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Index FOWA

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  • 1. Everything you need to know about Venture Capital 20 February 2007 Ben Holmes Index Ventures
  • 2. Who we are
    • € 1.3bn under management
    • Active investor in web / internet
    • Pan European Venture Fund
    • Based London & Geneva
    Index Ventures Selected Investments
  • 3. Agenda
    • Overview of Venture Capital
    • When to raise VC finance?
    • Strategies for VC fundraising
    • How to choose the right VC partner?
  • 4. 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
  • 5. 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)
  • 6. 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
  • 7. 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
  • 8. 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
  • 9. 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+
  • 10. 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
  • 11. Agenda
    • Overview of Venture Capital
    • When to raise VC finance?
    • Strategies for VC fundraising
    • How to choose the right VC partner?
  • 12. 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
  • 13. 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
  • 14. Agenda
    • Overview of Venture Capital
    • When to raise VC finance?
    • Strategies for VC fundraising
    • How to choose the right VC partner?
  • 15. 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
  • 16. 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
  • 17. 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
  • 18. 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
  • 19. Agenda
    • Overview of Venture Capital
    • When to raise VC finance?
    • Strategies for VC fundraising
    • How to choose the right VC partner?
  • 20. 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
  • 21. 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
  • 22. Thank you Ben Holmes Email : benh@indexventures.com Skype : ben_holmes Stardoll : binky2128