introduction to venture capital ipiam
TRANSCRIPT
October 2015
Venture Capital 5X
High-risk high return investing
Douglas Abrams
2
6XXXX
Douglas Abrams
About the facilitator
• Wharton MBA
• JP Morgan – Vice PresidentIB Technology, GM Internet Marketing
• Parallax Capital Mgmt – Co-founder and MD Private Equity
• Extream Ventures – Co-founder and MDS$20 million seed fund
• Expara – Founder and MDIDM Ventures Incubator, advisory, training
• NUS – Adjunct Associate Professor, Business School, Entrepreneurship, Sasin – Visiting Professor, Venture Capital
3
6XXXX
Douglas Abrams
Expara timeline 2000-2015
3Overview of Expara
2000 20152000 2002 2004 2006 2008 2010 2012 2014
NUS
Expara
EIDMV I
Extream EIDMV II EV III
ParallaxBANSEA
KIMBA
Sasin
Expara Thailand
Expara Malaysia
Expara Vietnam
Expara Japan
I4-x
4
6XXXX
Douglas Abrams
VC mindset
• Risk and return are highly correlated
• You cannot increase return without taking more risk
Return
Risk
Potential outcomes
5
6XXXX
Douglas Abrams
Why invest in venture capital?
As of 31-Dec 2014 The Cambridge Associates LLC U.S. Venture Capital Index® is an end-to-end calculation based on data compiled from 1,569 U.S. venture capital funds (1,002 early stage, 175 late & expansion stage, 386 multi-stage and 6 venture debt funds), including fully liquidated partnerships, formed between 1981 and 2014.1Pooled end-to-end return, net of fees, expenses, and carried interest. Sources: Cambridge Associates LLC, Barclays, Dow Jones Indexes, Frank Russell Company, Standard & Poor's, Thomson Reuters Datastream, and Wilshire Associates, Inc. *Capital change only
Case Shiller Real Estate Index 4.1
Expara IDM Ventures (2) 43.03
6
6XXXX
Douglas Abrams
EIDMV I Extream Ventures EIDMV II Expara
Ventures III
2008 to 2013 2012 to present 20152007 to 2011
• Singapore;• Fund size: S$1M;• Investment size: S$55K;• Focus: IDM.
• Singapore;• Fund size: S$20M;• Investment size: S$1-3M • Focus: IDM, software,
IT.
• Singapore;• Fund size: S$4.55M;• Investment
size:S$255K • Focus: IDM.
Series A Seed Seed - Series A
• South East Asia• Fund size: S$30M;• Investment size:S$0.1-3MM• Focus: ICT, innovation.
Expara’s venture capital funds
Pre-seed
6Venture capital
• 17 investments• 4 > S$33MM in follow-on • Exit Oct-2013 at 36x ROI • Exit May 2014 at 250x ROI• Exit Oct 2014 at 26x ROI• Overall 5.39x on TIC
• 3 investments• 1 exit• Jun-2015 at 2.4x ROI
• 17 investments• 1 exit• Listing on NSX
• 7 investments to date
7
6XXXX
Douglas Abrams
Most fund returns are normally distributed
8
6XXXX
Douglas Abrams
VC returns follow a power law
9
6XXXX
Douglas Abrams
How does a VC fund work?
Fund Investors VC
8
$ 10 mm
2
$ 10 mm
$ 58 mm
25%
75%
10
6XXXX
Douglas Abrams
Case study VC returns - CoAssets
11
6XXXX
Douglas Abrams
Expara CoAssets investment
• 2014 – we invest S$105K
• Current market cap = A$54MM
• Our current holdings valued = A$6.9MM – 6600% increase since 2014
• Total fund ROI upon successful liquidation of our position would be = ~420% since 2012
12
6XXXX
Douglas Abrams
Why can some VC funds outperform?
• Most funds cannot outperform due to information symmetry
• VC invests in small, private companies
• Huge information assymitries
• Performance wholly dependent on: proprietary, high quality deal flow
• And effective pricing and structuring
13
6XXXX
Douglas Abrams
Impact of VC on a diversified portfolio
Private Equity and Strategic Asset Allocation. 2007 Ibbotson Associates
14
6XXXX
Douglas Abrams
How do VCs make money?
• Trade sale – sell to another company
• IPO – sell to the public through listing on an exchange
16
6XXXX
Douglas Abrams
SEA Exits 2015Company Country Acquiror Country_Acquiror Price Value YearAdplus Indonesia Yello Mobile South Korea Undisclosed 0 2015Bidstalk Singapore AppLift Germany Undisclosed 0 2015
BuyBitcoin.ph Philippines Satoshi Citadel Industries Philippines Undisclosed 0 2015
City Delivery Philippines Food Runner Singapore Undisclosed 0 2015Coin Republic Singapore meXBT Mexico Undisclosed 0 2015Computerlogy Thailand Yello Digital Marketing Group South Korea Undisclosed 0 2015Continuum Wind Energy Singapore SunEdison USA Undisclosed 0 2015Ctrlshift Singapore Undisclosed 0 2015Diadiemanuong.com Vietnam Chicilon Media Vietnam Undisclosed 0 2015eProperty Track Singapore PropertyGuru Singapore Undisclosed 0 2015Fabula Indonesia Kreavi Indonesia Undisclosed 0 2015Flocations Singapore Venture Republic Japan Undisclosed 0 2015Food by Phone Thailand FoodPanda Germany Undisclosed 0 2015FoodPanda Vietnam Vietnam Vietnammm Vietnam Undisclosed 0 2015Gushcloud Singapore Yello Mobile Korea Undisclosed 0 2015Hipwee Indonesia Migme Australia Undisclosed 0 2015I Logic Solutions Malaysia Galasys Plc Malaysia 1,970,000 2.8 2015iProperty Malaysia REA Group Australia 534,000,000 751 2015iTwin Singapore CloudDesk Singapore Undisclosed 0 2015JustCommodity Singapore Allegro Development Corporation USA 20,000,000 30 2015Kapanlagi Indonesia Mediacorp Singapore Undisclosed 0 2015Lamido Indonesia Lazada Singapore Undisclosed 0 2015Luxe Real Estate Singapore Squareyards India Undisclosed 0 2015Luxola Singapore Sephora France Undisclosed 0 2015
MetroDeal Philippines Transcosmos USA 30,000,000 42.7 2015MOXY Thailand WhatsNew Group Thailand Undisclosed 0 2015
MyProperty.ph Philippines Lamudi Germany Undisclosed 0 2015Nassion Systems Malaysia Ricoh (Malaysia) Sdn Bhd Malaysia Undisclosed 0 2015PayWhere Singapore PLDT Philippines 5,000,000 0 2015PropertyKita Indonesia Lamudi Germany Undisclosed 0 2015Propertytrack Singapore PropertyGuru Singapore Undisclosed 0 2015Room Service Singapore FoodPanda Germany Undisclosed 0 2015RumahDijual Indonesia PropertyGuru Singapore Undisclosed 0 2015Shopdeca Indonesia Migme Australia Undisclosed 0 2015Sieu Web Vietnam DKT (Bizweb.vn) Vietnam Undisclosed 0 2015Signetique IT Singapore Exabytes Network Sdn Bhd Malaysia Undisclosed 0 2015Singapore-Dine Singapore FoodPanda Germany Undisclosed 0 2015Sold.sg Singapore Migme Singapore Undisclosed 0 2015Spickify Singapore Helpling Germany Undisclosed 0 2015Tab a Doctor Singapore Global Health and Travel Singapore Undisclosed 0 2015Tappy Vietnam Weeby.co USA Undisclosed 0 2015The Pragmatic Lab Singapore Alphacamp Hongkong Undisclosed 0 2015ThinkOfLiving Thailand Iproperty Malaysia 4,600,000 0 2015Triibe Singapore Mobikon India Undisclosed 0 2015Voyagin Singapore Rakuten Japan Undisclosed 0 2015Wala Vietnam VIVAS Vietnam Undisclosed 0 2015
17
6XXXX
Douglas Abrams
SEA exit markets at an inflection point
Exit activity in SEA increasing exponentially• Increased investment in startups since 2007 is beginning to yield results
• Number of exits have doubled; value have increased by more than 15x
18
6XXXX
Douglas Abrams
Why VC in SEA now?
Historical challenges
• Exits• Enterprise ecosystem• Innovation• Legal and corporate
governance• Cultural attitudes
Mitigation
• Early stage valuations allow profitable local exits; regional focus allows larger exits
• Regional bridge and expertise in building local network
• Focus on innovative segments – new and traditional
• Changing environment• Channeling entrepreneurial
energy to scalability
19
6XXXX
Douglas Abrams
Companies founded with venture capital
www.nvca.org
20
6XXXX
Douglas Abrams
Key elements for success
• Solving a painful problem for customers – Value proposition
• Developing an innovative product – Innovation
• Customers and competitors – Market identification and analysis
• Reaching customers – Marketing, sales and distribution strategy
• Competing when others enter - Sustainable competitive advantage
• Make money – Business model and financial plan
• Team – A team or B team
21
6XXXX
Douglas Abrams
Key venture finance terms
Business model
Financial projections
Valuation
Funding required and equity offered
Use of Proceeds
Exit Strategy and ROI
Cap table
22
6XXXX
Douglas Abrams
Company valuation methods
• Price to earnings (p/e)
• Dividend yield
• Multiple of book value
• Comparables
• Discounted Cash Flow (DCF)
• VC method
23
6XXXX
Douglas Abrams
Stages and sources of funds
Founder’s Capital
Seed/Angel
Series A, B, C
Mezzanine Pre-IPO IPO
VC hurdle rates 60-100% 40-60% 20% Why are these rates so high?
OM F,F&F
Incubators corporations government
Customers, suppliers, strategic partnersVCs, Banks for VC loans
24
6XXXX
Douglas Abrams
Crowdfunding VC - Kickstarter
243,074
88,61363,000
110
Projects launched Successfullyfunded
Raised less than10K
Raised 1MM ormore
25
6XXXX
Douglas Abrams
Crowdfunding VC – equity crowdfunding in US
13,400
662 125 100
VC funding Equitycrowdfunding
Real estate Tech
US$MM
26
6XXXX
Douglas Abrams
Crowdfunding VC – equity crowdfunding in SEA
• May 2015 - Equity crowdfunding launched in Thailand
• Restrictions: total amount raised up to US$600K; each investment limited to US$1,500
• June 2015 - Malaysia SEC approved six equity crowdfunding sites
• Singapore – equity crowdfunding regulatory review underway
27
6XXXX
Douglas Abrams
Calculate investor’s ROI including dilution
28
6XXXX
Douglas Abrams
Cap table
29
6XXXX
Douglas Abrams
Key elements of a venture deal
Board of directors
Protective provisions
Drag-along agreement
Conversion
Control
Price-per-share
Valuation
Amount of financing
Liquidation preference
Vesting
Options pool
Anti-dilution
Pay-to-play
Economics
30
6XXXX
Douglas Abrams
Contact us
• Douglas Abrams
• Expara– [email protected]– www.expara.com
• You can also contact me on:– Facebook, Linked-In, Line,
Whatsapp, WeChat
• Singapore mobile: 65-9780-5381
Singapore HQBlock 71 Ayer Rajah Crescent#$02-10/11 S139951
Regional offices: Bangkok, KL, HCMC, Tokyo