Everything you need to know about VC

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Ben FOWA.ppt

Everything you need to know aboutVenture Capital

20 February 2007

Ben HolmesIndex Ventures

Who we are

1.3bn under management

Active investor in web / internet

Pan European Venture Fund

Based London & Geneva

Index Ventures

Selected Investments

Agenda

Overview of Venture Capital

When to raise VC finance?

Strategies for VC fundraising

How to choose the right VC partner?

Venture Capital Size of market

US - 2006 $25.7bn 1446 transactions $10.5m average investment

Europe - 2006 4.1bn 867 transactions 14m average investment

55% of transactions within broad IT sector

However rapid increase in Web application investments UK 2005 - 24m invested UK 2006 - 79m invested

Sources: Dow Jones VentureOne, Paul Fisher at FirstCapital

Venture Capital How the VC makes money

Raise fund every 2-4 years Pension funds, financial institutions and specialist

fund of fund investors

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

Very small management fee on funds managed~ 1-2.5% pa

Carry~ 20-25%x (Total Return Total Amount Invested)

Venture Capital Stages of Investment

Seed Early StageSeries A, (B)Later Stage(B),C,D

Pre-IPO / Buy-out

PrivateEquity

InvestmentSize

PotentialSources ofFunds

0 - 1m

Grant-funding

University seedfunds

Friends andfamily

Angel Investors

(Venture Capital)

2m-20m

Venture Capital

(Wealthy)Angel investors

5m-20m

Venture Capital

30m+

Specialist Latestage techinvestmentfunds

Hedge Funds

Venture Capital What a good VC will add

Advice and Strategy

Hiring Developers Country Managers Sales CEO / CFO / COO Advisory Board

Partnerships

Profile and PR

Internationalisation

Trusted serviceprovider relationships

Search / recruiting Branding / PR Finance, etc

Exit optimisation Knowledge / contacts

with relevant buyers Experience with

process

VC Case Study

Company Creation Index acting as Interim Mgmt

Team Recruitment Mattias Miksche as CEO

Relocated to Stockholm

Board Hiring Fred Davis

Additional Finance Sequoia Capital

Celebrity Partnerships

Fashion Industry Partnerships

VC Case Study

Company establishes HQ inLondon

Few hundred meters fromIndex

Day to day contact withfounders

Team Recruitment Mike Volpi, Cisco as Chairman Saul Klein, Head of Marketing Etc.

Exit strategy Index plays key role in

navigating multiple buyerdiscussions

Successful exit to eBay2.5bn+

Venture Capital Typical Deal Terms

Target 20-35% ownership

Board Representation

Liquidation Preference

Participation rights

Element of reverse vesting

Certain control and veto rights

Option Pool

Period of exclusivity to close legals

but thats sounfair

Photo Source: Philip Greenspun, MIT

Agenda

Overview of Venture Capital

When to raise VC finance?

Strategies for VC fundraising

How to choose the right VC partner?

Good reasons to raise VC

Large PotentialMarket Opportunity

Unique Product Or Concept

ExcellentDevelopment

Capability

Pre-requisites

Intensecompetition

likely

Need to moverapidly

Implications

Hiring

Infrastructure

VC funding supports

Rapid Product Development

Internationalisation

Partnerships

Commercialisation

When NOT to raise VC

Applicationis a feature

not a product

Market size istoo small

Motivation isnot financial

Risk is not that you waste time unsuccessfully tryingto raise finance

real danger is that you do succeed in raising VCfunds

Lose opportunity for small exit which could bepersonally lucrative

Lose opportunity to run lifestyle business Get bound in to 3+ yrs work you may not enjoy

Agenda

Overview of Venture Capital

When to raise VC finance?

Strategies for VC fundraising

How to choose the right VC partner?

The top tips

Have a great product

Focus predominantly on thebusiness not fundraising

Evidence of executional ability ismore exciting to VC than a 100page business plan

Identifying relevant VC partners

Has funds to invest

Match of Size/Stage/Geography

RelevantPortfolio

No directlycompetitiveinvestments

Excellenttrack record

Shortlist

Do create a shortlist

Rifle is a better weaponthan a shotgun

Good free sources on VC fundinghttp://www.thealarmclock.com/euro/http://www.vecosys.com

Getting on radar screens

Out of the blue email is a longshot

Try to build context Analyse portfolio companies are there any links

there Analyse contact network and advisors Analyse press coverage Participate in blog conversations Attend events and conferences Relevant PR around product also helps

VCs spend their time looking for businesses withmomentum

Sharing relevant information

100 page business plan notrequired

20 page ppt which clearlyanswers main questions isbest bet

Product Market Business Model Team Competition Product Roadmap Technology Overview Business Development Financial Status

Pre - first meeting Pre - termsheet Post - termsheet

Dialogue rather thandocumentation expectlots of meetings

Calls with current /prospective customers orpartners

Meeting broader team

Brainstorming aroundstrategy

Identifying key hires postclosing

Formal presentation to VCpartnership

Some additional referencecalls with partners /customers

Personal reference calls

Legal / accounting audit (ifrelevant)

Drafting legaldocumentation

2-4 weeks 1-2 Months

Agenda

Overview of Venture Capital

When to raise VC finance?

Strategies for VC fundraising

How to choose the right VC partner?

Valuation should not be the decisive factor

Value at exit

Probability of getting there

% share of business at exit

Entrepreneurs Equation Revenues / Profitability

Growth rate

Team quality

Strategic fit with buyer community

Well managed exit process

Fewest strategic errors made

Hiring (quality & speed)

Partnerships

Product development

Valuation at initial round

Valuation and dilution atsubsequent rounds

Option grants

Key things to consider

1 . RelationshipWith key individual(s); andbroader team

2 . ReferencesSpeak to other founders

3 . PortfolioRelevant experienceNon competitiveCommunity you want to bepart of

4 . Valuation and associateddeal terms

Right partner at a fair price

vs.

Any partner at best price

Thank you

Ben Holmes

Email: benh@indexventures.com

Skype: ben_holmes

Stardoll: binky2128

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