Venture capital outlook

Download Venture capital outlook

Post on 06-May-2015



Economy & Finance

1 download

Embed Size (px)


<ul><li>1.Venture Capitalists an Overview 1</li></ul><p>2. VC - Venture Capitalist is a speculator who is looking at high-risk,high-return investment in support of business creation and growth. Pre - Venture Capital Concept Funding Process VC 2 3. Typical cycle of a VC funding Revenue Maturity Expansion IPO AcquisitionRapid GrowthBanks GestationInceptionRoll Out Prototype Venture Capital Firms &amp; Corporate FoundersInvestorsAngel FinancingTime 3 4. Stages of a VC fundingVenture Capital Investment Stages This is the final stage for a VC In this stage Market expansion, participation, in this stage the acquisition &amp; product development for company will facilitate itself for profit making company will be the goal a public issue, this is the low of the company, this is the medium risk risk stage.It is the second stage in the cycle. Here in the entrepreneurhas moved closer towards Amount of Moneyestablishment of a going concernMezzanine The financing of the initial product Series C This stage is for an established commercial developmentproduction and basic marketing set-up, typicallyfor market expansion, acquisition, productdevelopment etc, this stage is a significantlySeries Bhigh risk stage. It is the capital provided for marketing and meeting the growing working capital needs of anSeries A enterprise that has commenced the production but does not have positive cash flows . In this stage the risk factor for a VC is high.AngelsIt is also called first stage capitalInvestors Early Stage which is provided to entrepreneurSeedwho has a proven productStageConcept/ Business Product FirstFully ExpansionReady forResearch Planning Development Commercial DealsOperational IPOStage of Startups 4 5. Pre - Venture Capital Funding Process Initial Venture Valuation Idea or ConceptPlanningResearch Business PlanModels (Report) Patent and EntrepreneurMarket ExecutiveFirst Chicago Trademark Characteristic CharacteristicSummaryMethodsResearch TechnicalBusiness Power PointDiscounted feasibility ModelCompetition BusinessCash Flowstudies Reviews PlanRevenueCompetitionTechnologyElevatorMarket Value ModelReviewBreakthrough Speech ResearchReviews InvestmentMarket Pricing Due DiligenceStageStudiesStudies Comparison 5 6. Process of different funding stages Exit stage Board of directors liquidity event decision tree IPO orSeed CapitalFirst VentureSecond Round Valuation MergerIPO Angel Round Determine MergerRound Capital RoundFinancing comparison Decision Valuetree Private Board of Venture Fund Venture Fund Placement Advisors and Research for a Research for aReg D Directorsfitfit InvestmentM &amp; A FirmBuilding Block IPO Vs MergerBankerExit Processor First MoveSelectionReviewFriends,Develop PortfolioPortfolio Family &amp; personal CompanyCompanyTarget 300,000+contact list ComparisonscomparisonsShareholder Merger Check Current Candidate Value Candidates IPO MarketsScreeningSolicit Advisor AngelFirst Round Incubator AcquisitionDetermine DetermineRecommendat Recommendat Recommendat Selection Option ValuesCandidates toFinancialValue &amp;ionion ionsGrow for IPONeedsNegotiate Deal StructurePlan to Locate Local complete Set ValuationSet Valuation Build Value Vs Poll Investors Associations Select (3+) prototype/ser Target Target Liquidity BOD &amp; BOAof AngelsUnderwritersvice Event for best fit Break-EvenTerm Sheet Term SheetPlanComparisonsComparisonsTax AnalysisRoad Show6 7. Venture process selection criteria 1 2 Distinctive Capabilities When reading a business plan Business founders must assume they look for reasons such as (Cannot be replicated by competitors)that everything written in their traps, oversights, TANGIBLE business plan will be checked byoversimplifications, hidden prospective investors competitors, and upside Intellectual property rights opportunities. Exclusive licenses Statutory monopolies 3 4INTANGIBLEA large, rapidly expanding Strong brandsmarket and the companysTheir business plan evaluation marketing strategy a unique Leadership criteria, in order of importance, brilliant idea or technology that Tacit knowledge &amp; skillsinclude: Key personnel: Teamwork can be commercialized andpeople/management that canget the job doneprotected a business strategy Organizational culturethat has a strong sustainable Business processes competitive advantage Partnerships Reproducible Capabilities (can be replicated by competitors) 5 Synergistic combination ofTechnical capabilities your distinctive andFinancial capabilities reproducible capabilities Marketing capabilities Explicit knowledge Non-exclusive licenses7 8. Potential Pros and Cons of Business Angel InvestmentsAdvantagesAngels Characteristics Added Bonuses Value-adding Investment Characteristics Leveraging effect Geographically dispersed Seek smaller deals Give loan guarantees More permissive investors Prefer start-ups &amp; early stage No high fees Invest in all industry sectors Like high-tech firms Business AngelsDisadvantagesNo nationalLittle follow-onCould turn out toWant a say in firmreputation moneybe devils leverage8 9. Sources of funds for a start up100%3%7% 10%90%20%7% 10%80% 8% 10%5% 15%70%Public stock issues60%17%Commercial banks 15%Non Financial Corps50% 10%Venture Capitalists40% Business Angels 70% 32%30%25%Family &amp; FriendsPersonal Savings20% 8%10%18% 10% 0%First RoundSecond Round Third Round9 10. Potential Investor Returns, Timing &amp; Cost Of CapitalCash Returns, Investment Periods, and Rates of Return Investment Period Return2 yrs 3 yrs4 yrs 5 yrs6 yrs7 yrs8 yrs 2x41.4%26.0%18.9%14.9% 12.2%10.4%9.1% 3x73.2%44.2%31.6%24.6% 20.1%17.0%14.7% 4x100.0% 58.7%41.4%32.0% 26.0%21.9%18.9% 5x123.6% 71.0%49.5%38.0% 30.8%25.8%22.3% 6x144.9% 81.7%56.5%43.1% 34.8%29.2%25.1% 7x164.6% 91.3%62.7%47.6% 38.3%32.0%27.5% 8x182.9% 100.0% 68.2%51.6% 41.4%34.6%29.7% 9x200.0% 108.0% 73.2%55.2% 44.2%36.9%31.6%10 x 216.2% 115.4% 77.8%58.5% 46.8%38.9%33.4%11 x 231.7% 122.4% 82.1%61.5% 49.1%40.9%35.0%12 x 246.4% 128.9% 86.1%64.4% 51.3%42.6%36.4%10 11. Top ten companies in silicon valley who have made profits in the year2010 these companies were majorly funded by top VCsProfit (In Millions) for last four quarters$18,000 Voted # 1 Brand in the$16,000World overtaking Google in the recent past$14,000$12,000$10,000 $8,000 $6,000 $4,000 $2,000 $-11 12. Top segments in silicon valley who have made profits in the year 2010 these companies are majorly fundedby top VCs, Computer peripherals have high sales and high profits but when Sales to net profit ration iscompared Bio medical stands out because the sales to profit ration is 28% and computer peripherals at 13%Net profitSales (Billions)Net profit (Billions)$250.00 $30.00ratio 13% Net Profit (Billion)Net profitSales (Billion)$200.00 $25.00ratio 28%$20.00$150.00$15.00$100.00$10.00 $50.00 $5.00$0.00 $0.00 Sectors Sales (Billions) Net profit (Billions)Net profit ratio Computers, peripherals $206.15 $25.8213% Semiconductor $80.08 $16.1620% Software$62.54 $10.4017% Networking, telecommunications$56.41 $8.40 15% Internet services $49.03 $11.8024% Non-Technology$18.48 $1.81 10% Semiconductor manufacturing equipment $17.79 $2.87 16% Electronic contract services$15.68 $0.211% Bio Medical $13.95 $3.89 28% Instruments, other high technology$13.26 $1.42 11% Storage $10.49 $1.95 19% Total$543.86 $84.7312 13. Companies who have more profits have huge market capitalization but Bio medical sector has generatedhigh sales per employees even though their profit and market capitalization is low, this is because thesecompanies are more based on innovative products. Market Capitalization Sales per employee $450$900 Thousands $400$800 $350$700 $300$600 $250$500 $200$400 $150$300 $100$200 $100$50 $0 $013 14. Bottom ten companies in silicon valley who have made losses in the year 2010 these companies aremajorly funded by top VCs, the trend shows that these products have a lot of competition and the marginsin these products are really low, piracy is also one of the major factors for attaining huge losses inEntertainment software industry Sum of losses (In Millions) for last four quarters$-$(50.00) $(100.00) $(150.00) $(200.00) $(250.00) $(300.00) $(350.00) $(400.00) $(450.00)14 15. Technology companies lead pack of market capitalization, it also clearly shows thathigh profit margin companies have high market capitalization. Market value of the company (in millions) $350,000 $300,000 $250,000 $200,000 $150,000 $100,000$50,000$015 16. Number of venture firms expected to decline in traditional markets, expected to growin emerging marketsExpected Growth in Next 5 Years Number of VC FirmsUnited States4% 4%68% 24%United kingdom22% 8%59%10% Israel 10% 10%60% 20%India 21% 65%6% 9%Germany 22%17% 61%France 6%11%72%11% China48%51% 1% Canada 28% 6%47%19% Brazil 30% 68%3%0%10% 20%30%40%50% 60% 70% 80% 90% 100%Increase Significantly (More than 30%)Increasly moderatly (1% to 30%)Remain the sameDecreased slightly (1% to 30%)Decrease Significantly (More than 30%) Brazil, China, India respondents see an increase in number of VC firms Canada, France, Germany, Israel, UK and U.S. respondents see a decrease in number of VC firms16 17. Venture capital available for investment in home country over the nextfive years Expected Growth in Next 5 Years $$ Available for VC InvestmentUnited States 1% 17%11% 57% 14%United kingdom 2% 31% 61%6% Isreal10%10%70%10% India41% 50% 6%3% Germany39% 17% 44%France22% 11% 61%6% China70% 30% Canada50% 6% 33% 11%Brazil 51%49%0% 10%20% 30% 40%50% 60%70% 80% 90% 100%Increase Significantly (More than 30%)Increasly moderatly (1% to 30%) Remain the sameDecreased slightly (1% to 30%)Decrease Significantly (More than 30%) Brazil, China, India respondents see an increase Canada and Germany respondents were split with approximately half expecting a increase and half expecting a decrease France, Israel, UK and U.S. respondents see a decrease 17 18. Investment by sector in the next 5 yearsHealthcare services63%30%6% Finance services 39% 47%14%Consumer business51%41% 8%Clean technology 80% 17% 3%Medical device and Equipment 51%37%13%Biopharmaceuticals 42%40%18%New media/Social Networking56%34%10%Software 36%52% 12%Semiconductors including 17%44%39%electronics Telecommunications27%48%25%0%10% 20%30% 40% 50%60%70%80% 90%100% IncreaseRemain the sameDecrease Clean technologies and healthcare services are the hottest industries Semiconductor and telecommunication see the biggest slow down in future investments18 19. Industry investment highlights by countryTop 2 industry sectors countries will be increasing their investment inCountry #1 Increased Investment Sector#2 Increased Investment Sector BrazilConsumer Business 92% Clean Technologies 85%Canada Clean Technologies 67%New media/social networking 50% China Clean Technologies 95%Healthcare Services 92% FranceClean Technologies 88%Health care Services 69%GermanyClean Technologies 71%New media/social networking 64% India Clean Technologies 90%Healthcare Services 89% IsraelNew media/social networking 86% Medical device and equipment -67% United KingdomClean Technologies 85%Healthcare Services 62%U.S. Clean Technologies 72%New media/social networking 58% 19 20. 2010 TriviaVCs42% of the VCs felt that U.S. remain $Traditional markets Emerging markets a dominant force in the technology$ industry in light of increased competition in the venture capital industry54% of the VCs felt that they arevery important for the growth of US economyCompanies converted from VC to IPO10086 80 7257 60 40 20 1214 602006 2007 2008 2009 2010 2011 Limited Partners expected to shift larger allocations to emerging markets Cross border investing increases expected to plateau 1st Quarter Political, regulatory and market environments causing impediments to venture capital investing Despite challenges, VCs remain optimistic about quality of deal flow20 21. Venture capital investment in US - Internet Internet VCVC trends &amp; deal volume trends Internet Investment and Deal Volume Trend Share of Internet VC by Series - Dollars of Funding Share of internet VC by series Last Five QuartersLast Five Quarters2721% 5%10%13% 224233 233 19% 25% 22116%7% $2,543 10% 23%28% 24%40% 27% $1,618$1,483 27%$1,265 $1,253 28% 33% 19%19%16% 31%22% 19% 20%12% 1%1%2%1% 1%Q409Q110 Q210 Q310 Q410Q409 Q110 Q210 Q310 Q410 $ Funding# of DealsSeedSeries A Series BSeries C Series D Series E +www.cbinsights.comwww.cbinsights.comVC Investment ($) in Internet by industry 2010 Q410VC investment in internet Sub -Industry, Discount1% Social 18% Advertising, Sales &amp; Marketing2% 26% Bus. Intelligence, Analytics &amp; Performance Mgmt1% Video Gaming 2% 2%Data Storage 2%Data &amp; Document Management2% Health &amp; Wellness3% Conferencing &amp; Communication 24% Information Providers &amp; Portals3%5% eCommerce enablement 3% 6% Travel (internet) Content Management All Other 21 22. Top 5 acquired &amp; venture capital funding deals in Internet industry at 2010 Bid value CompanyBidderBusiness description ($ US million)Acquired dealsProvides electronic payment processing services for Web, call center,CyberSource Corp. Visa Inc.$1,964and POS environments VeriSign Inc.-Identity The identity and authentication business of VeriSign Inc., providesSymantec Corp. $1,280 Business Internet security servicesDevelops social gaming software used in social networking sites such asPlaydom Inc.Walt Disney Co $763FacebookProvides marketing solution services for discovery, branding and AdMob Inc. Google Inc.$750monetization on the mobile web Internet Brands, Inc. Hellman &amp; Friedman Capital$640 Provides Internet media services to large ticket consumer purchasesFunding CompanyVenture Capitalist ($ US Business description Venture Capital funding dealsmillion) US Venture Partners, Grotech LivingSocial is the social commerce leader behind LivingSocial Deals, a Ventures, Revolution , Lightspeedgroup buying program that invites people and their friends to save up toLivingSocial$227 Venture Partners,90 percent each day at their favorite restaurants, spas, sporting events, Amazon hotels and other local attractions in major cities.Twitter is a social networking and micro-blogging service that allowsTwitterKleiner Perkins Caufield &amp; Byers $200users to post their latest updates.Digital Sky Technologies, BatteryGroupon features a daily deal on the best stuff to do, see, eat, and buyGroupon Ventures, Accel Partners, New $135in more than 565 cities around the world.Enterprise AssociatesAustin Ventures, Norwest VentureWhaleShark Media, Inc. is the worlds leading marketplace for couponsWhale Shark Media$90Partners, Adams Street Partners and deals.Institutional Venture Partners,FleetMatics is the leading software provider of GPS-based fleetFleetMatics Investcorp Technology Partners, New$68management systems.World Ventures 22 23. Appendix 23 24. Time Required to Generate 10x to 30x ReturnsIf the venture has to be successful then yield on capital investments should be 30x on average else at least the business produce10xThe graph below shows venture capital exit times require...</p>