Entrepreneurship & Innovation


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The first of three lectures given at Brandeis University by Evangelos Simoudis.

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  • Over the past decade, a large number of funds have substantially increased their allocation in alternative assets. In some extreme cases, these investors have taken this allocation from a conservative amount of say 15-20% to well over 50% of their fund
  • Entrepreneurship & Innovation

    1. 1. Entrepreneurship & Innovation Evangelos Simoudis, Ph.D. Managing Director Trident Capital [email_address] Blog: blog.tridentcap.com Twitter: @esimoudis
    2. 2. Agenda <ul><li>How VCs work </li></ul><ul><li>Creating, funding and building a company </li></ul>
    3. 3. How VCs work <ul><li>Create investment strategy </li></ul><ul><li>Raise new fund </li></ul><ul><li>Invest the fund (initial investments, follow-on investments) </li></ul><ul><li>Manage portfolio </li></ul><ul><ul><li>Monitor/manage investments </li></ul></ul><ul><li>Keep LPs in the loop </li></ul><ul><li>Drive to exits (maximize profits, minimize losses) </li></ul><ul><ul><li>The recent market problems and their impact to exits </li></ul></ul><ul><li>Return the investment and profits </li></ul><ul><li>Repeat </li></ul>
    4. 4. Elements of a venture strategy <ul><li>Company stage at the time of investment </li></ul><ul><li>Sectors </li></ul><ul><ul><li>High growth markets to warrant the risk </li></ul></ul><ul><ul><li>The trends we follow </li></ul></ul><ul><li>Geography </li></ul><ul><li>Sole investors vs co-investors </li></ul><ul><li>Management style (active vs passive) </li></ul>
    5. 5. Raising a new fund <ul><li>Types of LPs: foundations, endowments, pension funds, funds of funds, family offices, individual qualified investors </li></ul><ul><li>Amount of contributed by outside investors vs amount contributed by the fund’s GP </li></ul><ul><li>General terms: carry (terms under which the carry is distributed to the GP), management fees, investment period </li></ul><ul><li>Due diligence </li></ul>
    6. 6. Asset allocation by LPs <ul><li>Prototypical U.S.-based asset allocation </li></ul><ul><li>25% U.S. stocks </li></ul><ul><li>30% U.S. bonds </li></ul><ul><li>25% international (stocks and bonds) </li></ul><ul><li>20% alternatives </li></ul><ul><ul><li>LBOs 60% </li></ul></ul><ul><ul><li>PE 30% </li></ul></ul><ul><ul><li>VC 10% (of the 20%), i.e., 2% of overall allocation </li></ul></ul><ul><li>Liquid assets </li></ul><ul><li>Trade daily </li></ul><ul><li>Known value </li></ul><ul><li>Market to trade </li></ul><ul><li>Illiquid assets </li></ul><ul><li>Don’t trade </li></ul><ul><li>Higher risk </li></ul><ul><li>Higher expected return </li></ul>
    7. 7. Deal flow <ul><li>Early stage deals: </li></ul><ul><ul><li>Entrepreneurs, EIRs </li></ul></ul><ul><ul><li>University projects </li></ul></ul><ul><ul><li>Smaller/feeder funds </li></ul></ul><ul><ul><li>Similar funds looking for co-investors </li></ul></ul><ul><ul><li>Angel investors </li></ul></ul><ul><ul><li>Outbound deal-sourcing efforts (calls, social media, participating and speaking at conferences and other forums) </li></ul></ul><ul><li>Later stage deals: </li></ul><ul><ul><li>Bankers </li></ul></ul><ul><ul><li>Other institutional investors </li></ul></ul><ul><ul><li>Outbound deal-sourcing efforts (tracking companies, calls, conferences, forums) </li></ul></ul>
    8. 8. We decide on an early-stage investment opportunity by trying to answer 4 questions <ul><li>Is this the right team to support? </li></ul><ul><ul><li>How has the founding team come together and how was it enhanced? </li></ul></ul><ul><ul><li>How long have they been working together? </li></ul></ul><ul><li>Is this a feature, a product, or a business? </li></ul><ul><li>Is the market big enough, could it become big, what will it take for the company to dominate it? </li></ul><ul><li>Is this the right time to fund this company? </li></ul>
    9. 9. Conducting due diligence <ul><li>Management team </li></ul><ul><li>Market </li></ul><ul><ul><li>Customers/prospects </li></ul></ul><ul><ul><li>Industry and investment analysts </li></ul></ul><ul><li>Product/technology </li></ul><ul><li>Financial (for companies with operating history) </li></ul><ul><li>Legal </li></ul><ul><li>Competition (private companies, public companies) </li></ul><ul><li>Returns analysis </li></ul><ul><ul><li>Comparable companies (private, public) </li></ul></ul><ul><ul><li>M&A analysis (recent acquisitions) </li></ul></ul><ul><ul><li>IPO analysis (recent relevant IPOs and recent filings) </li></ul></ul>
    10. 10. The technology trends we follow today <ul><li>The transition from offline to online in commerce and media consumption </li></ul><ul><li>The transition from on-premise to on-demand/cloud software </li></ul><ul><li>The corporate desire to use the data they generate, including big data in the cloud </li></ul><ul><li>The increasing use of smartphones; smartphones as computing, communication and entertainment platforms </li></ul><ul><li>The need for smarter use of energy; move to clean energy </li></ul><ul><li>The need for IT-driven automation in healthcare </li></ul><ul><li>Cyber security </li></ul>
    11. 11. Creating, funding and building a company <ul><li>Identify the founding team </li></ul><ul><li>Create the product idea and establishing the business model </li></ul><ul><li>Understand the market opportunity </li></ul><ul><li>Seed (bootstrapping, angels) or Series A (institutional investor(s)) </li></ul><ul><li>Use the first 3 customers to refine the product and the business model </li></ul><ul><li>Release V1 of the product </li></ul><ul><li>Series A </li></ul><ul><li>Create a repeatable sales process and sales model (3->10->50) </li></ul><ul><li>Hire the first 20 employees </li></ul><ul><li>Form the board of directors and a customer advisory board </li></ul><ul><li>Series B </li></ul>12-18 months