Entrepreneurship & Innovation

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

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

Transcript

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