Download - Venture Capital 101
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Venture Capital 101Brian Rothenberg
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What is Venture Capital (VC)?
• A type of private equity typically provided for early-stage, high-potential, growth companies
• VCs generate a return through an eventual liquidity event such as an IPO or M&A sale of the company • Venture capital investments are generally made as cash in exchange for shares in the invested company
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Typical VC fund structure
Source: http://en.wikipedia.org/wiki/Venture_capital
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How VCs make money
1. Management fees - annual• Up to 2-3% of assets under
management
2. Carried interest – “carry”• 20%+ share of the profits from the
fund’s investments
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VC firm hierarchy
General & Venture PartnersPrincipals
Sr./Associates
Analysts
Admin
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Seed Start-up Sustained Growth
Sources of funds over lifecycle
Early Growth
Pre-Revenue Revenue/Profitable
Founder’s Savings
Friends/Family
Angels
Venture Capital
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Seed Start-up Sustained Growth
Round series and rough sizes
Early Growth
Pre-Revenue Revenue/Profitable
Bootstrap Angel/Seed Series A Series B Series C+
$50K - $1.5M$0 - $100K+ $2M - $7M $5 - $15M $5 - $50M+
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VCs primarily do five things
1. Raise $$$
2. Find companies to invest in (sourcing)
3. Close deals
4. Invest time/effort to help grow companies
5. Get firms to exit
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What do VCs look for?1.People
• “A” team, right skills, previous success
2.Opportunity • Market, sustainable, business model,
competition
3.Context• Technology, M&A or IPO’able?
4.Deal• Want the deal, but don’t want to
overpay
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Market size is very important
Market needs to be large ($B’s) & growing• VCs stretch goal is 10x return on $ • They give you $10M, they want
$100M back• If they own 25% stake, you need to
sell for $400M+ to hit their targets…• …this can only be achieved with a
big opportunity in a huge marketNote: While a VC’s homerun goal is 10x, most consider a 3x a pretty good exit, and anything above that is gravy
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High company to funding ratio
For every 100 companies looked at…• 70 are tossed out• 30 get first call• 10 get second call / meeting• 1 gets funded
VCs look at a lot of companiesThe odds are against the
entrepreneurNote: This is based on only a couple actual VCs’ input and is intended for illustrative purposes
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Terms of VC financing
• Valuation: how much equity to get/give for a given valuation?
• Negotiating deal terms: term sheets and stock purchase agreements• Liquidity preference, board seats, option
pools, cumulative dividends, full ratchet, etc.
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What happens after investing?
• Value-added investing• VCs are active investors – try to make
investments worth more• Help with strategy, recruitment,
introductions through network, follow-on funding, etc.
• Exit – liquidity event to recoup investment• Mergers & Acquisitions• IPO• Liquidation
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Sectors: hot or not?
• Digital Media / Internet • Cleantech• Life Sciences – Biotech / Devices• Mobile• E-commerce / Local
Hot
Not• Semiconductors• Hardware• Consumer Packaged Goods
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The VC industry is contracting…U.S. VC Fundraising Slow Through 3Q’09
Commitments to Venture Capital Funds (based on multiple closings)
$53.8
$82.3
$42.7
$19.3
$10.3
$18.7
$28.0$31.3
$41.0
$27.9
$8.1
$0
$20
$40
$60
$80
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 YTD09
Funds
Rai
sed
($B)
Source: Dow Jones VentureSource
Many VCs predict the industry will shrink by 30-50%
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9th Annual Innovation Award for Computing Systems, 2009
$13.1M Series A; $2M Series B; $30M Series C
Undisclosed Series A and B; $15M Series C
$1.5M Series A
$2M Series A; $7.4M Series B
AND
Have InSITE companies received VC funding? $157M+ !!
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InSITE VC Sponsors
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A few VC resourcesA VCContinuationsRedeye VCSeparate PieceStartup MathTechCrunchWall Street Journal - VC DispatchVenture Made TransparentVentureBeat
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Questions?Thanks!