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Funding MBAX 6100 Entrepreneurship

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  • The Venture Capital Industry–An Overview Venture capital is money provided by professionals who invest alongside management in young, rapidly growing companies that have the potential to develop into significant economic contributors. Venture capital is an important source of equity for start-up companies. Professionally managed venture capital firms generally are private partnerships or closely-held corporations funded by private and public pension funds, endowment funds, foundations, corporations, wealthy individuals, foreign investors, and the venture capitalists themselves.
  • How get VC’s to see you?
  • Seed: proof of concept Start-up: set-up production and initial sales Early stage: full scale operations and market development Second stage: expansion Exit: harvest CCG Seed prototype show to customeres investors: #250K + #50K business plan got oreder for 6 systems Start-up site in Cambridge 2,000sq ft ordered materials and parts 5 people Sales Director cashed check Early 2 sites same business park 5,000 sq ft distributor Europe CFO High margins 60%+ lose control Second stage new location 20,000 sq ft 45 people to 75 Marketing Director bank loans offices in Paris and Frankfurt US market Exit partner Carlton for US #12 million
  • Transcript

    • 1. MBAX 6100 Entrepreneurship & Small Business Funding Frank Moyes Leeds School of Business University of Colorado Boulder, Colorado
    • 2. Funding Your New Venture Next 3 Weeks
      • This week: Venture Capital & private placement
      • Next week Debt & other forms of funding
      • Following week: Negotiating Term Sheets
      0
    • 3. Today’s Agenda
      • Locomotion presentation
      • Funding
        • Venture Capital
      • Venture Capital
        • Chris Scroggins of Sequel Venture Partners
        • Rob Balgley of Skyetek
      • Private Placement
        • Doug Collier
      • Due: Mid-term & entrepreneurship papers
      0
    • 4. Venture Capital 0
    • 5. Venture Capital
      • $21.7 billion in 2005
      • 2,939 investments
      • Down from $104 billion & 7,832 deals in 2000
      • Pool of capital invested in rapidly growing companies
      • Private Partnerships
        • General partners – manage
        • Limited partners – provide funds
      0
    • 6. What Are the Advantages to Venture Capital? 0
    • 7. What Are Disadvantages of Venture Capital?
    • 8. VC Decision Making
      • Deal flow
        • Less then 2% of deals are funded
        • 1 to 2 new deals per year per partner
      • Due diligence – in-depth investigation of the venture & you
      • Time frame to do a deal: 3 to 12 months
      • Entrepreneur decision making
        • Due diligence
        • Chemistry is key
    • 9. Managing VC Portfolio Companies
      • A, B, C, & D Rounds
        • Dry powder
      • Each round is often staged with milestones
      • Board of Directors
      • Hands-on vs. portfolio approach
    • 10. What Do VC’s Look For? 0
    • 11. Control: Why do VC’s Often Wind-up Owning > 50% of a Venture?
    • 12. VC Required Return on Investment
      • Seed 80%+
      • Start-Up 60%
      • Early Stage 50%
      • Second Stage 40%
      • Third Stage 30%
      • Bridge 25%
      • 19x
      • 10x
      • 8x
      • 5x
      • 4x
      • 3x
      ROI 5 yr. Increase Bygraves & Zacharakis 0
    • 13. What Are the Implications to the Entrepreneur of VC ROI?
      • The later the stage, the better the deal
      • The better the management, the better the deal
      • The quicker the exit, the better the deal
    • 14. Why people want to be VC’s?
      • Partnership
        • General partners
        • Limited partners
      • Management fees 2%
      • Specialize in an industry
      • Carried interest – 80/20
      • Series of funds
    • 15. Angels
      • Sophisticated investor who invests in early stage companies
        • 250,000 + angels in US
        • Invest $5 bill - $10 Bil, 20K – 30K companies annually
        • Typical investment = $25K - $250K
        • High net worth
        • Usually wants to invest in industry where has experience
      • Accessing Angels
        • Not in the Yellow Pages
        • Networking
        • ACE-net.org
      0
    • 16. Angels (cont’d)
      • Advantages
        • Early stage resource
        • Value-added money : network, advice, commitment
      • Disadvantages
        • No follow-on funds
        • Give-up equity
        • Over-control from angel
      0