Index FOWA

Everything you need to know about Venture Capital 20 February 2007 Ben Holmes Index Ventures

Who we are
€ 1.3bn under management
Active investor in web / internet
Pan European Venture Fund
Based London & Geneva
Index Ventures Selected Investments

Agenda
Overview of Venture Capital
When to raise VC finance?
Strategies for VC fundraising
How to choose the right VC partner?

Venture Capital – Size of market
US - 2006
$25.7bn
1446 transactions
$10.5m average investment
Europe - 2006
€ 4.1bn
867 transactions
€ 14m average investment
55% of transactions within broad IT sector
However rapid increase in Web application investments
UK 2005 - £24m invested
UK 2006 - £79m invested
Sources: Dow Jones VentureOne, Paul Fisher at FirstCapital

Venture Capital – How the VC makes money
Raise fund every 2-4 years
Pension funds, financial institutions and specialist “fund of fund” investors
Invest money over 3-5 years
~ 1/2 of investments lose money
~ 1/3 of investments break even
~ 1/6 of investments make (lots) of money
Very small management fee on funds managed
~ 1-2.5% pa
Carry
~ 20-25%x (Total Return – Total Amount Invested)

Venture Capital – Stages of Investment
Investment Size
Seed Early Stage Series A, (B) Later Stage (B),C,D… Pre-IPO / Buy-out Private Equity 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

Venture Capital – 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

VC Case Study
Company Creation
Index acting as Interim Mgmt
Team Recruitment
Mattias Miksche as CEO
Relocated to Stockholm
Board Hiring
Fred Davis
Additional Finance
Sequoia Capital
Celebrity Partnerships
Fashion Industry Partnerships

VC Case Study
Company establishes HQ in London
Few hundred meters from Index
Day to day contact with founders
Team Recruitment
Mike Volpi, Cisco as Chairman
Saul Klein, Head of Marketing
Etc.
Exit strategy
Index plays key role in navigating multiple buyer discussions
Successful exit to eBay €2.5bn+

Venture Capital – Typical Deal Terms
Target 20-35% ownership
Board Representation
Liquidation Preference
Participation rights
Element of reverse vesting
Certain control and veto rights
Option Pool
Period of exclusivity to close legals
but that’s so unfair… Photo Source: Philip Greenspun, MIT

Agenda

Good reasons to raise VC Large Potential Market Opportunity Unique Product Or Concept Excellent Development Capability Pre-requisites Intense competition likely Need to move rapidly Implications… Hiring Infrastructure VC funding supports Rapid Product Development Internationalisation Partnerships Commercialisation

When NOT to raise VC
Risk is not that you waste time unsuccessfully trying to raise finance …
… real danger is that you do succeed in raising VC funds
Lose opportunity for small exit which could be personally lucrative
Lose opportunity to run lifestyle business
Get bound in to 3+ yrs work you may not enjoy
Application is a feature not a product Market size is too small Motivation is not financial

Agenda

The top tips…
Have a great product
Focus predominantly on the business not fundraising
Evidence of executional ability is more exciting to VC than a 100 page business plan

Identifying relevant VC partners
Do create a shortlist
Rifle is a better weapon than a shotgun
Has funds to invest Match of Size/Stage/ Geography Relevant Portfolio No directly competitive investments Excellent track record Shortlist Good free sources on VC funding http://www.thealarmclock.com/euro/ http://www.vecosys.com

Getting on radar screens
Out of the blue email is a longshot
Try to build context
Analyse portfolio companies – are there any links there
Analyse contact network and advisors
Analyse press coverage
Participate in blog conversations
Attend events and conferences
Relevant PR around product also helps
VCs spend their time looking for businesses with momentum

Sharing relevant information
100 page business plan not required
20 page ppt which clearly answers main questions is best bet
Product
Market
Business Model
Team
Competition
Product Roadmap
Technology Overview
Business Development
Financial Status
Pre - first meeting Pre - termsheet Post - termsheet
Dialogue rather than documentation – expect lots of meetings
Calls with current / prospective customers or partners
Meeting broader team
Brainstorming around strategy
Identifying key hires post closing
Formal presentation to VC partnership
Some additional reference calls with partners / customers
Personal reference calls
Legal / accounting audit (if relevant)
Drafting legal documentation
2-4 weeks 1-2 Months

Agenda

Valuation should not be the decisive factor Value at exit Probability of getting there % share of business at exit Entrepreneur’s Equation
Revenues / Profitability
Growth rate
Team quality
Strategic fit with buyer community
Well managed exit process
Fewest strategic errors made
Hiring (quality & speed)
Partnerships
Product development
Valuation at initial round
Valuation and dilution at subsequent rounds
Option grants

Key things to consider
Relationship
With key individual(s); and
broader team
References
Speak to other founders
Portfolio
Relevant experience
Non competitive
Community you want to be part of
Valuation and associated deal terms
Right partner at a fair price vs. Any partner at best price

Thank you Ben Holmes Email : benh@indexventures.com Skype : ben_holmes Stardoll : binky2128

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Index FOWA

by Saul Klein on Feb 23, 2007

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