8. Easy-to-Follow Bread Crumbs
o Follow us on Twitter
o Read our blogs
o Search our images
o Look up our portfolio companies and use their
products
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9. Mapping Out the Venture Business
o VC: “kind of” a finance job
o How a VC partnership works
(and why you care)
o What influences if/when VCs
will take a risk on you
o The VC investment process and
questions you should ask
o Impact of VC trends on you
Ask questions during the discussion!
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10. VC: Technically a Financial Industry
Public Equity
o Hedge Funds
o Pension Funds
o Mutual Funds
o Public Stock Trading
…etc.
Private Equity
o Buyouts
o Mezzanine
Investments
o Venture Capital
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13. Basic VC Business Model
o Capital Calls
o Where does the money come from?
o Management Fees
o How do the bills get paid? What does this imply for General Partner incentives?
o Profit Distributions
o What happens as investments mature?
o Staying in Business with Future Funds
o How does a partnership become sustainable and grow?
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14. Partnership Dynamics Affect You
o Limited Partners vs. General Partners
o Who are they and what do they do?
o Reporting
o What responsibilities do GPs have, and what rights do LPs have?
o Investment Profile
o What promises has the VC made around investing and portfolio management?
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15. Money Going In: Capital Contributions
LP
LP LP LP
LP
LP
LP
G
P
GP
GP
99% of
total
GP
GP
G
P
GP
GP
1% of
total
15
16. Money Coming Out: Profit Sharing
LP
LP LP LP
LP
LP
80% of
total
LP
G
P
GP
GP
GP
GP
G
P
GP
GP
20% of
total
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17. Sample Fund Recap
o 2.5% annual management fee
o Pays for office space, salaries, other G&A
o Incentive implications for small v. large funds
o All capital is repaid to LP before any profit is shared
o 80% of profit goes to LPs
o 20% of profit goes to GPs
o An individual VC’s share of the total GP profit share
is called “carried interest”
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18. Staying in Business = Raising More Funds
Each Fund Life = 10 Years
6-7 Yrs = Harvest
& Do Followons
Year 6-7
Year 3-4
Year 1
3-4 Yrs =
Seed NewCos
Must raise new funds to keep
investing in NewCos; once
new fund is raised, NewCo
funding will come from it
Fund I ($100M)
Fund II ($125M)
Fund III
($150M)
After 6-7 years in business,
VC will have 3+ concurrent,
active funds at any one time;
only one, however, will be
funding NewCos
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19. Qualifying Questions
o Understand if they’re in a position to invest
o When did you close your last fund?
o What was your last investment?
o Understand if they’re a good fit for your company
o What is your average investment size?
o How many boards are you on?
o How does your process work?
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20. Where Are You in this Process?
o Deal sourcing and qualification: how good opportunities are found
o Evaluation: deciding if there’s a good fit with investment parameters;
company history, business characteristics, finances, business plan
analysis, comparables analysis, pro forma return model
o Term sheets: a nonbinding letter of intent
o Due diligence: ensuring that everything we believe to be true, is true;
research, references, financials, transaction summary/approval,
investment memo
o Closing: final signature and LP announcement
o Value offered: capital, relationships, management support
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21. How VC Trends Affect You
Growing Funding Market
o Minimum $ amount per
investment grows
o Higher VC valuations
o Lower returns % on a
higher base
o Gold rush mentality
(lower funding bar =
more risky or copycat
ideas/ teams)
Shrinking Funding Market
o Minimum $ amount per
investment shrinks
o Lower VC valuations
o Higher returns % on a
lower base
o Champions mentality
(higher funding bar = the
strongest or most unique
ideas/teams)
Whether the market is going up or going down,
VC money still has to be invested
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