michigan business brokers association the venture capital process december 8, 2015 presented by tgap...
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Michigan Business Brokers Association
The Venture Capital Process
December 8, 2015
Presented by TGap VenturesGeneral Partner: Jack Ahrens
Michigan Business Brokers Association
What is Venture Capital
Equity InvestorsRarely Debt InvestorsBuild for the FutureNeed an Exit
Michigan Business Brokers Association
VC Economics
Look at 300-500 deals per yearInvest in 2-3 per year (less than 1%)Each partnership will have about 10 deals3-5 will become worthlessAbout 50% will break even10-15% provide the returnWe need to get 40-50% IRR
Michigan Business Brokers Association
Most Good Deals Never Get VC
The deal may be very good but not scaleableThe cost to close a deal is so high ($25k-$40K) that it has to be a large financing to be practicalVC’s are people and time constrained and need to be able to place large bets
Michigan Business Brokers Association
VC Investment Philosophy
Invest in good people.Invest collaboratively.Invest early through preferred or other equity instruments.Invest where formative assistance in building business infrastructure, management teams, and boards is welcome.Invest in products differentiated by defendable intellectual property or positioning.Invest where a financial exit or liquidity event is expected within 5- 7 years.
Michigan Business Brokers Association
Key Factors
Management Strengths and WeaknessesIP or Point of DifferentiationBusiness Model and ScalabilityFinancial NeedsExit Options
Michigan Business Brokers Association
Is VC Right for You?
Are you willing to bring on partners?Can you delegate authority to other management team members?Do you want to build a large business?Are you willing to give up control?Are you willing to sell your business?
Michigan Business Brokers Association
Valuing a Venture Investment
Art not a ScienceThere is no correct answerThe earlier the stage the more subjectiveRanges from Gut feel to discounted cash flows
Terms affect the valuationCommon, Preferred, liquidation, warrants
Michigan Business Brokers Association
Pricing inflection pointsfor medical deals
ConceptPrototypeAnimal dataHuman safety dataHuman efficacy dataFDA filing – 510K or PMAFDA approval
Michigan Business Brokers Association
Pricing inflection points for Software deals
ConceptBeta site1st commercial orderRepeat orders$1M in sales$10M in sales
Michigan Business Brokers Association
The most important factors in obtaining a 1st round
Pick you partner (VC/investor that understands you business)
Get it DONE!Terms of the dealPRICE
Michigan Business Brokers Association
The Value of Venture Capital as an Investor
Devil’s AdvocateFuture financing capabilityContactsIndustryPeopleCustomersPast experiences
Michigan Business Brokers Association
Phase 1 – Get the VC’s Attention
Good Executive Summary 3-5 pages Describe the need or current pain in the market Describe the product and why it is better Describe business model – how are you going to
sell it and how are you going to make money Describe the Management and their backgrounds Include brief financial projections
Michigan Business Brokers Association
VC Hot Buttons in an Executive Summary
Pitfalls to avoid and things to include Spelling/grammar checking – it is standard with
MS Word – use it Give address, contact name, number and email Be sure that financial data foots and is consistent Don’t be overly technical in product description Don’t use a lot of industry jargon or acronyms
Michigan Business Brokers Association
First Meeting
Short power point presentationBring prototype if possibleTry to draw VC into presentation with questions Bring at least 2 management people if possible Shows depth Let the expert answer the question Personalities are all different one is bound to click
Ask for next stepsLISTEN TO WHAT IS SAID
Michigan Business Brokers Association
Financial Statements
Only a starting pointMake dynamic with detailed assumptions1-2 years monthly with cash flows2-3 years Quarterly
Michigan Business Brokers Association
Things Not to do When Talking to VC’s
Over represent the product developmentClaim to have all of the answersExaggerate other VC interest levelsSay that you have no competitors“First Mover” is not a reason to be successfulOverstate the market size – use “addressable market”
Michigan Business Brokers Association
Discussion & Questions
Thank You
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