venture capital
DESCRIPTION
Venture Capital - What it is, how it's used and strategies implementedTRANSCRIPT
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VENTURE CAPITAL
VENTURE CAPITAL
HTW – University of Applied SciencesInternational Business LawProf. Dr. S. DietrichNavi K. J. Phifer, Janin Viere, Lucia Soskova, Lisa Petzold
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Table of Contents
1. Introduction• Definitions
2. Venture Capital• Historical Background• What, Why, Who ?• How to find Investors• The role of VC investors• VC financing cycle• Direct/indirect VC
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3. Exit Strategies• IPO‘s• Trade Sales• Secondary Sale• Buy Backs• Liquidation
4. Advantages/Disadvantages
5. Discussion Points6. Conclusion
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Definitions
• Venture Capital
• Corporate Venture Capital
• Private Equity
• Business Angels
• Direct/indirect VC
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Definitions
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Historical Background
• 1946 – 1977: started out in USA• 1960s: Germany• 1970 – 1971: Financial support offered• 2000 – 2001: “.Com-Bubble Burst“ total investment 2000: $ 16.8bn total investment 2002: $ 2 bn• 2008: 6.400 German firms involved in
VC• 2009: €8bn in German VC funding10.04.23 Venture Capital 5
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VC - What, Why, Who ?
• Helps to foster growth
• “Innovation capital“
• Technology
• Financial backing for new, innovative
ideas
• Firms which require much capital
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How to find VC investors?
• Internet searches
• Personal contacts / recommendations
• Banks
• Large existing corporations
• Previous financers
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The Role of VC-Investors
• Finance
• Advice
• Consultation
• Management
• Partial business ownership
• Eventually exit
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Types of VC - Financing
• Expansion Financing
• Bridge Financing
• Turnaround Financing
• Replacement Capital
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VC Financing - Cycle
1. Screening
2. Seed Financing
3. Early Stages
4. Growth Finance
5. Exit Strategies (Janin)
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Phase 1: Screening
• Business plan creation
• Select and contact investors
• Screening
• Pre-contract negotiations
• Due diligence test
• Contract closure
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Questions to ask before considering VC financing
Do we have high growth prospects and
a team ambitous enough, to grow
rapidly?
Do we have a competitive edge or a
unique selling product?
Intellectual Property Rights?10.04.23 Venture Capital 12
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Questions to ask before considering VC financing
Are we willing to sell company shares
to a private equity investor?
Do we have a realistic exit opportunity
for all shareholders to realise desired
investment?
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Phase 2: Seed Financing
• D & R (Development & Research)
• Very high risk
• Difficult to judge commercial success
• Buy-in at low price
• Contract negotiations
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Phase 3: Early Stages
• Tests
(esp. in pharmaceutical and bio-tech.
fields)
• Marketing activities
• Building up production capacity
Less risky than seed finance, but the
commercial success is still hard to judge10.04.23 Venture Capital 15
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Phase 4: Growth Finance
• Company hits market
• Needs to stay afloat and grow to
compete
• Further advice
• Last finance payments
• Hit Break-Even-Point
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Phase 5: Exit Strategies
• IPOs
• Trade Sales
• Secondary Sales
• Buy Backs
• Liquidations
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Phase 5: Exit Strategies
• IPOs
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Phase 5: Exit Strategies
• Trade Sales
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Phase 5: Exit Strategies
• Secondary Sales
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Phase 5: Exit Strategies
• Buy Backs
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Phase 5: Exit Strategies
• Liquidations
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Phase 5 Exit Strategies - Statistics
• 2008, in exit volume terms:• trade sales dominated at 35%• sales to other private equity firms came to 30%• divestments by IPO/sale of quoted equity were 9%• trade sales dropped from 89 to 74• sales to private equity firms increased from 10 to
29• Total losses were down from € 139 million and 151
companies to € 118 million and 136 companies• As a result of declining share prices both declined
the number of exits by IPO (from 7 to 3) and through the sale of shares (from 34 to 10).
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Advantages/Disadvantages
• The VC Investor
• Investment
• Experience, advice, mentoring
• Objectivity
• Networking
• Recruitment
• Credibility
• Shared risk10.04.23 Venture Capital 24
• Mandatory exit
• Loss of independence
• Right to lay off the workforce
• Onerous conditions
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Advantages/Disadvantages
• Capital
• Solely for our business
• Start-up financing
• Liable equity within the company
• Improved rating
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Advantages/Disadvantages
• Due Diligence
Advantages Disadvantages
• Company realises:
Where it stands in the market
What/where to improve
Possible future developments
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•Time
•Money
•Power
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Advantages/Disadvantages
• The Company
Advantages
• Growth
• Value
• Security
• Equity ratio
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Advantages/Disadvantages
• DilutionDisadvantages
• Dilution-decrease of sth
• Anti-dilution protection
Milestone financing
Pay-to-play
Liquidation preferences
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Advantages/Disadvantages
• Contractual protection for the VC investor
• Information rights
• Control rights
• Representation and warranties
• Anti-dilution protection
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Advantages/Disadvantages
• Restrictions on the Transfer of
Shares by Shareholders
• The articles and shareholders‘ agreement
• Exceptions
Investors‘ shares
Founders‘ shares
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Advantages/Disadvantages
• Investor‘s Protection-Exit
• Drag-alone rights
• Tag-along rights
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Advantages/Disadvantages
• Taxation
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Discussion Points
• Obstacles
• Alternatives
• Our best options
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Conclusion
• Augumus Pecumian GmbH
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