venture and growth capital. equity investments holding on to ‘what you’ve got’ equity...
TRANSCRIPT
Venture and Growth Capital
Equity Investments
Holding on to ‘what you’ve got’
Equity investments are a ‘trade-off’ game…
Do you really want an ‘investor?’
Question: “Would you rather have a small slice of a large pie, or have the entire ‘hostess fruit pie’ to yourself?”
Do you NEED the money? Do you WANT outsiders involved in your
business? WHO do you dare bring into your circle?
Angels
Definition: Individual. Not an organization. Significant source of startup financing. Find an angel with expertise as well as cash. Terrific source for smaller startup needs and
EARLY stage financing. (Usually smaller amounts)
They are usually experts in your industry…beware! Networking is your only hope of finding them…
Venture Capital
Venture Capital is a Process.
Firms look for opportunities to add to the chain of value creation.
Fairly recent phenomena (last 2-3 decades have seen the majority of VC activity)
Definitions
Venture Capital: An Organization that makes equity investments in startup companies, seeking a high return.
Private Funds Corporate Funds Lead Funds Niche Funds
VC Fund Structure
Investor(s): Provide money Process is called ‘raising a fund’
Venture Firm / Partners: Do the Work Screen opportunities Close deals Manage portfolio companies
Compensation and Investor Returns
Partners receive an annual management fee (usually around 2%).
Partners get (on average) 20% of capital gains of the fund.
Investors receive remainder of the capital gains. Distributions are made over very long time frames
(sometimes decades)….this is NOT a highly liquid investment vehicle!
Industry Overview
Total of $21.2 Billion invested in 2002 Compares to $41.3 Billion in 2001 2003 figure is nearly identical with 1998’s
amount Look here for detail on where the money
went (or see handout): http://www.pwcglobal.com/extweb/
ncpressrelease.nsf/DocID/1BE29A405A1233D485256CBC006B65B2
Recent Statistics
Participation by Industry
Medical Devices Technology http://www.devicelink.com/links/venture.html
High Tech: Softbank: http://www.sbcap.com/
Biotechnology: Directory:
http://www.bioworld.com/servlet/com.accumedia.web.Dispatcher?next=vcDirectory
Example firm: Fuqua: http://www.fuquaventures.com/focus.html
A look at typical VC firms
Kleiner Perkins (The Leader) http://www.kpcb.com/
Wasatch Ventures (Local) http://www.wasatchvc.com/
Charles River (East Coast) http://www.crv.com/
Sequoia Capital (Jobs at partner companies) http://www.sequoiacap.com/
Typical Venture ‘target’
Low risk, versus potential return Industry or strategy fit High potential Fit with Venture firm’s goals on stage,
amount, control, and growth rate Has a business plan that got an ‘A’ in B475
Stage Preferences of VCs
Some prefer very late stages (Mezzanine) such as Softbank, in order to lower risk.
Some companies seek earlier stage financing, accepting inherently higher risk, hoping for much higher returns.
Some will go all the way through the process with you…others will drop out…
Where do these people hide?
VC Finding tools… http://www.ventureexchangenetwork.com/index.htm http://www.garage.com/ http://www.vfinance.com/home.asp?ToolPage=venca.asp National organizations (see next slide) Magazines (Venture, Inc., Forbes, RedHerring, VCJournal) Broker / Dealers Consultants Investment Bankers COMPANIES in your industry may have a VC arm…
Intel Capital: http://www.intel.com/capital/
Key Organizations
NVCA www.nvca.org
Venture Economics www.ventureeconomics.com
Price Waterhouse Regional Venture Organizations VC Journal Red Herring
Typical Deal Flow
Contact / Intro Business Plan review / Meet management Due diligence Valuation / Negotiation stage (depends on lead) Closing Managing the investment Exit (it may be a decade before you hit this stage)…
Due Diligence
Background checks on management Verification of patents / agreements Complete disclosure of financials Review of ALL agreements (lease, customer,
etc.) Review of corporate structure / minutes Review of pending litigation
Benefits of Dealing with VC
Help with Strategy Very Experienced Partner Board participation Network of industry contacts Help recruiting key employees Access to markets, suppliers, customers, key
industry figures
Drawbacks to VC funding
It ain’t just your show anymore…
Depends on bargaining position / strength of your company
Increasing your odds…
Focus on a high growth opportunity with very high top-line potential
Leverage relationships to find the ‘right’ VC Make sure your business plan really works Seek VCs that ‘fit’ your company Revenues today greatly increase your chances
funding and your ultimate valuation Do your own due diligence Demand that the VC deliver Value beyond the cash
Final Note:
If you’re serious about VC: Do a whole bunch of reading to come up to
speed on the VC industry and current environment.
Consider working with a broker or consultant who has a proven track record of investment placement