Introduction to vc 2011 11-17

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Introduction to vc 2011 11-17

  1. Venture Capital and Private Equity Crash Course into Startup Funding1 11/18/11
  2. Funding Options for a StartupEquity Funding•  FFFFinancial Funding Equity Funding•  Banks, Insurance •  Business Angels Companies, Pension Dumb •  VC Funds Funds Smart •  Industrial Investors•  FinnveraPublic Funding•  Tekes•  ELY-Centers2 11/18/11
  3. Growth Companies and Venture Capital Growth Companies •  Fast-growth companies critical for jobs and prosperity; 6-7% companies create 60-70% of net jobs. •  VC´s are investing into fast-growth companies only. Less than 2% of companies get funded. •  Companies in VC –active areas grow 3-4 times faster than companies from non-VC active areas Venture Capital (VC) •  VC –funded companies create more innovations than the large companies with their huge R&D resources •  Since 1999 over 60% of listed companies in the US have been VC –funded. In 2006 83% of the listed companies had VC funding. •  After IPO VC –funded companies overperform regular companies. •  VC –funded companies created 21% of GNP and 11% of jobs in the USA in 2008.Lähteet:  Global  Entrepreneurship  Monitor  (2002;  2009);  Gompers  &  Lerner,  (2001);  IHS  Global  Insigth  (2009);  Industry  Canada  (2005);  Lerner  (2009);  Kaplan  &  Lerner  (2009);  Kaplan,  Sensoy  &  Strömberg  (2009)   3
  4. Why Venture Capital? Venture Competence Strongest correlation between VC Funding and Growth Almost impossible to reach global markets without A Real VC has made and seen all those mistakes you are about to make Other funding possibilities for a high-growth start-up are very limited4
  5. The Growth Company Lifecycles Horizon 3 100 M€Resources and Horizon 2volume •  Growth management •  Global Business 10 M€ Horizon 1 •  Funding and financing •  Growth planning 1 M€ •  Business planning •  Business ramp-up 1 year 3 years 5 years 7 years Time New Venture Established Growth-company Business Angel Early-Stage VC Global VC 5 11/18/11
  6. What are the VC´s looking for? Primary Secondary •  Competent and Dedicated •  Fancy Strategy Team •  Cool Technology •  Protected IPR •  Unique Business Idea •  Cashflow positive •  Large and Growing Accessible Market •  Execution Power6
  7. … and more preciselyComponent DefinitionSignificant ROI The real possibility of achieving an above market return within thepotential alternative investment asset class (e.g. 10x return within three years).Path to proftability A demonstrated, clear business strategy in conjunction with a substantial revenue modelExit Opportunity A clear understanding of how the venture will achieve liquidity on a timeframe that is attractive to investors.Management Team A high-energy group preferably with industry experience and the knowledge and skills to grow the companyGrowing Market Large total addressable market in a high growth space, where customers are currently experiencing considerable “pain”Compelling Value A product or service that is unique, with a compelling valueProposition proposition. Are you merely building a better mousetrap or are you creating an innovation with transformative value?Mature Management A founder and executive team willing to share ownership and control in exchange for capital, to help the business grow quickly. If you do not understand this concept, go back to your day job7 11/18/11
  8. Mentalities of Risk and Return – The Matrix The US VC’s Market Growth Feasible Investment Set Cap EntrepreneurshipReturn 1000M€ The Actual The US VC’s Risk/Return Maximum Possible Return Function 100M€ Minimum Possible Return 10M€ Finnish way (Risk Minimizers’) The Commercial VC’s Maximum Possible Minimum Risk Return Maximum Risk 1M€ ROI = 0 LifestyleEntrepreneurship 0 0 0,5 M€ 1 M€ 5 M€ 20 M€ 50 M€ Total Funding Finnish Way The (Risk Minimizers’)‫‏‬ Finnish Way GAP Risk Feasible Investment Set (Risk Minimizers’) Maximum Risk
  9. What to Demand from a VC? §  Industry competence and focus around it §  Personal experience from successes and failures §  Extensive network and ability to help with the market access §  Ability to tolerate risks and accept failures §  Greed and the incentives to support that §  Thorough understanding of the value creation of your idea §  Ability and willingness to spend extensive time to develop the portfolio companies §  Ability and willingness to take part-time mgmt assignments if needed9
  10. VC Reality Myths Facts •  “We are Hands-On” •  “Show me the Money” •  “We are on the same boat” •  “I invest, you burn” •  Trial and Error •  Blue pill or the red pill •  My Company •  Their Company •  Risk-Taking •  Risk-Averse10
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  12. How to Prepare? Homework Portfolio Category Matrix Credibility Exit Plan12 11/18/11
  13. VC Lingo – the most important issues Valuation Liq. Pref. Anti-Dilution Good Leaver / Bad Leaver Drag and Tag Equity vs. Convertible13 11/18/11
  14. 1422.10.2002 © HOLTRON
  15. Entrepreneur – VC Lingo You Say VC interprets “Product 90% complete” “We might have a name for it” “Leading-edge technology” “We can´t make it work” “Limited Downside” “Thing´s can´t get any worse” “Possibility of a shortfall” “We´re 50% below plan” “Proven Technology” “It nearly worked once” “We are re-positioning the company” “We are doomed” “Upside Potential” “It stopped breathing” “First-Mover Advantage” “The other 5 start-ups we know have not received funding either”15 11/18/11
  16. Entrepreneur – VC Lingo You Say VC interprets “No competition” “No market” “Universal Platform” “We can´t figure out how to position this thing” “Unique Opportunity” “We have failed to perform a competitive analysis” “Disruptive Technology” “Too many bugs” “Social Media Platform” “We cannot figure out have to make money” “Sustainable” “With unlimited funding this might stay alive”16 11/18/11
  17. Volunteering for the unknown…which meant leaving the security of what I knew…would continually change my life. All of you will fail at some time in your career…or in love, or in life. No one ever sets out to fail. But being afraid to fail means you’ll be afraid to try. Playing it safe will get you nowhere. Ignore them….. Be persistent… Never give up. Innovation comes from those who see things that other don’t. Be forever curious. Volunteer for everything. Show up a lot. Treat failure as a learning experience. Live life with no regrets. Remembering… There is no undo button.17 11/18/11

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