lessons from the 0.3% highest performing private companies

Master ClassLessons from the

0.3%Highest Performing

Companies2.5.17

Proprietary & Confidential. Prepared exclusively for Founders Circle LPAC. Not for distribution in any form.

CONFIDENTIAL | 3

Proprietary & Confidential. Prepared exclusively for Founders Circle LPAC. Not for distribution in any form. 3

4 Start-ups & Co-Founded two Venture Firms

Chris Albinson @chrisalbinson #breakawaygrowth

Co-Founder & Managing Director Founders Circle Capital

Years to IPO: 3Peak Market Cap: $18BPeak Revenue/Profit: $2B/$0.2BSold: $7B

Years to IPO: 5Peak Market Cap: $12BPeak Revenue/Profit: $0.56B/($0.2)BSold: $0.34 B

Companies Staying Private Longer – 11 years

Source: SVB (Dr. Jay Ritter, Univ. of Florida, U.S. Unicorns) 9

Market

7

Proprietary & Confidential. Prepared exclusively for Founders Circle LPAC. Not for distribution in any form. 2

$3.7B$2.7B$1.0B$1.0B

The Circle #Breakawaygrowth

29 Investments

Unicorn ≠ Success

12

Science & Art of 0.3%


#Breakawaygrowth

Question: When do you have 90% confidence in an outsized outcome?

Quantitative Analysis

Qualitative Analysis

30 - 40 Investments

40,000

Companies

510

Companies

120

Companies

Performance and Velocity Analysis

Proprietary Algorithm, SVB Data, External Data

Quantitative Analysis: $40/40%/40%+

• FCC analysis • RBC Insights

• SVB insights • GP Insights

Proprietary Algorithm, Public and Private Data

Founders Circle Diligence

• Circle Unique Insight

• Domain Experts

• Management Referencing

Proprietary Data

Founders Circle Capital



40,000

Companies

20% of outcomes = 77% of value(75% via IPO)

*Total Value of venture-backed exits defined as Market Cap at IPO or Acquisition Price Sources: NVCA and Public IPO/M&A Data

30-50 IPOs & 100 M&A Exits/yr



30-50 IPOs & 100 M&A Exits

40,000

Companies

4,000 Financings/year

Companies

510 Breakawaygrowth

Companies

40,000 companies Which will be the 0.3%?

1,500 new companies/year

Median Age1

5

11


The 40 Rule:Minimum $40M in revenue with 40%

Growth with 40% Gross Margin With < 1.5X Revenue/Capital Expended

= #Breakawaygrowth

Only 510 on the planet


#Breakawaygrowth InsightsI. AmbitionII. Product Market Fit/MoatsIII. MarketIV. Unit EconomicsV. People

19

Ambition

23

Product Fit/Moats


Product Market Fit

#Breakawaygrowth Insight: 3+

28

Unit Economics


Unit Economics

What does a customer value

CAC = Customer Acquisition Cost• How much does it cost to get a paying

customer• BGC Insight: Get the toughest

customer firstLTV = Lifetime Value (of a customer)- How much will a customer pay for

value over time- BGC Insight: Retention is

everything


Unit Economics Rules

40 Rule: Founders Circle (revenue+GM+Growth with < 1.5X Capital Invested/Revenue)

70 Rule: Redpoint (combination of growth + profit % > 70BGC Insight: #1 Cause of Startup Death? Premature ScalingBGC Insight: VC Fund My life or http://www.vcfml.com/

31

People


Quality+feedback really really matters#Breakawaygrowth Insights: • Alignment with mission• Work in customer support for first

month• CEO meets every hire• CEOs have coaches; teams have

coaches• Open 360s twice a year minimum• Feed back loops, feed back loops• Measurement BGC Insight: #2 Cause of Startup Death? People issues

34

Case Study: SnapFounded May 2012


Pattern Recognition

I. AmbitionII. Product Market Fit/MoatsIII. MarketIV. Unit EconomicsV. People


Ambition


Product/Market Fitavg 2.5 billion Snaps were created every day 4Q ended

December 31, 2016


MarketIDC projects that worldwide advertising spend will grow by 18% from $652 billion in 2016 to $767 billion in 2020. Mobile advertising is the fastest growing segment of this market, and is expected to grow nearly 3x

from $66 billion in 2016 to $196 billion in 2020


Moats

Snapchat is free and easy to join, the barrier to entry for new entrants is low,

and the switching costs to another platform are also low. Moreover, the majority of our users are 18-34 years old. This demographic may be less

brand loyal and more likely to follow trends than other demographics. These

factors may lead users to switch to another product, which would

negatively affect our user retention, growth, and engagement.


Unit EconomicsFor the year ended December 31, 2016, we recorded revenue of $404.5 million, as compared to revenue of $58.7 million for the year ended December 31, 2015, representing a year-over-year increase of more than 6x. Our Adjusted EBITDA was $(459.4) million, as compared to $(292.9) million for the year ended December 31, 2015. For the year ended December 31, 2016, net cash used in operating activities was $611.2 million as compared to $306.6 million for the year ended December 31, 2015. For the year ended December 31, 2016, our Free Cash Flow was $(677.7) million as compared to $(325.8) million for the year ended December 31, 2015..”• Roughly $2.50 to acquire and monetize a new user (and getting more expensive fast with v

low and slowing growth)• Each user generates $3 in ad revenue per year• Each user costs them $3.25 in Google data center costs per year to store their pictures (so

negative gross margin still at 150M users)• Plus another $1+ per user a year in R&D costs• Plus another $1+ per user a year in G&A costs• NET: Loss of ($2.75) per user per year• Today the more users they get, the more money they lose.• Facebook makes $12/user/year in ad revenue and is world-class at advertising with the

best technology, the most data for targeting, the best reach, and the best target demographic: Moms, who control the household budget. Snap has more tweens and teens with lower disposable incomes, so the path may be difficult to get the $3/user/year to 2x, and 3x, and 4x. They may achieve it, but they haven’t yet done it. It is too early for an IPO.

• ($677,686)/year burn with $987,368 for remaining cash = 17 months of cash remaining


PeopleI. Evan Spiegel, 26 Co-Founder, Chief Executive Officer &

DirectorII. Robert Murphy, 28 Co-Founder, Chief Technology Officer &

Director


Founders Circle Filter

Capital Efficiency of Growth• Revenue over $40M – GOOD [$404]• Revenue growth over 40% - GOOD

[ 600%]• GM over 40% - FAIL [ (12%)]• Revenue/Capital Expended – FAIL

[ 2.9X 1.2B/$0.4]• FAIL

11 Year Triathlon

40,000 Start

500 Finish

lessons from the 0.3% highest performing private companies

Economy & Finance