We focus on material-based products with a development time of less than 6 months.
How we work
1
Hypothesis validation
The product hypothesis undergoes analysis and two stages of voting.
2
Making "deck"
Documentation for the initial investment is preparing for the project.
3
Raising pre-seed
On the basis of the "deck" a decision is made about financing the project.
4
Development of MVP+
MVP development, CustDev, creation of the rest of the project documentation.
On the basis of MVP +, funds are raised from business angles, Kickstarter or seed funds.
Raising Seed
Product refinement
Product development ends and the first batch is being sent out on
pre-orders.
Raising Series A
Funds are raised from traditional VC funds to scale the product.
Scaling
The project is separated from AddLab, scales and develops distribution to other countries.
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More about each stage
Hypotheses generation and validation
Two stages - generation and validation.
Generation is divided into 4 sources of hypotheses - external, internal, developed according to the analysis system for changes and developed on the value chain analysis system. Validation takes place in two stages - the first is a vote within the expert group. Then the hypothesis is analyzed from the point of view of "threshold values" - that is, market capacity, dynamics of displacement of the main players in the market, technological feasibility, market readiness for a product, distribution infrastructure in the market, competencies in a team and some others. After that, a second round of voting is held within the framework of the expert group and, if the outcome is successful, the hypothesis is accepted, drawn up according to the standard model and placed on the general schedule of the studio.
Making "deck"
When the time comes to initiate the next project, work on the hypothesis begins. Every 2 weeks, one hypothesis is initiated, in accordance with the order of launching projects prescribed in Asana in studio management. Within 2 weeks, a deeper study of the product is carried out, additional information is collected on the market, competitive environment and other static environmental factors, however, in addition, a marketing strategy, development tactics, planned technologies, pricing system, and preliminary financial modeling are built. As a result of this work, a "deck" is formed - a short presentation of 12 slides with a description of the project.
Pre-seed
The development of the "deck" is necessary for the approval of investments at the pre-seed stage. Regardless of whether investments are attracted from an external partner or from an internal pre-seed fund of the studio, a "deck" is necessary and on its basis a decision is made to finance the project.
At the pre-seed stage, an amount of $ 20,000 is attracted for a 5% share in the project in the form of a convertible loan with AddLab's obligations to redeem the share upon raising Series A if the pre-seed investor wishes.
The project estimate at the pre-seed stage is $ 400'000, the expected estimate of a typical project at the series A stage is $ 3-6 M. Thus, the multiplier of the project capitalization growth in two stages is in the range from 7.5 to 15. In the most negative scenario (m = 7.5), in order to ensure the return on investment, taking into account 20% per annum, it is necessary to observe the vitality indicator (the share of initiated projects that raised as a result series A) not less than 16%. The predicted vitality for our studio is in the range of 20 to 25%.
Development of MVP+
After attracting pre-seed investments, the most intensive stage of work on the project begins, the development and testing of MVP. Shortening the development cycle and obtaining seed investment directly affects the investment attractiveness of our studio, as it means a shorter return on investment and a higher level of vitality, respectively.
At this stage, the industrial design of the product, electronics, software is developed, product engineering is carried out and the geometry is adapted to small batch production technologies.
As a result of the development, a number of functional samples close to the final product are produced, we predict the production cost of serial production with an accuracy of +-20%. Intellectual property rights are registered, media content is also created: videos, photos.
We publish a website, work with the media, some of the funds are invested in testing the market and collecting predictors - we get data on the sales funnel, the cost of leads and channel capacities. A more detailed marketing strategy and market entry plan is being developed, and a product distribution system is determined.
This stage, depending on the project, takes from 2 to 4 months.
Based on the data obtained, financial modeling of the project is carried out, and if the results of key metrics are within the threshold values, the entire set of documentation is drawn up in accordance with internal standards and transferred to the investment manager to raise the next round of investment. If the key metrics go beyond the threshold values, we freeze the project and no longer spend time on it until changes in the external environment (reducing the cost of components, changing the culture of consumption, etc.) affect the key metrics. We recalculate key metrics for frozen projects three times a year.
Raising Seed
At this stage, the investment manager of our studio works with angelic communities, private business angels, seed funds and crowdsourcing platforms. Also, we submit project applications to key accelerators such as YC or 500Startups. At this stage, we attract from $ 120'000 to $ 160'000 for 10%, according to the company's estimate of $ 1.2-1.6 M. The capitalization growth multiplier at this stage is in the range from 3 to 4. After attracting another 10% of the company, it is distributed among the project participants in the form of bonuses. For most projects, the target market is the USA or the EU, therefore, negotiations are conducted mainly with funds from the US and EU. Investing from local seed funds greatly speeds up and simplifies the process of finding Series A investments.
Product refinement
As part of this stage, a deeper study of the product itself is carried out: a deep CustDev is carried out, the design and construction of the product is adapted to serial production technologies to reduce the cost. At the same time, optimization takes into account not only the final cost of components, but also the cost of assembly (devices are designed so that assembly is simple and fast), logistics (stacking of components in the warehouse of the assembly line, the number of products in a package that fits on a euro pallet), service ( modularity of solutions), disposal (non-toxic materials) and other stages of the product life cycle.
At this stage, the development of the device is completed, the design documentation is approved, we receive certificates and licenses for distribution in the target market, patent applications for the final product are filed under the PCT procedure, applications for industrial designs under the Hague system.
A detailed feasibility study is being developed, assembly lines are being designed, org. structure of the future company, key and reserve contractors of the organization are approved, with which NDAs and contracts for the supply of components are signed.
At this stage, a marketing strategy is also implemented - for a b2c product: this is SMM, publications in the media, collecting pre-orders, participating in contests.
The implementation of this stage lasts from 6 to 8 months.
As a result, a company appears with a product ready to enter the market, which only needs to attract investments for the launch of mass production.
Raising Series A
Since communication with venture funds begins during the implementation of the previous period, the flow of investments is laid down in the project's schedule. At this stage, we raise from $ 600 k to $ 1.2 M for 20% of the company (5% of which are bought out from the investor of the pre-seed round) with a capitalization estimate of $ 3-6 M. After attracting investments, another 10% of the company is distributed among the project participants in the form of bonuses. At this stage, work is being carried out with the largest venture capital funds in the hardware and material-based areas, such as BOLT.
Further development
Upon raising a Series A investment, AddLab exits project management, spun off into a separate company, appoints a CEO and leadership that manages, supports product release and market development.
At this stage, AddLab follows an exit strategy, trying to get out of the company's capital in favor of a strategic investor in order to return the funds to the internal pre-seed fund.
If you have a good idea for a product and would like us to validate it and, if successful, launch a startup together, click the button.
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