
as it billed itself.”
Source: SFGATE
Premature Scaling: Webvan $830M Invested

34
Premature Scaling: Kozmo.com Raised $280M

35
Identify
product
opportunity
Create
product
specs
Build
alpha
product
Test
product,
build beta
product
Sell product
to
customers
The Roots of the Startup Failure Trace back to
the Traditional “Waterfall” Product Development
Model
 Waterfall Product Development Model

36
 Traditional Startup Model Based on Execution Not Research
Entrepreneur
has a idea
Discuss with /
raise money
from friends,
family and
fools
Find a
location,
develop the
product
Perfect the
product and
add features
for broad
appeal
Sell the
product
“Escalation of
Commitment”
Stage
“American Idol”
Stage
“Midnight
Genius” Stage
“Feature Lock-
in” Stage
Russian
Roulett
e
“Sales Pipeline
Problem” Stage
The Startup Process Copied The Waterfall Model

37
Nathan Furr, PhD
Paul Ahlstrom, VC
www.NailThenScale.com Available on Amazon.com
Nail It Then Scale It (NISI)&
Big Idea Canvas

38
Entrepreneur
has a idea
(based on
core
competency)
Identify
Monetizeable
Customer
Pain
Identify
Minimum
Feature Set
(of the
customer)
Nail the
Product…
Begin with
the
Customer!
(customer
centric
approach)
Customer Centric Innovation.
NISI Model: Put the customer up front in the
process

39
Big Idea Canvas
http://www.bigideacanvas.com
MONETIZABLE PAIN
EXIT STRATEGY
MARKET-ENTRY
STRATEGY
PROPOSED SOLUTION
MARKET POTENTIAL
1
2
3
4
5

40
ONCE YOU HAVE A GREAT IDEA,
STOP!!!

41
 In one sentence…
 What is your story?
 What makes this interesting?
 If you were a reporter, where is the news?
 Why should anyone care about this?
 If you think you have something then... go to the
BigIdeaCanvas.com and refine your idea &
generate a hypothesis to go out and test

48
Shark Bite vs. Mosquito Bite
What is the Level and Frequency of the Pain?

49
Frequency
Google’s Tooth Brush Test: Do you use it once or
twice a day and does it make your life better?

50
Entrepreneurs role is to innovate
Customers role is to validate
Entrepreneurs Job vs Customers Job

51
INVENTION MARKET
INSIGHT
Science Industry
INNOVATORS JOB

52
Different Types of Innovation

53
Disruptive Innovation the
Best Market Entry Strategy

54
MarketAdoption
Time
Market Entry
Best way to take enter a Market?

55
MarketAdoption
Time
Market Entry
$1B
Best way to enter a Market... Disrupt!

56
MarketAdoption
Time
Market Entry
$15B
Best way to enter a Market... Disrupt!

57
?
What does Disruptive Innovation Look Like?

58
Hey! I got this great idea.
We are going to let people rent their
couches.”

59
“Ok, how about his one?
We are going to help people take the bus.”

60
“Let’s help teenagers text each other
while standing next to each other without
wifi.”

61
“So…you know when you want to stick all
of your wedding ideas on a corkboard?”

62
How does it feel to be a
Visionary, Disruptive Innovator?

63
The “Couch Surfing” Business

64
The “Couch Surfing” Business

66
The “Help People Take the Bus” Business

67
Wanderu Wins the CES Startup Award

69
Millennials are 74% of Intercity Bus Riders

70
The “Help Teens Text Without Wi-Fi”
Business

71
The “Help Teens Text Without Wi-Fi”
Business

73
The “Cork Boards for Weddings, etc.”
Business

74
The “Cork Boards for Weddings, etc.”
Business

75
40%
20%
0%
-
20%
60%
80%
100
%
TOP SOCIAL PLATFORMS:
GROWTH IN MEMBERS AND ACTIVE USERS DURING 2014
Growth in Members Growth in Active Users
54
%
97
%
35
%
95
%
32
%
47
%
20
%
38
%
7% 13
%
10
%
7% 5% 6% 1%
-9%
Source: GlobalWebIndex

76
Key Outcome Drivers of Silicon Valley
A critical mass of entrepreneurs, innovation, and connected
capital in a trusted, business-friendly environment.
Can these 3 key drivers of Silicon Valley’s success
be engineered and replicated elsewhere?
Entrepreneur
Activity
Innovation
Capacity
Investment
Capacity
Significant entrepreneurial
activity and high-trust culture,
deep bench strength, healthy
social dynamics (e.g., ok to
fail, ok to be rich, etc.)
Robust investment
capacity (i.e., full funding
continuum)
Significant
Intellectual capital
(e.g., Stanford,
Xerox PARC, IBM
Research Labs, etc.)
Trusted, Business-Friendly
Environment: Trusted
informal networks, trusted
service providers, shared
community vision, predictable
and supportive government.
Trust

77
TRUSTED INFORMAL NETWORKS
DRIVE POSITIVE OUTCOMES
Startups happen at
the Speed of Trust!

78
78
Honesty & Integrity..
...TRUST (enables speed & flexibility)
FLEXIBILITY (Provides freedom to
fail)
 CREATIVITY
INNOVATION (Deal flow)
INVESTMENT (Fuels growth)

79
“TRUST is like the air we breath.
When it’s present, nobody really
notices. But when it’s absent,
everybody notices.”
- Warren Buffett

80
80
TRUST
(enables speed
and flexibility)
FLEXIBILITY
(provides
freedom to fail)
CREATIVITY INNOVATION
(deal flow
INVESTMENT
(fuels growth)
Funding Gap in Developing Regions
Startups Happen at the Speed of Trust

81
Can the key drivers of Silicon Valley’s success be
engineered and replicated in Mexico?
81
Case Study: Mexico

82
Guadalajara & Monterrey
60 student teams participated
in the first year (2013)
Launched in partnership
with the Tec de Monterrey April 2010
Launched April 20, 2010
Guadalajara & Monterrey
82
Mexico Case Study

83
Mexican PE investment grew to $1.3B (USD) in 2014, up from $651M in 2013.
0
4
8
12
16
20
24
28
32
36
40
2008 20142012
2
14
20
# OF VC FUNDS IN MEXICO ASSORTMENT OF INSTITUTIONAL
FUNDS IN MEXIO
Source: LAVCA.
37
2013
42
2015
Mexican Venture Capital Funds

8484
Case Study: State of Utah

85
THE UTAH
VENTURE
REPORT
85
Phase 1: Market Research

86
1. Develop a “Friends of Utah” and affiliation group database.
2. Request alumni information from local universities and include in database.
3. Promote more educational opportunities for entrepreneurs.
4. Assist business schools in organizing “business treks.”
5. Encourage local universities to create “evening education” devoted to entrepreneurship.
6. Sponsor meet-up events to share ideas and get feedback.
7. Strengthen local venture capitalists by helping to raise capital.
8. Strengthen local venture capitalists by providing introductions to coastal venture firms.
9. Champion the formation of local angel networks.
10. Strengthen R&D efforts at all state research institutions.
11. Expand engineering programs in high education to grow technologists base.
12. Lobby one of the four major securities law firms to establish an office in Utah.
13. Lobby the Silicon Valley Bank to open a branch office in Utah.
86
Harvard Study Recommendations

87
Held 140+ meetings understand opportunities and challenges
of doing business in Utah and create a unified vision
Government
Industry
Co-Investors &
Angels
Research/Univ
ersities
LPs/Financial
Centers of Excellence, Departments of Commerce and Economic Development,
State Governor, Utah Office of Technology Development, Utah State Senate,
Utah Technical Finance Corporation
Dorsey & Whitney, Ernst & Young, Gamut Technology Group, Japan Works,
Jones Waldo, KPMG, Merrill Lynch, Silicon Valley Bank, Snell & Wilmer, UITA,
Utah Valley Venture Forum, Wayne Brown Institute, BizCradle, HP, Glen Media,
Studeo, American Express, Convergys, Discover Card, Next Page, Novell,
10Fold
Visited with more than two dozen of the most prolific co-investors and angel
investors in Utah, including Mt. West Venture Group, Utah Angels, Accel
Partners, Ash Capital, Benchmark, Cornerstone Capital Group, Dominion
Ventures, Draper Fisher, Granite Capital Partners, Canopy Group, Bain Capital
Brigham Young University, University of Utah, Utah State University, Westminster
College
Sterling Financial Group, Chase Capital Partners, Deutsche Bank, Alpine
Consolidated, APV, Boston Millenia Partners, Goldman Sachs, American Health
Plans, Utah State Retirement Fund, McMann and Associates
87
On-the-Ground Meetings

88
Source: United Way of Salt Lake and Stanford Social Innovation Review (Kanla and
Kramer)
88
Unified Vision Enables Real
Change

89
1. E |100
2. Startup Grind Meet-ups
3. iTuesday Meet-ups
4. International Business Model Competition
5. Startupcore.co
6. Kickstart Seed Fund
7. Venture Capital Conferences
8. Utah TechX Accelerator
9. Alta Labs
10. Ecosystem Analysis & Assessment
11. Global Investor Network
12. Service Provider Assessment & Introductions
13. Big Idea Canvas
14. Big Idea Competitions
15. Student-run VC Funds
16. Utah Accelerator Link
17. Capital Formation Analysis Consulting (Univ. Venture Program, Fund of Funds, Angels, etc.)
18. Entrepreneur Mentor Network (Endeavor)
19. Corporate Strategic Partnerships (Spin-in, Spin-out, Build-to-Suit)
20. Technium
89
Alta Innovation Institute
Ecosystem Catalyst Toolkit

90
SEED/START-UP
FUNDING
DEVELOPMENT
FUNDING
EXPANSION
FUNDING
OPPORTUNITY
DEVELOPMENT
CONTINUED
GROWTH
ANGELS, FOUNDERS & SEED FUNDS
VENTURE CAPITAL – GROWTH EQUITY
PE - PUBLIC MARKETS
VALUATIONS INCREASE
BUSINESS RISKS DECREASE
MENTORING NEEDS DECREASE
$5M-20M$500K-5M$50K-500K >$20MSweat
Community Fills Seed
Gap

91
Trusted,
informal
networks
Startups
Universit
ies/
Labs
Early
Stage
VCs
Angel
Investor
s
Industry
91
Capital, value
add, syndication
Technology transfer,
student opportunities,
economic development
Deal flow,
“clean” deals
Deal flow, economic
alignment, coinvestment and
follow-on rights
Deal flow, outsourced
R&D, executive
involvement &
education
Kickstart
Seed Fund

93
VENTURE CAPITAL UNDER MANAGEMENT IN UTAH (millions)
0
200
400
600
800
1000
1200
1400
1600
93
Utah Results: Capital Under Management
Up

94
VENTURE DOLLARS INVESTED SINCE 1995 (millions)
0
100
200
300
400
500
600
700
800
900
Utah
Kansas
Nebraska
Iowa
94
Utah Results: Beating Other
Regions

95
0.00%
Source: PWC, MoneyTree – Venture Capital Report 2014; US Bureau of Economic Analysis.
CA
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
0.80%
0.90%
1.00%
0.95%
0.64%
MA
0.59%
UT NY WA WV HI ND MT MS
0.27%
0.20%
TOP 5 STATES
0.00%0.00%0.001%0.001%0.002%
BOTTOM 5 STATES
95
2014 & 2015 Utah Results: No. 3 in VC as %GDP

96
2009 – Acquired by Adobe for $1.8 billion; 1200 employees
2012 – $1.6 billion exit; 850 employees
2010 – Acquired by PE Firm Thoma Bravo (currently $1B+ valuation)
2007 – Acquired by Symantec for $830 million; 600 employees
2011 – IPO exit of $1.5 billion; 450 employees
2012 – Acquired by Blackstone Group for $2 billion; 5500 employees
2013 – IPO exit of $500 million; 500 employees
1985 – IPO exit in Jan 1985 – Acquired in 2010 by Attachmate for $2.2 billion
1994 – Acquired by Novell for $885 million.
96
Utah Unicorns

97
2014 – Raised $150 million at $1 billion valuation
2015 – $1.68 market capitalization at IPO.
2014 – $1.5 billion current market capitalization
On Deck – Fastest Growing Startups
2015 – Raised $70 million at $500 million valuation
2015 – Over $100 million revenue run rate
2015 – #11 on the Inc. 5000 list (18,787% 3-year growth)
97
Utah Unicorns

9898
Utah: The Next Silicon Valley

9999
Utah: The Next Silicon Valley

100
THANK
PAUL AHLSTROM
@PAULAHLSTROM

101
 Monetizable Pain. Understand the job the customer is trying to perform and then identify the
problem the person is experiencing in context of doing that job. Context matters. Frequency
matters.
 Rapidly Growing Market. The market doesn't have to be large today, but it must be rapidly
growing and have the potential to be huge.
 Focus on the problem. "Fall in love with the problem not the solution." Uri Levine
 Free. Good enough and free wins every time. Difficult to sell consumer apps, if you have critical
mass, there are other ways to monetize the installed base.
 Value for single user. Must provide enough value to a single user. (in other words a single user
must get value out of the app and not require a network effect in order for it to be useful)
 Data. Goal is to create critical mass of crowd knowledge - Accumulated or automatically
generated (data is the end game)
 Frequency. Must use it two or more times a day. (toothbrush) (Frequency of use trumps level of
pain)
 Think Big. You are not thinking big enough if you are not putting someone out of business
 Emotion drives WOM. If there is no emotional engagement with your product, there is no word of
mouth. (must meet or trigger a basic human need- Need to feel loved, feel important, food,
shelter, clothing, need for variety, entertainment, need to create)
 Good enough MVP. The enemy of good enough is perfect. In a can vs can't scenario, good
enough wins. (MVP ok)
10 Rules for Consumer Apps

102
1. Policies. Continue positive investment friendly
government policies
2. Ecosystem Development. Support Entrepreneur
ecosystems to accelerate the development of
innovation, entrepreneurship and investment capacity
3. Think Globally. Help entrepreneurs think globally.
4. Liquidity. Increase Liquidity options for companies
5. Trust. Increase Trust to Increase Foreign Direct
Investment

What is the BIG Idea? by Paul Ahlstrom

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