venture capital
DESCRIPTION
VENTURE CAPITAL. Phil Proulx Pamela Twu Denise Liu Amanda Blakeslee. VENTURE CAPITAL. What is it? A brief History of Venture Capital. Need for funding. Sources of funding. Advantages and disadvatanges. Alternative Pathways. VENTURE CAPITAL. What is Venture Capital?. - PowerPoint PPT PresentationTRANSCRIPT
VENTURE CAPITAL
Phil ProulxPamela TwuDenise LiuAmanda Blakeslee
VENTURE CAPITAL
WHAT IS IT? A BRIEF HISTORY OF VENTURE CAPITAL
NEED FOR FUNDING
ADVANTAGES AND DISADVATANGES
SOURCES OF FUNDING
ALTERNATIVE PATHWAYS
VENTURE CAPITAL
WHAT IS VENTURE CAPITAL?Way to obtain money and experience for a business via
the private equity of Venture Capitalists (individuals willing to invest in a start up)
If money is not obtained through VC, it will have to be obtained from one of the following:Bank Loans, personal savings, or boot legging (Use of
company’s profits early-on to grow)
VENTURE CAPITAL
THE HISTORY OF VENTURE CAPITALSome of the first Venture Capitalist include the following:
Vanderbilts Whitneys Rockefellers Warburgs
VC in the first half of the 20th century was the domain of wealthy individuals and families
The Small Business Investment Act of 1958 was the first step toward a professionally-managed venture capital industry Officially allowed for the licensing of private "Small Business
Investment Companies” Considered as the first venture capital firm
VENTURE CAPITALTHE HISTORY OF VENTURE CAPITALIn 1960s and 1970s, VC firms focused their
investment on starting and expanding companies Companies were primarily exploiting
breakthroughs in electronic, medical, or data-processing technology
In the 1980s, the industry was hampered by sharply declining returns and certain venture firms began posting losses for the first time
The market for initial public offerings cooled in the mid-1980s before collapsing after the stock market crash in 1987
NASDAQ Composite Index
VENTURE CAPITALTHE HISTORY OF VENTURE CAPITALThe late 1990s were a boom time for VC, they benefited from a
huge surge of interest in the Internet and other computer technologies Initial public offerings of stock for technology and other growth
companies were in abundance and venture firms were reaping large returns
In the 2000s VC funding has spread widely through the medical field Many start-ups have become centered around early disease
detection and prevention
2010 Investments in Industry In Millions of Dollars
VENTURE CAPITAL
Other
Healthcare Services
Electronic/Instrumentation
Consumer Products and Service
Networking and Equipment
Semiconductors
IT services
Software
Biotechnology
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93.8133141.4152.4171.1175.2
205.7245.8
321.3413.9
755.41034.6
1282.21296.1
[1]
VENTURE CAPITAL
WHY DO YOU NEED VENTURE CAPITAL?New companies are often too small and lacking in
experience to raise the money needed to produce a new product Examples of Startup Costs:
Continuation of R&DEmployee Salaries and BenefitsManufacturing and Production CostsPatent FeesVenture capitalists bring much needed capital to
the companies but also bring often needed financial expertise
VENTURE CAPITAL
WHY VENTURE CAPITAL OVER BANK LOAN?Availability
Banks usually do not offer loans to startups without strict provisions to reduce the risk
Venture capital is usually generated from a pool of investors, which reduces the overall risk of the investment
SOURCES
Friends & Family
Angels
Venture Capital
Government Grants
Banks
VENTURE CAPITAL
Corporate Investment
Public Investors
Customers
• Members of your personal network
• Have adequate means to make an investment
Friends & Family Angels
Venture Capital Corporate
VENTURE CAPITAL
• Experienced investors using own wealth
• Professional investment managers
• Corporations make the investment
Banks Gov Grants
Public Investors Customers
VENTURE CAPITAL
• Commericial/State institutes providing financial services
• Loans and such
• Department of Defense
• General public can invest by buying shares of the company
• For established companies
• Customers make direct investment in the R&D of new products or services
Venture Capitalist• Invest in companies with
potential for high return• Raise money and put into
funds• Funds vary in size ($50m
to $2b)• Each fund has a specific
profile (eg. Medical devices) & investment horizon (eg. 5 yrs)
• Able to povide multiple rounds of funding & have extensive networks of contacts
Corporate Investment• Made by large
companies for strategic & financial reasons
• Two ways to provde funds:
• Purchase equity in
support of R&D or licensing agreement
• Traditional venture investments
VENTURE CAPITAL
Government Grants• DoD gives $1b/yr to
early-stage R&D• Projects must serve DoD
need & have commercial applications
• There are two programs: SBIR and STTR
SBIR• Small Business Innovation
Research• Small technology
companies or Individual innovators who form a company
• Up to $850,000
VENTURE CAPITAL
STTR• Small Business
Technology Transfer• Small companies working
cooperatively with researchers at universities & other research institutions
• Up to $850,000
GET STARTED
VENTURE CAPITAL
Be a people person
Know your capital investors
Be active about your managerial decisions
- Tips on raising money: http://www.youtube.com/watch?v=151xSrGdEqo&NR=1&feature=fvwp
[2]
VENTURE CAPITAL
HOW TO OBTAIN VC? Ensure the investors your company/idea fits their
investment profile Research & find your target
Which partner of the firm should you speak to about your idea
Who has a history of supporting ideas or companies similar to yours
Do: NOT Send a “cold” email Have someone introduce you (e.g. LinkedIn) Set up a meeting with the investors
ConciseKnow
Who
Retu
rn Why
$$ Needs
ELEVATOR PITCH
Potential RewardsHow do investors get their reward
Tailor speechWho are you speaking to? Know your audience
30 secmake them want to hear more
BetterWhat does your idea/product fulfill
How muchHow much capital do you need
BUSINESS PLAN
VENTURE CAPITAL
Once Elevator Pitch worked, business plan is used to provide the detailed plan
How much you plan to make?Where do you plan to make the products?What is the cost of production?What is already in the market & how you compare?
Answer all the questions VCs have before giving you their money
[2]
VENTURE CAPITAL
Angels
Venture capitalists
Corporate investment
SOUCE OF FUNDS
• Valuable experience to share with innovators
• Provide access to vast network of contacts• Ablility to take on considerable risk• Participate in multiple rounds of funding
DISADVANATGESADVANTAGES
Family and friends• Least expensive funding source• Flexible alternative for early-stage
funding
• Moderately priced, early-stage funding source
• Take on considerable risk• Exercise less control than venture capitalists
and corporate money• Act more quickly than venture capitalists
• Lead to meaningful product/project synergies
• Provide accesss to valuable resources• Less expensive than venture capitalists
funding• Lend to young company’s credibility• Provide company with a “built-in” exit
strategy
• Limited expertise• Do not understand level of inherent risk• Not able to participate in subsequent
rounds of funding
• Limited expertise• Not able to invest in subsequent rounds• Negatively affect terms and level of control
by company’s perspective• Multiple angels to meet funding needs
• Exercise considerable control over venture’s direction, management, and exit
• Require considerable share of ownership in exchange for investment
• Expect high returns or other terms not favorable to company
• Limited value in return for building business• Conflicts with corporate investors• Issues with intellectual property ownership• Limit value realized from exit stragety if
corporate investor has “right of first refusal”
[2]
VENTURE CAPITAL
Government grants
Banks
SOUCE OF FUNDS
• Access to funds usually does not require the company to share ownership
• No influence over any business decisions• Interest payments are tax deductibles• Secured relatively quickly and used to help
bridge short-term financing gaps
DISADVANATGESADVANTAGES
Customers
• Extremely inexpensive funding• Potential for young company’s credibility• Provide valuable market-based insights
revelant to product development
• Inexpensive funding • Founders not require to part with any equity
in the company• No influence over any business decisions• Strengthen a young company’s credibility
• Lead to conflicts if company seeks to sell the innovation to customer’s competitor
• Customer seeks to limit way in which innovation is marketed to match its best interest
• Highly competitive• High expectations based on rigorousness of
research performed• Lengthy funding review cycles• Funding capped at $850,000 per project
• Business assets can be used as collateral• Affect cash flow as regular payments of
principal and interest must be made• Start-ups pay a premium on their loans• Start-ups may have difficuilty getting loans if
no revenue or tradeable assests
[2]
ALTERNATIVE PATHWAYS
VENTURE CAPITAL
PartneringTwo entities share responsibility for the development or commercialization of an idea or invention LicensingTransfer of an idea or invention from the innovator to a licensee in exchange for ongoing royalties and/or other payments Sale/AcquisitionInnovator chooses to sell an idea outright, completely relinquishing control to acquirer
[2]
VENTURE CAPITAL
[2] Zenios, Makower, and Yock. Biodesign: The Processing of Innovating Medical Technologies. Ann Arbor, Michigan: Edwards Brothers Inc., 2010.
REFERENCES[1] Berkeley Entrepreneurs Forum Shaking the MoneyTree presentation: http://entrepreneurship.berkeley.edu/main/index.html
THANK YOU!!!