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Transcript

  • 1. VENTURE CAPITAL IMPORTANT SOURCE OF EQUITY FOR HIGH GROWTH COMPANIES
  • 2.
    • “POOL OF CAPITAL, TYPICALLY ORGANIZED AS A LIMITED PARTNERSHIP, WHICH INVESTS IN COMPANIES THAT REPRESENT AN OPPORTUNITY FOR A HIGH RATE OF RETURN WITHIN 5-7 YEARS.”
  • 3.  
  • 4. BACKGROUND
    • VENTURE CAPITAL FIRM BACKED FIRMS RESPONSIBLE FOR
      • 3.3% OF NATION’S JOBS
      • 7.4% OF GROSS DOMESTIC PRODUCT
      • ALL FOR ONLY 1% OF NATION INVEST.
      • “GAZELLES” (>20% GROWTH) ARE 5% OF NATION’S FIRMS; 2/3 NEW JOBS
  • 5. BIG CHANGE IN FINANCING
    • GROWING WEALTH/DISPOSABLE INCOME
    • VERY VISIBLE HIGH TECH COMPANIES - poster children for feast-or-famine nature of venture capital
    • RECENT SURVEY - 6/100 of high tech startups had traditional bank debt as first-round financing
  • 6. VENTURE CAPITAL ROLES
    • PURCHASE EQUITY OR HYBRID SECURITIES
    • ASSIST IN NEW PRODUCT DEVELOPMENT
    • FOCUS ON HIGHER RISK-RETURN COMPANIES
  • 7. SAMPLE FIRMS THAT USED VENTURE CAPITAL
    • FEDERAL EXPRESS
    • COMPAQ
    • SUN MICROSYSTEMS
    • INTEL
    • MICROSOFT
  • 8. VARIABLE TRAITS OF VENTURE CAPITAL FUND
    • RISK
    • LENGTH OF COMMITMENT
    • INVESTMENT ILLIQUIDITY
    • MINIMUM $ COMMITMENT
  • 9. STRATEGY OF V.C. FIRM P. 283 OF TEXT
    • MANAGEMENT ABILITY
    • WELL-DEFINED NICHE BUSINESS
    • LEADING MARKET POSITION
    • STRONG GROWTH POTENTIAL
    • CONSOLIDATION
    • RISK AVOIDANCE
    • REASONABLE SELLING PRICE
  • 10. EXIT OPTION 1
    • MERGER/ACQUISTION
      • MOST FREQUENT EXIT
      • AT LEAST 3-5 YEARS AFTER INITIAL INVESTMENT
  • 11. EXIT OPTION 2
    • INITIAL PUBLIC OFFERING (IPO)
      • MOST GLAMOROUS
      • FUND GETS PUBLIC SHARES BUT OFTEN MAY NOT BE TRADED FOR UP TO 2 YEARS
  • 12. WHAT INDUSTRIES ATTRACT VENTURE CAP.
    • Poised for rapid growth/high profit
    • Sustainable growth in excess of 5 years
    • Niche or emerging markets
    • market large enough to support in range of $100 million in company value
      • health care
      • information technology (?)
  • 13. LIFE CYCLE OPTIONS FOR V.C. INVESTMENT
    • SEED INVESTING - before the real product or company is organized
      • $300-3 million
    • EARLY STAGE INVESTING - after first product development
      • $3 million - $20 million
  • 14. V.C. CYCLE CONT.
    • EXPANSION STAGE - beyond critical mass toward more successful firm
      • $20 MILLION-$100 MILLION
      • STAGE AT WHICH IPO OR FIRM BUYOUT EXPECTED
    • LATER STAGE - also through exit via stock offering or buyout
  • 15. EVALUATION APPROACH
    • Uniqueness of product
    • Will company become profitable?
    • How will proceeds be used?
    • Management able and willing to meet specific goals?
    • Is there an exit strategy for equity investors?
  • 16. VALUATION APPROACHES
    • EARLY STAGE FIRMS - focus on management
    • EXPANSION STAGE FIRMS - value = multiple of revenues
    • LATE STAGE FIRMS - MULTIPLE OF EARNINGS
  • 17. CASE STUDY VALUATIONS
    • HOP-IN-FOODS - P. 259-260
    • BERG ELECTRONICS - P. 281
    • Q: COMPARE IPO FIRMS WITH FIRMS IN SAME INDUSTRY