Competition Background

Venture capitalists spend a large amount of their time identifying and tracking emerging technologies and behavioral trends. Investments in the venture business typically have an incubation period of three to five years before realizing an “exit”—the act that converts the VC firm’s original investment for shares in a company back into liquid/cash assets, typically through acquisition or IPO. Thoughtful projection of emerging trends today is the first step in the process of creating the successful companies of tomorrow.

One approach that many venture capitalists take to identify intriguing investment opportunities is to develop an investment thesis from analysis of emerging markets. An investment thesis helps to focus the investor on the type of company that will best take advantage of emerging market opportunities.

Case Study

The Partners have turned to you to create an initial investment thesis on the consumer technology market.  As a Venture Capital Associate, your task is to present an investment opinion on a specific product or service to your Partners.  The firm has asked you to frame your recommendation as follows:

  1. Identify and present a compelling product in the market today that targets the consumer. 
    1. The product should be either software (e.g. IM, cell phone games), or consumer service (e.g. email, shopping), or a CE device (e.g. electric photo frame, router).
    2. The product or service must be offered by an independent startup that is still privately held today.  (i.e. Skype and MySpace do not qualify because they have been acquired, and Yahoo! is a public company).  Acquisition announcements also disqualify the company from being a “private” company.
    3. The product or service should be valuable to a large population of consumers
    4. Successful examples of services created by former privately held startups:  Google, Skype, MySpace, eBay, YouTube.
    5. The following private companies may not be used as the case company: Facebook, Friendster, Digg
    6. Please check carefully to ensure that the product or service you have selected is offered by a private company and fits the above criteria.  An inappropriate entry will result in the submission being disqualified.  Please email questions regarding your selected offering to chris@stormventures.com

  2. Analyze the investment attractiveness of the company behind the product offering.  Some issues to consider addressing include (some criteria may be more relevant to you than others): 
    1. Market – How many people are potential users of this product or service?  How big is the market opportunity in dollars today?  How big will it be in five years?
    2. Business Model – How does the company make money?  Are there other ways to monetize the offering?
    3. Use Case – What does the end user really care about?  What will users pay for?  What will make users’ lives better?
    4. Go-To-Market Strategy – How does the company reach its users/customers?  Should it be considering another approach?  What additional channels or partners should the company look into building to effectively reach customers?
    5. Competition – Who does the company directly or indirectly displace in the market today?  Who is going to aggressively fight this new way of doing things?  Who else is going to gain from the disruption?
    6. Defensibility – How unique and defensible is this opportunity?  Is there anything to prevent competitors big and small from launching similar products tomorrow? 
    7. External Factors – What are the key steps to success out of the company’s control?  What else needs to happen in the marketplace for the company to be wildly successful?
    8. Capital Efficiency – How profitable can this company be? Is it spending smart?
    9. Depth Of Offering – Can the company be a sustainable business on its own, or is it a part of a larger vision?
    10. Exit Strategy – How can this company return liquidity/cash to its investors in the long term? Will it be able to go public on the strength of its offering? Who might be likely acquirers?  A formal exit analysis is NOT required.

Note: these are suggestions – please do not feel constrained by/committed to them. Use whatever approach you think is most effective at communicating the investment attractiveness of the company.

Please put together a 10 slide PowerPoint presentation (+1/-1 slide).  Your summary should address the two major tasks of this case in a thoughtful, concise presentation.   Approximately half the presentation should be devoted to demonstrating why the product offering is exciting from a user perspective, and the other half should be dedicated to analysis on the business opportunity.