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A 4-minute guide to defining your market size

This is the first in our series on how to grow your startup from seed stage (where you have developed your prototype with some angel funding) to being worthy of a series A investment.

The market size or total addressable market (TAM) is very likely the first filter any VC will use to screen your startup. If the TAM is too small, then your startup is an easy pass.

But in reality, most consumer-focused startups we see in Asia have very large TAMs, and only few B2B startups are targeting markets that are too small.

Nevertheless, you need to be able to define and quantify your TAM when pitching for investment.

Why is TAM so important?

Early-stage investors like us always look for companies who are capable of returning at least 50x on an investment. If the average seed-stage company in Hong Kong or Singapore is valued at around US$5 million, then we would need to see a path for a company to achieve a US$250 million valuation.

https://www.techinasia.com/talk/validating-tam

 

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BUSINESS MODEL CANVAS

BUSINESS MODEL CANVAS

The way to plan the future. Perfectly

This page contains all the useful information you need to start exploiting BUSINESS MODEL CANVAS potential and plan your way to success.

What is it?

BUSINESS MODEL CANVAS is a strategic business and lean management document, which has become an international standard to quickly visualise how a company or a startup creates, distributes and brings value to its customers.
This model was proposed by Alexander Osterwalder in 2004 in his first book “The business model ontology”. It was subsequently improved upon by the author, together with Yves Pigneur, Alan Smith and the collaboration of a community of 470 experts in 45 countries around the world.
For convenience, we have shortened the name to “business model canvas” or BUSINESS MODEL CANVAS. (Since there are only 4 BUSINESS MODEL CANVAS’s, I would remove this sentence and continue to use Business Model Canvas for SEO matters, even if we then have to check if these portions of text are really indexed or are part of non-public pages?)

Why use it?
BUSINESS MODEL CANVAS allows us to understand, summarise and share a lot of information in a simple way and in a language that everyone can understand.
It also gives us a global vision of the entire business system and its dynamics with the external market.
The power of this tool also lies in the visual and collaborative aspect that allows for different people to discuss (team work) and generate new ideas and solutions.

For startups, it is a strategic tool especially at events and bar camps.

When to use a BUSINESS MODEL CANVAS 
Making a BUSINESS MODEL CANVAS is an operation that can be done at any time but it is very advisable when the following factors appear:

  • new threats from the outside (new competitors, new markets, etc.)
  • new needs that require different support (possible new customers, better technologies, etc…)
  • slowness in business operations (reduced earnings).

How do you use it?
The structure of a BUSINESS MODEL CANVAS resembles that of a table with 10 boxes. The latter can be completed and commented on by the appropriate editor and also by your collaborators.

The following list details the individual blocks of BUSINESS MODEL CANVAS:

Key Partner
Show all the companies (but also the NGO’s and cooperatives) with whom to start up a close collaboration in order to create value to offer your customers. Include in this list also: strategic alliances, suppliers and collaborators.

Key activities
Show a list of activities to be done to create value to offer your customers in three main areas: idea conception, production and promotion.

Value Proposition

The Value Proposition represents the heart of every company or startup and is a key activity to create value to offer your customers. We advise you to carry out the activity by choosing the ideas on a list and ranking them by answering the following questions:

  • what problem do I solve?
  • why does anyone need this solution?
  • what are the hidden causes behind this problem?

    Tips from Michael Hendricks
    Creating an adequate Value Proposition is a fundamental step, which is why we contacted Michael Hendricks, CEO of Uncompress, the Californian company that has created a revolutionary compression engine:

    “The only way to get to your customers is to analyse the market segment and collect the value propositions of your competitors so as to understand how your company can solve a user problem that no one has answered yet.
    Once you have identified the value, immediately share it with your colleagues and make a very rough prototype to try with friends and relatives to see if the idea works”

Customer Relations

Describe how you plan to acquire and retain customers.
These are our tips for building solid relations:

  • carry out effective corporate communication, one that captures the feeling of your target
  • make a prototype to test your customers’ experience
  • improve flows and processes to and from customers. The key word for the success of an excellent customer relation is efficiency!

Customer Segments

Separate customers into groups defined by needs, interests, relation types and distribution channels.
Donald Nielsen, Head of the Google Mobile User Experience, has some tips for you:

“To fully understand the needs of the users you want to contact, the only advice is to start with an exploratory phase, in which, together with your collaborators, you perform 5-8 interviews to analyse the previous experience of people in the area that you wish to perform. Next, analyse the video or audio of the interview and compare it with the notes collected to create a sort of identikit of your typical customer, which we call a persona . The latter is a very powerful tool because it helps you give a face to your customers through real needs and frustrations”.

Key Resources
List what the company or startup needs in order to produce the value to offer the customer. Resources can be physical, human, cultural, digital and financial. Remember to rank this list in relation to the value offered.

Channels
Imagine the means by which the value offered reaches your customers in the communication, sales and distribution phases.
Jack Blackfield of Nutshell, a successful startup for the creation of Smartwatch, recommends you do the following:

  • draw up a ranking of the channels by order of importance
  • postulate what the life cycle of a purchase flow might be
  • simulate the shopping experience with some minimum viable products

Cost Structure
Enter the list of fixed and variable costs that the company or the startup will face to create the value. Software tips: we suggest you use the Editor table tool and use the global cost view, by selecting the tables and generating a chart from the toolbar.

Revenue Streams
After the cost list, remember to include the revenue from the different types of customers, divided by category of value offered. We also recommend you to:

  • examine customer payment methods
  • improve the object or service they are buying
  • define the prices

We have added a block to the business model canvas called Brainstorming Stage that you can use as a container to collect ideas, suggestions or personal or company team notes.

Here are some examples: marketplace model, free model, freemium model, subscription model, on-demand model, experience model, hypermarket model, ecosystem model, pyramid model, access-over ownership model.

https://www.pgf500.com/tutorial

 

  • Useful resources
    Two books we recommend to further improve your knowledge of the topics are written by Alexander Osterwalder, creator of BUSINESS MODEL CANVAS:
  • Osterwalder, Y. Pigneur (2009) Business Model Generation
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3 metrics that matter when evaluating early-stage SaaS startups

2018 is shaping up to be one of the biggest years ever for venture capital, with over US$84 billion already invested with a full quarter yet to go. News reports of US$100 million venture rounds are seemingly commonplace.

Yet, data indicates that a large percentage of early-stage startups raising money this year will ultimately fail. And most of the remaining ones will pivot in order to survive and hopefully thrive.

This begs the question: What exactly are investors and lenders looking at when determining which companies are “financeable?”

https://www.techinasia.com/talk/3-metrics-evaluating-early-stage-saas-startups

 

 

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Meet the 50 top-funded startups and tech companies in China

Which company in China is most likely to challenge the West? One way to judge – although imperfect – would be the amount of money they have raised. Using Tech in Asia’s data, we’ve generated this constantly updated list of 50 startups and tech companies in China who have raised the most money from investors.

To keep the list fresh, we’ve only included funding data from the past two years.

Seeking more? Search the most comprehensive database of tech companies in Asia or read our Research methodology.

https://www.techinasia.com/top-funded-startups-tech-companies-china

 

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3 Major Industries And Their Next-Gen Disruptors

TrueBridge Contributor Group

Venture Capital

Produced by Forbes in partnership with TrueBridge Capital Partners, the Next Billion Dollar Startups List recognizes 25 of the fastest-growing companies in tech and provides insight into the industries they are transforming. While last year’s list was highly concentrated in five industries, this year, the high-growth startups on our list are more diverse than ever.

Among the sectors represented by this year’s list are insurance (Lemonade), payments (Flywire), security (Anduril Industries, Auth0), hospitality and travel (Sonder, Away), and many more. Here are the three industries and their sub-sectors that have the greatest concentration of startups on their way to billion-dollar valuations.

Consumer Products & Technology

With the traditional retail industry in ongoing crisis, the internet has become a refuge for many fashion brands. According to CB Insights, competition in the fashion space has been increasing, especially with the rise of online-first brands using technology to transform their businesses and the industry.

https://www.forbes.com/sites/truebridge/2018/10/17/3-major-industries-and-their-next-gen-disruptors/?utm_source=CB%2BInsights%2BNewsletter&utm_campaign=8ad728dc29-WedNL_10_24_2018&utm_medium=email&utm_term=0_9dc0513989-8ad728dc29-87406845#7cb032ed3773

 

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Liquidation Preference: Your Equity Could Be Worth Millions—Or Nothing

In 2014, mobile security startup Good Technology was valued at $1.1 billion. Employees thought their equity packages were winning lottery tickets. They were wrong.

One year later, Good sold for $425 million. Employee share prices tumbled from $4.32 a share to $0.44. While executives made millions, employees—some of whom paid $100,000+ in taxes on their equity—made next to nothing.

Good Technology’s situation isn’t uncommon. Like so many startups, it had investors and board members whose equity was protected by high liquidation preference—a guarantee that they get paid first and at least a certain amount when the company sells. When startup investors make millions in a sale, but money runs dry before reaching employees, a bad preference stack is often the cause.

To avoid being surprised when the company you work for is acquired, you need to understand what preferences are, why they’re important, and how you can negotiate around them.

What A Preference Stack Is & Why Startups Need Them

If your equity package works out to 0.1% of the company, shouldn’t you be entitled to 0.1% of the acquisition? Startup financing isn’t that simple.

When a startup is sold, the money it makes is paid to shareholders in a predetermined order, called its “preference stack.” As a rule, employees are last, while shareholders with liquidation preference (LP) come first.

Three factors affect liquidation preference, and understanding them can give you a better sense of who gets paid how much and when:

  • Multiple: This decides how much money an investor will be paid. A 1x multiple—standard for mid-stage companies—guarantees the investors get 100% of their money back. Higher multiples become more common in later-stage companies.
  • Seniority: This is an investor’s place in the preference stack. Most unicorns have a “pari passu” structure, in which all investors with liquidation preference are paid simultaneously. However, between 2015 and 2016, there was a 60% increase in deals that gave “senior” preference to later-stage investors—meaning they get paid first.
  • Participation: There are two types. In standard, “non-participating” preference, an investor with a 1x multiple and 10% ownership chooses to either be paid 1x of their investment or 10% of the acquisition price. In “participating” preference, the investor gets both. The latter arrangement is rare—as of 2014, only 31% of deals included participating preference, and they generally include a payout cap.

 

 

https://angel.co/blog/liquidation-preference-your-equity-could-be-worth-millions-or-nothing?email_uid=810303382&utm_campaign=platform-newsletter-101818&utm_content=read-more&utm_medium=email&utm_source=newsletter-newsletter&utm_term=

 

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Should you raise money or bootstrap? by Elizabeth Yin

Should you raise money or bootstrap?  (By bootstrap, I actually mean raise < $250k from individuals / angels).

Having run a startup that raised money and now in running a VC, ironically, if I were starting a product company today, I would start out with the mentality of bootstrapping for as long as I could.  And, maybe, just maybe, I might consider raising more money under a few limited circumstances.

I would raise more than $250k if I had a company that:

1) Was growing 30%+ MoM in sales and my operations could not keep up to fulfill those sales

I’ve noticed for operationally-heavier companies (i.e. not SaaS businesses but generally tech enabled services or alike), it can be easy to grow your sales quickly, but often these companies need to throttle their growth, because they do not have enough people to fulfill these services.

2) Was a marketplace with high engagement

Marketplaces tend to be “winner take all” businesses, because they are only valuable if both the supply and demand sides are both liquid and efficient.  And, this happens when you have a lot of supply and demand, which means to really thrive, you need to be willing to invest in a land-grab on both sides.

 

http://blog.elizabethyin.com/post/179189593325/should-you-raise-money-or-bootstrap