Cass Business School Lecture Nov 2009

Understanding venture capital Nic Brisbourne Cass Business School Lecture November 27th 2009

Agenda
Introduction
The four aspects of venture capital
Raising money to make investments
Making investments
Exiting investments (aka portfolio management)
Managing ourselves

Nic Brisbourne
10 years in venture
4 years corporate venturing with Reuters
6 years with DFJ Esprit
Career VC
2008 Deal of the Year for Buy.at exit
Focused on the internet
Blogger at www.theequitykicker.com

DFJ Esprit is a leading venture capital investor focused on five target segments: technology, media, telecoms, medtech, cleantech and healthcare.
Esprit aims to provide superior returns for investors in its funds by investing in, and helping entrepreneurs grow world class companies.
Esprit Capital Partners is the product of the 2006 merger between Cazenove Private Equity and Prelude Ventures.
Prelude Ventures has been successfully making early stage investments in the UK and European technology, life-science and healthcare businesses for 21 years.
Cazenove Private Equity has been active as a cross stage investor in the European technology market since 2000, making more than 20 investments in this time.
Recently announced:
A new primary fund
The acquisition of 3i’s European IT venture portfolio
DFJ Esprit

Structure of the venture industry Fees + Carry

Home runs – the maths demands them
Target IRR of 30-35% and a four year average holding period implies a 3x multiple on the whole fund
Sample fund of 10 companies, average investment of £1 per company
Two 10x returns = £20
Three 3x returns = £9
Two money back = £2
Three write offs = £0
Total = £31, or 3.1x multiple on whole fund

Different funds specialise in investing differing amounts Seed Early Stage Series A, (B) Later Stage (B),C,D… Pre-IPO / Buy-out Private Equity Investment Size Potential Sources of Funds 0 - €1m Grant-funding University seed funds Friends and family Angel Investors (Venture Capital) € 2m-€20m Venture Capital (Wealthy) Angel investors € 5m-€20m Venture Capital € 30m+ Specialist Late stage tech investment funds Hedge Funds

The process of making investments changes with the heat in the market

How VCs find companies
Decide what sectors to look in
Thematic investing
Ad hoc/reactionary investing
The process of finding companies
Network, network, network
Advisors
Research
Cold approaches

Deciding to make an investment
Fit with fund strategy
Multiple meetings assessing exit potential – needs to be big!
Market
Product
Team
Why this business will win
Company needs to have momentum

Investment execution
Termsheet
Formal due diligence
Legal documents
Articles
Shareholders agreement
Reps and warranties
Takes time – need to keep performing throughout
Two end-to-end examples
Buyat – 500 days
Tribold – 90 days

Typical deal terms
Target 20-35% ownership
Board Representation
Liquidation Preference
Participation rights
Certain control and veto rights
Option Pool
Period of exclusivity to close legals
but that’s so unfair…

Helping companies to help themselves
A good board focuses on (per Patrick Dunne):
Right strategy
Right resources
Staying out of jail
A good VC investor director (generally) focuses on
The high level
Areas where they will make a difference
A small number of issues (ideally one)

What a good VC will add
Advice and Strategy
Hiring
Developers
Country Managers
Sales
CEO / CFO / COO
Advisory Board
Partnerships
Profile and PR
Internationalisation
Trusted service provider relationships
Search / recruiting
Branding / PR
Finance, etc
Exit optimisation
Knowledge / contacts with relevant buyers
Experience with process

Making the fund a success
Focus resource where it will make a difference
This is tough
Keeping sufficient reserve capital
Maintain decision quality
Stop partners from going native
Ensure a steady flow of exits
Buy.at example

Internal process for a VC fund
Typically centres around a weekly partners meeting
Ours has three sections, as above
Key is good information and good decision making
Challenge is making it work in a partnership where everyone operates autonomously

Recruitment into a VC fund
In private equity you have to be financially trained and to have an understanding of management, but you also have to have a strategic brain while being sensitive to tactical and people issues.
“ “ And a passion for your sector!!!

Conclusion
To do this job is a privilege

Thank you & Questions Nic Brisbourne, Partner DFJ Esprit TheEquityKicker

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Cass Business School Lecture Nov 2009

by Nic Brisbourne on Nov 27, 2009

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Cass Business School Lecture Nov 2009 — Presentation Transcript