The Venture Capital Perspective

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Post on 12-Jan-2015



Economy & Finance

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  • 1. The Venture CapitalPerspective Know your audience!A venture capital firm focused on building seed and early-stage technology companies

2. Review of the BasicsReview of the Basics Only three ways to finance growthEquityDebtProfits While there is a vast array of innovative instruments, they will fall into one of those categories A private company will likely seeSubordinated DebtCommon SharesPreferred Shares Tech Capital Partners Inc. Slide 2 3. Debt and EquityDebt and EquityDebt Equity (traditional)Repayment requiredNo ongoing paymentsInterest rate Gain is unlimitedOften regular paymentsNo securityCan take security over assetsGain limited to interest Tech Capital Partners Inc. Slide 3 4. The venture capital perspectiveThe venture capital perspective A VC is accountable to its Limited Partnersthe institutions and people who have invested money in the VCs funds A VCs only responsibility is to make money for its Limiteds Each fund has a specific mandate that the VC must follow in making its investments Willing to take risks to realize high return but looking for every way possible to mitigate that risk VCs are looking for companies that have the potential to become home runs We see 2 to 3 business opportunities per weekOur goal is to fund 2 to 3 businesses per year Tech Capital Partners Inc. Slide 4 5. What we do day to dayWhat we do day to dayInvest in companies that will make money for our LimitedsGenerate deal flowSpeak at eventsNetworkDevelop relationships with service providersEvaluate opportunitiesEmail/phoneRead business plansMeet with entrepreneursDue diligenceNeed to understand the opportunity, the business, the teamCan take 6 monthsPresent, negotiate and close dealsTerm sheetsLawyers and legal fees Tech Capital Partners Inc.Slide 5 6. What we do day to dayWhat we do day to dayWork with portfolio companiesInvolvement depends on stage of company and managementexperienceFocused on:Generating revenue getting customers and salesMaking sure the company doesnt run out of moneyBudgeting burn rateFund raisingSuccessful exit this is what we are measured on and what we careabout!Fund raisingEvery four years or soMust justify mandateMust show track recordTakes about 1 years to raise a fund with a good track record! Tech Capital Partners Inc.Slide 6 7. Getting venture capitalA venture capital firm focused on building seed and early-stage technology companies 8. Is venture capital appropriate?Is venture capital appropriate? Not every technology company needs venture capital Need to ask:What problem does this technology solveCan I create a product out of this technology?Will anyone be willing to buy this product?Is the product idea compelling enough for people to change theirbehaviour? Make sure the problem you are solving is something that people care about something that causes pain Rule of thumb10x better, 10x cheaper, 10x more reliableImprove by an order of magnitude in more than one performanceindicator or metric A word about agents Tech Capital Partners Inc.Slide 8 9. Is venture capital appropriate?Is venture capital appropriate?Unique solutions to very big problemsSimple enough for VC to understand yet unique enough that VCthinks it is something specialSecret sauce vs. Marketing playsDisruptive technologyDisrupt an existing marketCreate a new market space altogetherSolves pain: Pain killer vs. Vitamin Tech Capital Partners Inc.Slide 9 10. Is venture capital appropriate?Is venture capital appropriate? Large market sizeUnderstand the real market segmentation Potential customers identified and engagedHow are you going to make money revenue model Management teamDomain expertiseStage adjustedWilling to share the wealth Intellectual property IPCleanProtected Exit strategyHow will the VCs realize a return for their Limiteds? Tech Capital Partners Inc. Slide 10 11. Entrepreneurs are not all the same Entrepreneurs are not all the same2 types of entrepreneurial opportunitiesLifestyle entrepreneursThe founder wants to be the majority ownerThe founder wants to be the bossGrowth funded through profits and bank debtExamples:Consulting firms, retail, distribution, sales agencies, service firmsCan be highly profitableVC backed entrepreneursFounder is okay with a smaller piece of a bigger pie (2% to 5% atliquidity)Founder does not need to be the CEO but needs to see the businesssucceedGrowth is funded through 3rd party capitalFounder makes money on liquidation of his ownershipExamples: Some technology companies, some manufacturing companies Tech Capital Partners Inc.Slide 11 12. So how do you know?So how do you know?Look for a lifestyle business if:Your aspirations are to start a business without prior experienceYou want to be running the company in 15 yearsYou want to learn by doing Consider VC backed business if:You understand that you probably wont be the bossYou know what you dont knowYou want to focus on your strengths and rely on other goodpeople to do the rest Tech Capital Partners Inc. Slide 12 13. Tech Capital Partners Inc. www.techcapital.comA venture capital firm focused on building seed and early-stage technology companies