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Venture capital outlook


Venture Capital outlook, How does it work

Venture Capital outlook, How does it work

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  • 1. Venture Capitalist’s an Overview 1
  • 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 Acquisition Rapid Growth Banks Gestation Inception Roll Out Prototype Venture Capital Firms & Corporate Founders Investors Angel Financing Time 3
  • 4. Stages of a VC funding Venture Capital Investment Stages This is the final stage for a VC In this stage Market expansion, participation, in this stage the acquisition & 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 venture stage. capital cycle. Here in the entrepreneur has moved closer towards Amount of Money establishment of a going concern Mezzanine The financing of the initial product Series C This stage is for an established commercial development production and basic marketing set-up, typically for market expansion, acquisition, product development etc, this stage is a significantly Series B high risk stage. It is the capital provided for marketing and meeting the growing working capital needs of an Series 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. Angels It is also called first stage capital Investors Early Stage which is provided to entrepreneur Seed who has a proven product Stage Concept/ Business Product First Fully Expansion Ready for Research Planning Development Commercial Deals Operational IPO Stage of Startups 4
  • 5. Pre - Venture Capital Funding Process Initial Venture Valuation Idea or Concept Planning Research Business Plan Models (Report) Patent and Entrepreneur Market Executive First Chicago Trademark Characteristic Characteristic Summary Methods Research Technical Business Power Point Discounted feasibility Model Competition Business Cash Flow studies Reviews Plan Revenue Competition Technology Elevator Market Value Model Review Breakthrough Speech Research Reviews Investment Market Pricing Due Diligence Stage Studies Studies Comparison 5
  • 6. Process of different funding stages ………… Exit stage Board of directors liquidity event decision tree IPO orSeed Capital First Venture Second Round Valuation Merger IPO Angel Round Determine Merger Round Capital Round Financing comparison Decision Value tree Private Board of Venture Fund Venture Fund Placement Advisors and Research for a Research for a Reg D Directors fit fit Investment M & A Firm Building Block IPO Vs Merger Banker Exit Process or First Move Selection Review Friends, Develop Portfolio Portfolio Family & personal Company Company Target 300,000+ contact list Comparisons comparisons Shareholder Merger Check Current Candidate Value Candidates IPO Markets Screening Solicit Advisor Angel First Round Incubator Acquisition Determine Determine Recommendat Recommendat Recommendat Selection Option Values Candidates to Financial Value & ion ion ions Grow for IPO Needs Negotiate Deal Structure Plan to Locate Local complete Set Valuation Set Valuation Build Value Vs Poll Investors Associations Select (3+) prototype/ser Target Target Liquidity BOD & BOA of Angels Underwriters vice Event for best fit Break-Even Term Sheet Term Sheet Tax Analysis Road Show Plan Comparisons Comparisons 6
  • 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 by oversimplifications, hidden prospective investors competitors, and upside  Intellectual property rights opportunities.  Exclusive licenses  Statutory monopolies 3 4 INTANGIBLE A large, rapidly expanding  Strong brands market and the companys Their business plan evaluation marketing strategy a unique  Leadership criteria, in order of importance, brilliant idea or technology that  Tacit knowledge & skills include: Key personnel:  Teamwork can be commercialized and people/management that can get the job done protected a business strategy  Organizational culture that has a strong sustainable  Business processes competitive advantage  Partnerships Reproducible Capabilities (can be replicated by competitors) 5 Synergistic combination of Technical capabilities your distinctive and Financial capabilities reproducible capabilities Marketing capabilities Explicit knowledge Non-exclusive licenses 7
  • 8. Potential Pros and Cons of Business Angel Investments Advantages Angel’s Characteristics Added Bonuses  Value-adding Investment Characteristics  Leveraging effect  Geographically dispersed  Seek smaller deals  Give loan guarantees  More permissive investors  Prefer start-ups & early stage  No high fees  Invest in all industry sectors  Like high-tech firms Business Angels Disadvantages No national Little follow-on Could turn out to Want a say in firm reputation money be “devils” leverage 8
  • 9. Sources of funds for a start up…… 9
  • 10. Potential Investor Returns, Timing & Cost Of Capital Cash Returns, Investment Periods, and Rates of Return Investment Period Return 2 yrs 3 yrs 4 yrs 5 yrs 6 yrs 7 yrs 8 yrs 2x 41.4% 26.0% 18.9% 14.9% 12.2% 10.4% 9.1% 3x 73.2% 44.2% 31.6% 24.6% 20.1% 17.0% 14.7% 4x 100.0% 58.7% 41.4% 32.0% 26.0% 21.9% 18.9% 5x 123.6% 71.0% 49.5% 38.0% 30.8% 25.8% 22.3% 6x 144.9% 81.7% 56.5% 43.1% 34.8% 29.2% 25.1% 7x 164.6% 91.3% 62.7% 47.6% 38.3% 32.0% 27.5% 8x 182.9% 100.0% 68.2% 51.6% 41.4% 34.6% 29.7% 9x 200.0% 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 VC’s Voted # 1 Brand in the World overtaking Google in the recent past 11
  • 12. Top segments in silicon valley who have made profits in the year 2010 – these companies are majorly fundedby top VC’s, 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 profit ratio 13% Net Profit (Billion) Net profit Sales (Billion) ratio 28% Sectors Sales (Billions) Net profit (Billions) Net profit ratio Computers, peripherals $206.15 $25.82 13% Semiconductor $80.08 $16.16 20% Software $62.54 $10.40 17% Networking, telecommunications $56.41 $8.40 15% Internet services $49.03 $11.80 24% Non-Technology $18.48 $1.81 10% Semiconductor manufacturing equipment $17.79 $2.87 16% Electronic contract services $15.68 $0.21 1% 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 $84.73 12
  • 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. 13
  • 14. Bottom ten companies in silicon valley who have made losses in the year 2010 – these companies aremajorly funded by top VC’s, 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 14
  • 15. Technology companies lead pack of market capitalization, it also clearly shows thathigh profit margin companies have high market capitalization. 15
  • 16. Number of venture firms expected to decline in traditional markets, expected to growin emerging markets Expected Growth in Next 5 Years – Number of VC Firms • 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 firms 16
  • 17. Venture capital available for investment in home country over the nextfive years Expected Growth in Next 5 Years– $$ Available for VC Investment • 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 years • Clean technologies and healthcare services are the hottest industries • Semiconductor and telecommunication see the biggest slow down in future investments 18
  • 19. Industry investment highlights by country Top 2 industry sectors countries will be increasing their investment in Country #1 Increased Investment Sector #2 Increased Investment Sector Brazil Consumer Business – 92% Clean Technologies – 85% Canada Clean Technologies – 67% New media/social networking – 50% China Clean Technologies – 95% Healthcare Services – 92% France Clean Technologies – 88% Health care Services – 69% Germany Clean Technologies – 71% New media/social networking – 64% India Clean Technologies – 90% Healthcare Services – 89% Israel New media/social networking – 86% Medical device and equipment -67% United Kingdom Clean Technologies – 85% Healthcare Services – 62% U.S. Clean Technologies – 72% New media/social networking – 58% 19
  • 20. 2010 Trivia VC’s 42% of the VC’s 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 industry 54% of the VC’s felt that they are very important for the growth of US economyCompanies converted from VC to IPO  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 flow 20
  • 21. Venture capital investment in US - Internet Internet VCVC trends & 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 Quarters Last Five Quarters 272 1% 5% 10% 13% 224 233 233 19% 25% 221 16% 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% Q409 Q110 Q210 Q310 Q410 Q409 Q110 Q210 Q310 Q410 $ Funding # of Deals Seed Series A Series B Series C Series D Series E + VC Investment ($) in Internet by industry 2010 Q410 VC investment in internet Sub -Industry, Discount 1% Social 18% Advertising, Sales & Marketing 2% 26% Bus. Intelligence, Analytics & Performance Mgmt 1% Video Gaming 2% 2% Data Storage 2% Data & Document Management 2% Health & Wellness 3% Conferencing & Communication 24% Information Providers & Portals 3% 5% eCommerce enablement 3% 6% Travel (internet) Content Management All Other 21
  • 22. Top 5 acquired & venture capital funding deals in Internet industry at 2010 Bid value Company Bidder Business description ($ US million)Acquired deals Provides electronic payment processing services for Web, call center, CyberSource Corp. Visa Inc. $1,964 and POS environments VeriSign Inc.-Identity The identity and authentication business of VeriSign Inc., provides Symantec Corp. $1,280 Business Internet security services Develops social gaming software used in social networking sites such as Playdom Inc. Walt Disney Co $763 Facebook Provides marketing solution services for discovery, branding and AdMob Inc. Google Inc. $750 monetization on the mobile web Internet Brands, Inc. Hellman & Friedman Capital $640 Provides Internet media services to large ticket consumer purchases Funding Company Venture Capitalist ($ US Business description Venture Capital funding deals million) US Venture Partners, Grotech LivingSocial is the social commerce leader behind LivingSocial Deals, a Ventures, Revolution , Lightspeed group buying program that invites people and their friends to save up to LivingSocial $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 allows Twitter Kleiner Perkins Caufield & Byers $200 users to post their latest updates. Digital Sky Technologies, Battery Groupon features a daily deal on the best stuff to do, see, eat, and buy Groupon Ventures, Accel Partners, New $135 in more than 565 cities around the world. Enterprise Associates Austin Ventures, Norwest Venture WhaleShark Media, Inc. is the world’s leading marketplace for coupons Whale Shark Media $90 Partners, Adams Street Partners and deals. Institutional Venture Partners, FleetMatics is the leading software provider of GPS-based fleet FleetMatics Investcorp Technology Partners, New $68 management systems. World Ventures 22
  • 23. Thank you 23