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Venture Capital and Private Equity

Crash Course into Startup Funding

Funding Options for a Startup

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Dumb Smart

Equity Funding

•  FFF

Financial Funding

•  Banks, Insurance Companies, Pension Funds

•  Finnvera

Public Funding

•  Tekes

•  ELY-Centers

Equity Funding

•  Business Angels

•  VC Funds

•  Industrial Investors

Growth Companies •  Fast-growth companies critical for jobs and prosperity; 6-7% companies create

60-70% of net jobs.

•  VC´s are investing into fast-growth companies only. Less than 2% of companies get funded.

•  Companies in VC –active areas grow 3-4 times faster than companies from non-VC active areas

Venture Capital (VC) •  VC –funded companies create more innovations than the large companies with

their huge R&D resources

•  Since 1999 over 60% of listed companies in the US have been VC –funded. In 2006 83% of the listed companies had VC funding.

•  After IPO VC –funded companies overperform regular companies.

•  VC –funded companies created 21% of GNP and 11% of jobs in the USA in 2008.

Lähteet:  Global  Entrepreneurship  Monitor  (2002;  2009);  Gompers  &  Lerner,  (2001);  IHS  Global  Insigth  (2009);  Industry  Canada  (2005);  Lerner  (2009);  Kaplan  &  Lerner  (2009);  Kaplan,  Sensoy  &  Strömberg  (2009)  

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Growth Companies and Venture Capital

Why Venture Capital?

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Venture Competence

Strongest correlation between VC Funding and Growth

Almost impossible to reach global markets without

A Real VC has made and seen all those mistakes you are about to make

Other funding possibilities for a high-growth start-up are very limited

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The Growth Company Lifecycles

Horizon 1

Horizon 2

Horizon 3

Time

Resources and volume

New Venture Established Growth-company

•  Business planning •  Business ramp-up

•  Funding and financing •  Growth planning

•  Growth management •  Global Business

Business Angel Global VC Early-Stage VC

1 M€

10 M€

100 M€

1 year 3 years 5 years 7 years

What are the VC´s looking for?

Primary

•  Competent and Dedicated

Team

•  Unique Business Idea

•  Large and Growing

Accessible Market

•  Execution Power

Secondary

•  Fancy Strategy

•  Cool Technology

•  Protected IPR

•  Cashflow positive

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… and more precisely

Component Definition

Significant ROI potential

The real possibility of achieving an above market return within the alternative investment asset class (e.g. 10x return within three years).

Path to proftability A demonstrated, clear business strategy in conjunction with a substantial revenue model

Exit Opportunity A clear understanding of how the venture will achieve liquidity on a timeframe that is attractive to investors.

Management Team A high-energy group preferably with industry experience and the knowledge and skills to grow the company

Growing Market Large total addressable market in a high growth space, where customers are currently experiencing considerable “pain”

Compelling Value Proposition

A product or service that is unique, with a compelling value proposition. Are you merely building a better mousetrap or are you creating an innovation with transformative value?

Mature Management A founder and executive team willing to share ownership and control in exchange for capital, to help the business grow quickly. If you do not understand this concept, go back to your day job

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Mentalities of Risk and Return – The Matrix

Risk

Return

The Actual Risk/Return Function

Finnish Way (Risk Minimizers’)

Maximum Risk

Finnish way (Risk Minimizers’) Maximum Possible

Return

Finnish Way (Risk Minimizers’)‏

Feasible Investment Set

The US VC’s Feasible Investment Set

The US VC’s Maximum Possible Return Minimum Possible Return

The GAP

ROI = 0

The Commercial VC’s Minimum Risk Maximum Risk

0 1 M€ 5 M€ 50 M€ 0,5 M€ 0

1M€

10M€

100M€

1000M€

20 M€ Total Funding

Market Cap

Lifestyle Entrepreneurship

Growth Entrepreneurship

What to Demand from a VC?

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§  Industry competence and focus around it

§  Personal experience from successes and failures

§  Extensive network and ability to help with the market access

§  Ability to tolerate risks and accept failures

§  Greed and the incentives to support that

§  Thorough understanding of the value creation of your idea

§  Ability and willingness to spend extensive time to develop the portfolio companies

§  Ability and willingness to take part-time mgmt assignments if needed

VC Reality

Myths

•  “We are Hands-On”

•  “We are on the same boat”

•  Trial and Error

•  My Company

•  Risk-Taking

Facts

•  “Show me the Money”

•  “I invest, you burn”

•  Blue pill or the red pill

•  Their Company

•  Risk-Averse

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How to Prepare?

Homework

Portfolio

Category Matrix

Credibility

Exit Plan

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VC Lingo – the most important issues

Valuation

Liq. Pref.

Anti-Dilution

Good Leaver / Bad Leaver

Drag and Tag

Equity vs. Convertible

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Entrepreneur – VC Lingo

You Say VC interprets

“Product 90% complete” “We might have a name for it”

“Leading-edge technology” “We can´t make it work”

“Limited Downside” “Thing´s can´t get any worse”

“Possibility of a shortfall” “We´re 50% below plan”

“Proven Technology” “It nearly worked once”

“We are re-positioning the company” “We are doomed”

“Upside Potential” “It stopped breathing”

“First-Mover Advantage” “The other 5 start-ups we know have not received funding either”

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Entrepreneur – VC Lingo

You Say VC interprets

“No competition” “No market”

“Universal Platform” “We can´t figure out how to position this thing”

“Unique Opportunity” “We have failed to perform a competitive analysis”

“Disruptive Technology” “Too many bugs”

“Social Media Platform” “We cannot figure out have to make money”

“Sustainable” “With unlimited funding this might stay alive”

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Volunteering for the unknown…which meant leaving the security of what I knew…would continually change my life.

All of you will fail at some time in your career…or in love, or in life.

No one ever sets out to fail. But being afraid to fail means you’ll be afraid to try. Playing it safe will get you nowhere.

Ignore them….. Be persistent… Never give up. Innovation comes from those who see things that other don’t.

Be forever curious. Volunteer for everything. Show up a lot. Treat failure as a learning experience.

Live life with no regrets. Remembering… There is no undo button.

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