1. © John Mullins 2015 Who Needs Investors? @John_W_Mullins London Business School 1

2. © John Mullins 2015 Bill Sahlman Puts it Simply “The best money comes from customers… not investors.” 2

3. Is Sahlman Right? 3© John Mullins 2015

4. And What About Start-Ups or Your New Ideas? Fred Wilson: Union Square Ventures –“The amount of money that start-ups raise in their Seed and Series A rounds is inversely correlated with success.” 4

5. © John Mullins 2015 Why Might This Be So? –Talk with your neighbor 2 minutes 3 top reasons, please 5

6. © John Mullins 2015 Why Might This Be So? My take on it: –Too much money makes entrepreneurs sloppy, stupid –Plan A for any new idea rarely works. But the investor wants the entrepreneur to (flawlessly) implement it anyway! Question: Might it be wiser to follow Sahlman’s advice? But how? 6

7. © John Mullins 2015 Here’s How Not to Do It 7

8. © John Mullins 20158

9. So, Would You Invest in Ali G? Fact: the vast majority of fast-growing businesses never raise venture capital (nor write business plans, either) Nor should they, I argue: why? Raising capital (especially too early) – whether from angels or VCs – is a dangerous practice, on both sides of the table 9

10. © John Mullins 2015 The Killer Drawbacks of Raising Venture Capital Distraction: takes the entrepreneur’s eye off the ball, now, and later, too Higher risk = lower stake for the founder And the baggage that comes with it in the shareholders’ agreement Is this good news for the investor in such a deal? 10

11. Let’s Consider Some Evidence: US Venture Fund Returns Returns from inception to 12/31/11. Source: Josh Lerner analysis of Thomson/Reuters data. © John Mullins 2015 11

12. So, Is There an Alternative? The Customer-Funded Business 12© John Mullins 2015

13. Is Anything New Here? –Talk with your neighbor Identify examples of companies that have actually put one of these models to work – maybe even yours! Two minutes – go! 13

14. © John Mullins 2015 Is Anything New Here? Pay-in-advance models: Consultants, architects, Dell. Nearly all services, too. Matchmaker models: eBay, Expedia Subscription models: Periodicals, Netflix Scarcity models: Zara Service-to-product models: Microsoft But let’s look at some savvy 21 st century entrepreneurs putting them to use 14

15. Vinay Gupta 2006: A Pay-in-Advance Model © John Mullins 201515

16. Brian Chesky & Joe Gebbia 2007: A Matchmaker Model © John Mullins 201516

17. Krishnan Ganesh 2005: A Subscription Model 17© John Mullins 2015

18. Krishnan Ganesh 2005: A Subscription Model © John Mullins 201518

19. Jacques-Antoine Granjon 2001: A Scarcity Model © John Mullins 201519

20. Balder Olrik, Claus Moseholm 2003: A Service-to-Product Model © John Mullins 201520

21. © John Mullins 2015 These Examples Share Three Attributes in Common Negative working capital – love thy float! They required essentially no external capital to get started When they did raise capital to grow once the concept was proven, there was an eager queue of angels or VCs lined up at their doors 21

22. © John Mullins 2015 So, What About You? Which of the five models might be put to work in your business – tomorrow? –Pay-in-advance model –Matchmaker model –Subscription model –Scarcity model –Service-to-product model Talk with your team: which might work? 5 minutes 22

23. So, Which Did You Choose? 23© John Mullins 2015

24. Have I Said This is Easy to Do? No! But it’s what many of you already intuitively know Now there’s a set of tools – five models – you can use Can you do this for every business? But note: Have we seen here both goods and services, both B2B and B2C? 24

25. © John Mullins 2015 So, Is Venture Capital Bad for Growing Your Business? Not necessarily. It’s the timing that concerns me. And it concerns Fred Wilson, too! If you’ve found a venture that’s clearly firing on all cylinders, that’s when to add fuel! 25

26. © John Mullins 2015 A Final Observation on Business Plans “We believe that… 26

27. For the “When-to”, the “How-to” and the Pitfalls to Watch out for … One of 5 “not-to-be- missed” books, 2014 Number 1 in venture capital, Amazon.com, November 2014 27© John Mullins 2015

28. In a Nutshell… “The customer is not just king. He can be your VC, too!” Bernie Auyang Angel Investor and Entrepreneur Shanghai 28

29. © John Mullins 2015 Questions? jmullins@london.edu www.TheCustomerFundedBusiness.com @John_W_Mullins 29