michigan business brokers association the venture capital process december 8, 2015 presented by tgap...

Michigan Business Brokers Association

The Venture Capital Process

December 8, 2015

Presented by TGap VenturesGeneral Partner: Jack Ahrens


What is Venture Capital

Equity InvestorsRarely Debt InvestorsBuild for the FutureNeed an Exit


VC Economics

Look at 300-500 deals per yearInvest in 2-3 per year (less than 1%)Each partnership will have about 10 deals3-5 will become worthlessAbout 50% will break even10-15% provide the returnWe need to get 40-50% IRR


Most Good Deals Never Get VC

The deal may be very good but not scaleableThe cost to close a deal is so high ($25k-$40K) that it has to be a large financing to be practicalVC’s are people and time constrained and need to be able to place large bets


VC Investment Philosophy

Invest in good people.Invest collaboratively.Invest early through preferred or other equity instruments.Invest where formative assistance in building business infrastructure, management teams, and boards is welcome.Invest in products differentiated by defendable intellectual property or positioning.Invest where a financial exit or liquidity event is expected within 5- 7 years.


Key Factors

Management Strengths and WeaknessesIP or Point of DifferentiationBusiness Model and ScalabilityFinancial NeedsExit Options


Is VC Right for You?

Are you willing to bring on partners?Can you delegate authority to other management team members?Do you want to build a large business?Are you willing to give up control?Are you willing to sell your business?


Valuing a Venture Investment

Art not a ScienceThere is no correct answerThe earlier the stage the more subjectiveRanges from Gut feel to discounted cash flows

Terms affect the valuationCommon, Preferred, liquidation, warrants


Pricing inflection pointsfor medical deals

ConceptPrototypeAnimal dataHuman safety dataHuman efficacy dataFDA filing – 510K or PMAFDA approval


Pricing inflection points for Software deals

ConceptBeta site1st commercial orderRepeat orders$1M in sales$10M in sales


The most important factors in obtaining a 1st round

Pick you partner (VC/investor that understands you business)

Get it DONE!Terms of the dealPRICE


The Value of Venture Capital as an Investor

Devil’s AdvocateFuture financing capabilityContactsIndustryPeopleCustomersPast experiences


Phase 1 – Get the VC’s Attention

Good Executive Summary 3-5 pages Describe the need or current pain in the market Describe the product and why it is better Describe business model – how are you going to

sell it and how are you going to make money Describe the Management and their backgrounds Include brief financial projections


VC Hot Buttons in an Executive Summary

Pitfalls to avoid and things to include Spelling/grammar checking – it is standard with

MS Word – use it Give address, contact name, number and email Be sure that financial data foots and is consistent Don’t be overly technical in product description Don’t use a lot of industry jargon or acronyms


First Meeting

Short power point presentationBring prototype if possibleTry to draw VC into presentation with questions Bring at least 2 management people if possible Shows depth Let the expert answer the question Personalities are all different one is bound to click

Ask for next stepsLISTEN TO WHAT IS SAID


Financial Statements

Only a starting pointMake dynamic with detailed assumptions1-2 years monthly with cash flows2-3 years Quarterly


Things Not to do When Talking to VC’s

Over represent the product developmentClaim to have all of the answersExaggerate other VC interest levelsSay that you have no competitors“First Mover” is not a reason to be successfulOverstate the market size – use “addressable market”


Discussion & Questions

Thank You

michigan business brokers association the venture capital process december 8, 2015 presented by tgap...

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