• Like
  • Save
Vc Intro Seedfund Iimc
Upcoming SlideShare
Loading in...5
×
 

Vc Intro Seedfund Iimc

on

  • 2,999 views

what do VCs have to say?

what do VCs have to say?

Statistics

Views

Total Views
2,999
Views on SlideShare
2,974
Embed Views
25

Actions

Likes
3
Downloads
117
Comments
0

3 Embeds 25

http://i2i2008.blogspot.com 21
http://www.slideshare.net 2
http://i2i2008.blogspot.in 2

Accessibility

Upload Details

Uploaded via as Microsoft PowerPoint

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

Vc Intro Seedfund Iimc Vc Intro Seedfund Iimc Presentation Transcript

  • An Introduction To Venture Capital Anand Lunia Executive Director & CFO, SEEDfund [email_address]
  • What is Venture Capital
  • Private Equity & Venture Capital
    • “ Private Equity ” means capital to companies not quoted on a stock market ,in exchange for an equity participation.
    • Venture Capital (VC) is a sub-class of Private Equity
    • characterized by investments made for the purpose of developing, launching, and expanding new products or service offerings.
  • How VC’s work Investor Investor Investor VC fund Investor Startup Startup Startup
  • Capital Lifecycle Seed (< € 1 mil) Early Stages (€ 1 - 10 mil) Expansion/ (€ 10+ mil) development Angels Incubators Accelerators Venture Capital Private Equity & Merchant Banks
  • What Venture Capitalists do ...
    • Sift through thousands of (good and bad) investment propositions
  • What Venture Capitalists do ...
    • Sift through thousands of (good and bad) investment propositions
    • Identify a few valid initiatives and finance them
      • in exchange for private equity (usually a minority stake)
      • structure the deal
  • What Venture Capitalists do ...
    • Sift through thousands of (good and bad) investment propositions
    • Identify a few valid initiatives and finance them
    • Support the entrepreneurs in succeeding. E.g.:
      • providing financial advice
      • in headhunting and setting up advisory boards
      • in contacting customers, channels, …
      • in steering and positioning the company
      • in managing PRs activities
      • in managing IP and legal issues
  • What Venture Capitalists do ...
    • Sift through thousands of (good and bad) investment propositions
    • Identify a few valid initiatives and finance them
    • Support the entrepreneurs in succeeding. E.g.:
    • Look after value creation
      • further round of financing
      • merger and acquisition, IPO, …
  • Attributes of a Great VC
    • • Bets on people not trends
    • • Driven by the big idea
    • • Looking for a ‘Winner’
    • • Not afraid of failure
    • • Understand how to manage a portfolio of risk
    • • Serves as a fantastic coach
    • • Does her best work outside of the board room
    • • Not waiting for validation from other VCs
  • Deciding whom to give money
  • In the VC’s Mind
    • • Is this the right team?
    • • What’s the entrepreneur's motivation?
    • • Is this a billion dollar opportunity?
    • • Is it a game changer?
    • • How competitive is the space?
    • • How defensible is the product?
    • • How much is this thing going to take?
    • • How long to maximize value and exit?
  • In the VC’s mind
    • IRR (Internal Rate of Return)
      • Company’s Current and Future Valuation
        • Comparables (P/E,P/S,…), “Number of”, DCF, …
      • What’s The Best Strategy To Create Value
        • Which are the achievable milestones and what’s the financing needed ?
        • When is the break-even expected ? With which margins and revenues.
      • Exit Strategy
        • Trade sale, IPO, N th +1 round of financing, ..
    • Minimizing Risks
      • Diluting the investment
      • Liquidation Preference rights
  • Stages of Investment
  • Stage v/s Return
  • Assessing the Entrepreneur
    • • Understanding motivations
    • • Determining commitment level and willingness to sacrifice
    • • Gauging ego
    • • Appetite for risk
    • • Domain expertise
    • • Leadership abilities and vision
  • Assessing Portfolio Risk
  • Why 10x?
    • The “Portfolio Effect”
      • Out of Ten Start-ups Funded
        • 2 successes at 10x or better
        • 5 ‘OK’ returns at 2x to 5x
        • 3 write-offs, total loss of invested money
    • Venture Capital is fundamentally an institutionalized form of aiming for Outliers!
  • Which VC to go with?
  • Most Appreciated VC Contributions
    • Financial Advice
    • Corporate Strategy & Direction
    • Sounding board for ideas
    • Challenging status quo
    • Contacts or market information
    • Management recruitment
    • Money !!!!
    Source: “The Economic Impact of Venture Capital in Europe” (EVCA and Coopers & Lybrand)
  • What to look for in a VC
    • People you LIKE !
      • Trustworthy & Collaborative
    • Can bring value, not money only !
      • Do not have to be experts in the sector but have to understand the business.
      • Good network of contacts.
    • Ask for references
  • What VCs are Not Good at
    • • Long term research investments
    • • Sustainability
    • • Evolutionary development
    • • Asset maximization
    • • Billion $ capital requirements
  • Want to raise VC money?
  • The Financing Lifecycle
        • Approach
          • Elevator’s Pitch and Info Memo
        • Presentation
          • Business plan
          • Meetings
        • Negotiation
          • Term Sheet (or Letter of Intent)
        • Verification and Validation
          • Due diligence
        • Closing & Financing
        • Value Creation
        • Exit
  • The Business Plan
    • A Product/Service description
      • Pros and cons of the solution
      • Market needs it satisfies
      • Barriers to Competition
    • Business Model
      • Market Analysis (strategic and tactical )
        • Competitors
      • Execution Plan
        • Marketing and Sales Plan
        • Research and Development Plan
        • Operations Plan
    • Team
    • Financials
      • Valuation Model & Placement Terms
      • Income Statement, Balance Sheet & Cash Flow
        • 3 years minimum, quarterly breakdown
        • 1st year in monthly breakdown
  • The Business Plan -MYTH + + + = Marine Lines
  • The Term Sheet
    • The parties
    • Securities to be issued
    • Amount of financing & disbursement schedule
    • Pre-financing valuation
    • Option plan & earn-out
    • Use of proceeds
    • Liquidation Preference
    • Protective Provisions, Voting Rights and BoD participation
    • Anti-dilution
    • Lock-ups
    • Tag along and drag along
    • Exclusivity
    • Reporting
    • ...
  • Board Seats and Reserved Matters
    • Corporate boards:
        • Not involved in day-to-day operations
        • Hold extreme control in major corporate events (sale, mergers, acquisitions, IPOs, bankruptcy)
    • Lead VC in each round takes seat(s)
    • Reserved matters (veto or approval):
        • Any sale, acquisition, merger, liquidation
        • Budget approval
        • Executive removal/appointment
        • Strategic or business plan changes
  • Other Typical VC Rights
    • Right of first refusal on sale of shares
    • Tag-along rights : follow founder sale on pro rata basis
    • Drag-along rights: force sale of company
    • Liquidation preference : multiple of investment
    • No-compete conditions on founders
    • Right to participate in subsequent rounds (usually follow-on)
    • Later VC rights often supercede earlier
    • Anti-Dilution Protection
      • Recompute VC shares based on subsequent “down round” so that issuing more shares does not “dilute” the value of VC’s holding
  • Trends in VC investing
  • What’s Going to be Hot
    • • Virtualization
    • • Mobility services
    • • Location based services
    • • Enterprise services & software
    • • Internet gaming and entertainment
    • • Gen Y lifestyle products & services
  • Thank You