1 chapter 12 professional venture capital entrepreneurial finance

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1 Chapter 12 PROFESSIONAL VENTURE CAPITAL ENTREPRENEURIAL FINANCE

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Page 1: 1 Chapter 12 PROFESSIONAL VENTURE CAPITAL ENTREPRENEURIAL FINANCE

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Chapter 12

PROFESSIONAL VENTURE CAPITAL

ENTREPRENEURIAL FINANCE

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Chapter 12: Learning Objectives

Discuss the history & current status of venture investing in the U.S.

Explain the professional venture investing cycle and its relevance to entrepreneurs seeking professional venture capital

List major elements in the design & structure of a venture capital fund

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Chapter 12: Learning Objectives Describe the venture capital screening

process & list characteristics central to determining a venture capitalist’s willingness to invest

Discuss the various roles a venture capitalist can take in providing financing and services to an emerging venture

Enumerate several terms or conditions to be negotiated when structuring venture capital financing

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Historical Development of Professional Venture Capital职业风险投资的发展历程 Venture Capitalists (VCs): 风投资本家

individuals who join in formal, organized firms to raise and distribute venture capital to new and fast-growing ventures

Pre-World War II Era:Most venture investing came from wealthy individuals and families

1946: Beginning of Professional VCsFormation of American Research & Development (ARD)

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Historical Development of Professional Venture Capital (cont’d)职业风险投资的发展历程

ARD’s Early Performance• $3.5 million was raised ($2 million from

institutional investors)

• By end of 1947, ARD had invested in eight ventures, six of which were startups

• By 1951 the performance was still lack-luster (stock price was at $19 down from the initial offering price of $25 in 1946)

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Historical Development of Professional Venture Capital (cont’d)职业风险投资的发展历程 1953:

• Small Business Administration (SBA) was formed

• Legislation permitted the federal government to actively engage in fostering new business formation

1958:• SBA Created Small Business Investment Companies

(SBICs)

• Due to tax and leverage advantages, the SBIC became the primary vehicle for professionally managed venture capital

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Historical Development of Professional Venture Capital (cont’d)职业风险投资的发展历程 ARD’s Later Performance:

• In 1957, ARD had invested $70,000 in the startup company Digital Equipment Corporation (DEC)

• 1972, ARD was sold for $813 Per Share

• Original ARD investors received a compound annual return of 14.7% due primarily to DEC

• Without the DEC investment, the rate of return would have been only 7.4%

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Historical Development of Professional Venture Capital (cont’d)职业风险投资的发展历程 Late 1960s-Early 1970s:

• Boom-Bust Cycle: Many SBICs began having operating problems due to the mixing of risky venture investments & high financial leverage (debt service commitments)

1970s:• Professional VC organizational structure

changes

• Movement to private partnerships from public firms & volatile financial markets

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Professional Venture Capital Investing Cycle职业风险投资周期

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Useful Terms 专业术语 Carried Interest: 附带权益

portion of profits paid to the professional venture capitalist as incentive compensation

Two and Twenty Shops: 2%--20% 附带权益

investment management firms having a contract that gives them a 2% of assets annual management fee and 20 percent carried interest

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ORGANIZING THE FUND:组织基金VC Fund Placement Memorandum

Front-matter Declarations State Securities Disclosures Offering Summary Fund Overview Executive Summary Summary of Terms

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SOLICITING INVESTMENTS: Suppliers of Venture Capital – 25-Year

Average

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OBTAINING COMMITMENTS:争取承诺Arrangements with Fund Investors

Capital Call:when the venture fund calls upon the investors to deliver their investment funds

• Common to require subsequent investments consistent with the levels of investors’ initial contributions

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DUE DILIGENCE AND ACTIVE INVESTING: 尽职调查和主动投资VC Fund Management 风险投资基金管理

Deal flow: 交易量flow of business plans and term sheets involved in the venture capital investing process

Due diligence (in venture investing context): 尽职调查风险投资的环境process of ascertaining the viability of a business plan

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VC Screening Criteria风险投资的筛选标准

1. Venture Capital Firm Requirements 风险投资公司的要求 2. Characteristics of the Proposal 投资项目的特色 3. Characteristics of the Entrepreneur/Team 企业家 / 管理团队特色 4. Nature of the Proposed Industry 投资行业的性质 5. Strategy of the Proposed Business 拟议的业务策略

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VC Screening Criteria风险投资的筛选标准

1. Venture Capital Firm Requirements 风险投资公司的要求

• Cash out potential 套现潜力• Equity share 股本份额• Familiarity with technology, product, market

• 熟悉技术,产品,市场• Financial provisions for investors

• 对投资者的财务规定 • Geographic location 地理位置 • Investor control 投资者控制

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VC Screening Criteria风险投资的筛选标准

Venture Capital Firm Requirements (cont’d)风险投资公司的要求

• Investor group 投资集团 •Rate of return 投资回报率 •Size of investment 投资规模•Stage of development 发展阶段

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VC Screening Criteria风险投资的筛选标准

2. Characteristics of the Proposal

投资项目的特色• Requirement for additional material

• 要求提供的其他资料• Stage of plan

• 各阶段发展计划

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VC Screening Criteria风险投资的筛选标准3. Characteristics of the Entrepreneur/Team

• a. Ability to evaluate risk 评估风险的能力• b. Articulate regarding the venture 阐明企业性

质• c. Background/experience 背景 / 经验• d. Capable of sustained effort 持续努力的能力• e. Managerial capabilities 管理能力• f. Management commitment 管理层的承诺 • g. References 参考资料• h. Stake in firm 在公司拥有的股份

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VC Screening Criteria风险投资的筛选标准

4. Nature of the Proposed Industry

投资行业的性质• Market attractiveness 市场吸引力• Potential size 潜在规模• Technology 技术• Threat resistance 进入行业的威胁性

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VC Screening Criteria风险投资的筛选标准

5. Strategy of the Proposed Business 拟议的业务策略

• Product differentiation 产品差异• Proprietary product 专利产品

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Screening Outcomes筛选结果

1. Seek lead investor position 寻求主要投资者的地位 2. Seek a non-lead investor position 寻求非主要投资者的地位 3. Refer venture to more appropriate

financial market participants 与更优金融市场参与者比较 4. SLOR (standard letter of rejection) the

venture 拒收接受的标准信函

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Structuring a VC Investment构建风险( VC )投资

Term Sheet: 条款清单summary of the investment terms and conditions accompanying an investment

Typical Issues Addressed in a Term Sheet• Valuation 公司的价值评估• Ongoing funding needs 持续的资金需求• Size and staging of financing • 根据规模和经营阶段的融资• Preemptive rights on new issues 对新股的优先购买权• Commitments for future financing rounds and

performance conditions 对未来融资与业绩条件的承诺• Form of security or investment 股票或投资形式• Redemption rights and responsibilities• 股票回购的权利和责任

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Structuring (cont’d)构建风险( VC )投资

Typical Issues Addressed in a Term Sheet• Dividend structure (Number of VCs and outsiders)

• 股息结构(风险投资和外部股东的比率)• Additional management 额外的管理• Conversion value protection 转换价值的保护• Registration rights 注册权• Exit conditions and strategy 退出条件和策略• IPO-dictated events (e.g. conversion)

• 首次公开招股(如转换)• Co-sale rights (with founders) 共同出售权(与创始人) • Lock-up provisions 禁售规定

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Structuring (cont’d)构建风险( VC )投资

Typical Issues Addressed in a Term Sheet• Employment contracts 雇佣合约• Incentive options 奖励方案• Founder employment conditions: compensation, benefits,

duties, firing conditions, repurchase of stock o termination, term of agreement, post-employment activities and competition

• Founder stock vesting

• Confidentiality agreements and protection for intellectual property