the new barbarians at the gate
TRANSCRIPT
The New Barbarians At The Gate(about private equity and venture capital)
A presentation for the British Chamber of Commerceon April 23rd 2010
by Mr Ties van der LaanTies Corporate Finance
10, rue des Alouettes, L-1121 Luxembourg-CentsLuxembourg
m +352 691 427 566, t/f +352 427 566e [email protected], i www.ties.lu
Venture Capitalists
Who am I?
After nearly ten years in Dutch private equity companies (ING Group) I have been coaching entrepreneurs since 1999 to raise finance, first
through LIFT and from mid 2002 as an independent financial consultant (raising finance,
MIS, bookkeeping and personal financial planner)
HistoryCharacteristicsWho are the VCs?What do the VCs seek?How do the VCs operate?Some figuresVCs and hedge funds
Venture capitalists (VCs)
VCs: history
Started in USA in early 1900 Rich families (e.g. Rockefeller, Ford)
invested outside their own conglomerate as business angels
1st time distinction: ownership/management After WOII: professional VC's Early 60s: UK Early 80s: continental Europe (banks in NL)
What: professional buyers private company shares Money: institutional investors (II)
NB. II = LP, fund manager = GP Funds: € 10m – € 15bn (!) Deals: € 1m – several € 100m Age: investment managers, 25–55 years old, deal
makers with financial background
VCs: characteristics
1. Private equity vs venture capital 2. Evergreens (mostly captives) vs revolving funds 3a. Large VC's (<10 in EU)
Funds: several € 1bn, deals: € 1m-250m Sector and/or region specific sections/subsidiaries Buy-outs, fund of funds
3b. Medium sized generalists (100-200 in EU) Funds: € 50m-300m, deals: € 1m several € 10m Private equity, venture capital and fund of funds
3c. Niche VC's (< 100 in EU) Funds: € 10m-300m, deals: € 250k-5m Focused on technology markets or niches Combine investors with industry knowledge Mostly venture capital
Who are the VCs?
Objective is generating cash Driven by building profitable/saleable companies
Private equity: 90% (!) of money yearly raised Mature companies with turnover > € 50m Buy-outs mostly (MBO, MBI, LBO, IBO, BIMBO etc.) No market specialisation Return > 20%: € 10m in, 4 years later € 20m out
Financial engineering Buy and build Sale
What do the VCs seek? (I)
Venture capital: Young companies: seed, start-up, early stage Large, global empty markets Experienced entrepreneurs Return > 50%: € 1m in, 4 years later € 5m out
Growth Sale (trade or IPO)
Investing is trust in people PE = balanced management teams VC = entrepreneurs
What do VC's seek? (II)
IntakeReceive more plans than readIntroduction via networkSelective: invest in 1% of business plans readExtensive due diligence: 2 to 6 months
Market(ing), technology, management, legal, financialPE: mostly external specialists
Syndicates (so no competition between VC's)Deal-sourcing in other regionsFollow-on investmentsPrevent entrapmentControl with minority share
Cross-border only with local investor
How do VC's operate? (I)
The dealSometimes complex deals Management option schemeVeto-rights, minority protection, anti-dilution Board representation Monthly or quarterly reportingControl over exitInvestment committee decidesTypically 2 months
How do VC's operate? (II)
After the dealReal work startsFrequent contact in beginningSupport: knowledge, experience and networkFocus on growth, reporting and exitHands-off unless going badly
No good money for bad moneySell healthy part of company via network
How do VC's operate? (III)
Some figures
NB. Figures from EVCA/Thompson/Reuters (adapted)
Funds raised 1995 - 2009 Capital invested 1995 - 2009 Raised vs invested + divested @ cost Returns until December 2009
Figures (1): funds raised
-
10 ,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Years
In €
mln
Other
Pr iv ate ind iv idua ls
Corporate inv es tors
Fund of f unds
Ins uranc e c ompanies
Pens ion f unds
Banks
Figures (2): capital invested
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Y e a rs
In €
mln Buy out
Expansion & replacementSeed & start-up
Raised vs invested+divested
-
20 ,000
40,000
60,000
80,000
100,000
120,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Ye a rs
In €
mln
Funds raisedInvested + divested
Figures (4): returns 12/2009
1 - year 5 - year in ception
Ven tu re capital - 1 .3 % 0 .7 % 1 .6 %
Bu y- ou ts 3 .5 % 7 .9 % 1 1 .8 %
Total P E 3 .1 % 6 .1 % 8 .8 %
VCs and hedge funds
NB. Only active hedge funds resemble VC’s/PE
Differences: Quoted companies, small stake (few %) No deal with management Short term (several months) Skill-based: invest in different asset categories
Similarities: Wake-up call for management High return
My passion
Bridging the gap between entrepreneurs and investors
My activities:Raising finance caddie for entrepreneursManagement information systemsPersonal financial planningBookkeeping
Ties Corporate Finance
Ties van der Laan10, rue des Alouettes
L-1121 Luxembourg-CentsMobile: (+352) 691 427 566
Fax: (+352) 427 566Email: [email protected]
Internet: www.ties.lu
Contact details