Everything you need to know about VC

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<p>Ben FOWA.ppt</p> <p>Everything you need to know aboutVenture Capital</p> <p>20 February 2007</p> <p>Ben HolmesIndex Ventures</p> <p>Who we are</p> <p>1.3bn under management</p> <p>Active investor in web / internet</p> <p>Pan European Venture Fund</p> <p>Based London &amp; Geneva</p> <p>Index Ventures</p> <p>Selected Investments</p> <p>Agenda</p> <p>Overview of Venture Capital</p> <p>When to raise VC finance?</p> <p>Strategies for VC fundraising</p> <p>How to choose the right VC partner?</p> <p>Venture Capital Size of market</p> <p>US - 2006 $25.7bn 1446 transactions $10.5m average investment</p> <p>Europe - 2006 4.1bn 867 transactions 14m average investment</p> <p>55% of transactions within broad IT sector</p> <p>However rapid increase in Web application investments UK 2005 - 24m invested UK 2006 - 79m invested</p> <p>Sources: Dow Jones VentureOne, Paul Fisher at FirstCapital</p> <p>Venture Capital How the VC makes money</p> <p>Raise fund every 2-4 years Pension funds, financial institutions and specialist</p> <p>fund of fund investors</p> <p>Invest money over 3-5 years~ 1/2 of investments lose money~ 1/3 of investments break even~ 1/6 of investments make (lots) of money</p> <p>Very small management fee on funds managed~ 1-2.5% pa</p> <p>Carry~ 20-25%x (Total Return Total Amount Invested)</p> <p>Venture Capital Stages of Investment</p> <p>Seed Early StageSeries A, (B)Later Stage(B),C,D</p> <p>Pre-IPO / Buy-out</p> <p>PrivateEquity</p> <p>InvestmentSize</p> <p>PotentialSources ofFunds</p> <p>0 - 1m</p> <p>Grant-funding</p> <p>University seedfunds</p> <p>Friends andfamily</p> <p>Angel Investors</p> <p>(Venture Capital)</p> <p>2m-20m</p> <p>Venture Capital</p> <p>(Wealthy)Angel investors</p> <p>5m-20m</p> <p>Venture Capital</p> <p>30m+</p> <p>Specialist Latestage techinvestmentfunds</p> <p>Hedge Funds</p> <p>Venture Capital What a good VC will add</p> <p>Advice and Strategy</p> <p>Hiring Developers Country Managers Sales CEO / CFO / COO Advisory Board</p> <p>Partnerships</p> <p>Profile and PR</p> <p>Internationalisation</p> <p>Trusted serviceprovider relationships</p> <p> Search / recruiting Branding / PR Finance, etc</p> <p>Exit optimisation Knowledge / contacts</p> <p>with relevant buyers Experience with</p> <p>process</p> <p>VC Case Study</p> <p>Company Creation Index acting as Interim Mgmt</p> <p>Team Recruitment Mattias Miksche as CEO</p> <p>Relocated to Stockholm</p> <p>Board Hiring Fred Davis</p> <p>Additional Finance Sequoia Capital</p> <p>Celebrity Partnerships</p> <p>Fashion Industry Partnerships</p> <p>VC Case Study</p> <p>Company establishes HQ inLondon</p> <p> Few hundred meters fromIndex</p> <p>Day to day contact withfounders</p> <p>Team Recruitment Mike Volpi, Cisco as Chairman Saul Klein, Head of Marketing Etc.</p> <p>Exit strategy Index plays key role in</p> <p>navigating multiple buyerdiscussions</p> <p> Successful exit to eBay2.5bn+</p> <p>Venture Capital Typical Deal Terms</p> <p>Target 20-35% ownership</p> <p>Board Representation</p> <p>Liquidation Preference</p> <p>Participation rights</p> <p>Element of reverse vesting</p> <p>Certain control and veto rights</p> <p>Option Pool</p> <p>Period of exclusivity to close legals</p> <p>but thats sounfair</p> <p>Photo Source: Philip Greenspun, MIT</p> <p>Agenda</p> <p>Overview of Venture Capital</p> <p>When to raise VC finance?</p> <p>Strategies for VC fundraising</p> <p>How to choose the right VC partner?</p> <p>Good reasons to raise VC</p> <p>Large PotentialMarket Opportunity</p> <p>Unique Product Or Concept</p> <p>ExcellentDevelopment</p> <p>Capability</p> <p>Pre-requisites</p> <p>Intensecompetition</p> <p>likely</p> <p>Need to moverapidly</p> <p>Implications</p> <p>Hiring</p> <p>Infrastructure</p> <p>VC funding supports</p> <p>Rapid Product Development</p> <p>Internationalisation</p> <p>Partnerships</p> <p>Commercialisation</p> <p>When NOT to raise VC</p> <p>Applicationis a feature </p> <p>not a product</p> <p>Market size istoo small</p> <p>Motivation isnot financial</p> <p>Risk is not that you waste time unsuccessfully tryingto raise finance </p> <p> real danger is that you do succeed in raising VCfunds</p> <p> Lose opportunity for small exit which could bepersonally lucrative</p> <p> Lose opportunity to run lifestyle business Get bound in to 3+ yrs work you may not enjoy</p> <p>Agenda</p> <p>Overview of Venture Capital</p> <p>When to raise VC finance?</p> <p>Strategies for VC fundraising</p> <p>How to choose the right VC partner?</p> <p>The top tips</p> <p>Have a great product</p> <p>Focus predominantly on thebusiness not fundraising</p> <p>Evidence of executional ability ismore exciting to VC than a 100page business plan</p> <p>Identifying relevant VC partners</p> <p>Has funds to invest</p> <p>Match of Size/Stage/Geography</p> <p>RelevantPortfolio</p> <p>No directlycompetitiveinvestments</p> <p>Excellenttrack record</p> <p>Shortlist</p> <p>Do create a shortlist</p> <p>Rifle is a better weaponthan a shotgun</p> <p>Good free sources on VC fundinghttp://www.thealarmclock.com/euro/http://www.vecosys.com</p> <p>Getting on radar screens</p> <p>Out of the blue email is a longshot</p> <p>Try to build context Analyse portfolio companies are there any links</p> <p>there Analyse contact network and advisors Analyse press coverage Participate in blog conversations Attend events and conferences Relevant PR around product also helps</p> <p>VCs spend their time looking for businesses withmomentum</p> <p>Sharing relevant information</p> <p>100 page business plan notrequired</p> <p>20 page ppt which clearlyanswers main questions isbest bet</p> <p> Product Market Business Model Team Competition Product Roadmap Technology Overview Business Development Financial Status</p> <p>Pre - first meeting Pre - termsheet Post - termsheet</p> <p>Dialogue rather thandocumentation expectlots of meetings</p> <p>Calls with current /prospective customers orpartners</p> <p>Meeting broader team</p> <p>Brainstorming aroundstrategy</p> <p>Identifying key hires postclosing</p> <p>Formal presentation to VCpartnership</p> <p>Some additional referencecalls with partners /customers</p> <p>Personal reference calls</p> <p>Legal / accounting audit (ifrelevant)</p> <p>Drafting legaldocumentation</p> <p>2-4 weeks 1-2 Months</p> <p>Agenda</p> <p>Overview of Venture Capital</p> <p>When to raise VC finance?</p> <p>Strategies for VC fundraising</p> <p>How to choose the right VC partner?</p> <p>Valuation should not be the decisive factor</p> <p>Value at exit</p> <p>Probability of getting there</p> <p>% share of business at exit</p> <p>Entrepreneurs Equation Revenues / Profitability</p> <p>Growth rate</p> <p>Team quality</p> <p>Strategic fit with buyer community</p> <p>Well managed exit process</p> <p>Fewest strategic errors made</p> <p>Hiring (quality &amp; speed)</p> <p>Partnerships</p> <p>Product development</p> <p>Valuation at initial round</p> <p>Valuation and dilution atsubsequent rounds</p> <p>Option grants</p> <p>Key things to consider</p> <p>1 . RelationshipWith key individual(s); andbroader team</p> <p>2 . ReferencesSpeak to other founders</p> <p>3 . PortfolioRelevant experienceNon competitiveCommunity you want to bepart of</p> <p>4 . Valuation and associateddeal terms</p> <p>Right partner at a fair price</p> <p>vs.</p> <p>Any partner at best price</p> <p>Thank you</p> <p>Ben Holmes</p> <p>Email: benh@indexventures.com</p> <p>Skype: ben_holmes</p> <p>Stardoll: binky2128</p>