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Intro to venture capital
 

Intro to venture capital

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Venture Capital by Jason Pinto

Venture Capital by Jason Pinto

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    Intro to venture capital Intro to venture capital Presentation Transcript

    • Venture CapitalFinancing InnovationJason PintoAmadeus Capital Partners LtdCUTEC Team Meeting30th November 2011 Slide 1 Authorised & Regulated by the Financial Services Authority
    • Outline Who am I and why are we here. What is Venture Capital? The investor’s perspective The Venture Capital Cycle. How do funds (money) flow in this world? What is Venture Capital? The entrepreneur’s perspective VC in context of other types of equity investors. Some examples of Venture Capital and Private Equity transactions The Venture Capital investment process. What do venture capitalists look for in an investment? VC and The Entrepreneur: What are you signing up for taking money from a VC? Venture Backed Company Cycle: How do VCs (and others) make money investing in technology start-ups Slide 2
    • Amadeus Capital PartnersBuilding Market Leaders Founded in 1997 by Anne Glover and Hermann Hauser Backing visionary entrepreneurs to build world-class, market-leading companies Using our networks and experience to help maximise the potential and the value of those companies We have invested in over 60 companies We have 9 investment executives, based at our offices in London and Cambridge.1998 Amadeus I £50 million2000 Amadeus II £235 million2002 Amadeus Mobile Seed Fund £3 million2006 Amadeus III £162 million2006 Amadeus and Angels Seed Fund £10 + £10 million2010 Amadeus EI & EII £20 + 20m Slide 3
    • Amadeus Capital Partners The TeamRichard Anton Anne Glover Hermann Hauser Alastair BrewardPartner CEO Partner COOLondon London Cambridge LondonJoined 1998 Founder 1997 Founder 1997 Joined 2005Autonomy Corporation; Apax Past Chairman of the British Founded/Co-founded Cambridge Taylor Wessing law firm; VirtualityPartners; Autonomy, Venture Capital Association; Network Limited, NetChannel, Group plc; Bird & Bird law firm;Neurodynamics; Rexam; Braxton Calderstone Capital Ltd; Virtuality Virata, ETrade UK, Active Book Talman Pty Ltd; Arthur AndersenAssociates Group; Apax Partners; Bain & Co; Company and Acorn Cummins Computers/ARM MPPM, Yale University PhD Physics, Kings College, SAB in Law, Sydney UniversityMBA, INSEAD MA Metallurgy & Material Science, Cambridge University BA, Economics and Philosophy,MA Maths & Management, Christs Clare College, Cambridge MA Physics, Vienna University Oxford UniversityCollege, Cambridge UniversityJason Pinto Pat Burtis Andrea TraversoneInvestment Manager Investment Manager PartnerCambridge London CambridgeJoined 2006 Joined 2006 Joined 1998E Ink Corp.; AlliedSignal Inc. Bain & Co, McKinsey (Electric Executive vice president of Villa Power Practice); H2Onsite Playa Dorada SA, a hotel, construction and development companyPhD Physics, CambridgeUniversity Masters of Environmental MBA Cambridge UniversityMS Materials Science and Engineering, Yale University BSc Economics, London School ofEngineering, Stanford University BA Economics & Writing, EconomicsBS Materials Science and Dartmouth College (USA)Engineering, MIT Slide 4
    • Amadeus Capital PartnersThe Amadeus and Angels Seed Fund Team Laurence John Alex van Someren CEO AMSF & AASF Partner Cambridge Cambridge Joined 2001 Joined 2010 Personal Offer; Motorola; Smiths Industries in the Aerospace Co-founder: nCipher, ANT. Early at Sensors division ACORN computer. nCipher with became world leader in IT security. Raised a total of £14 million in MA Marketing, Kingston University venture capital. Company listed on MSc Optics, Imperial College the London Stock Exchange in BSc Physics, Imperial College 2000 (LSE:NCH) at a £350 million valuation. Slide 5
    • What Makes Amadeus Different? A strong team – Substantial operational experience – Deep understanding of technologies and markets – Wide and strong networks A focus on European technology clusters combined with a global outlook Long term commitment Vision and ambition Slide 6
    • What is Venture Capital?The Investor Perspective A VC has five main characteristics 1. A VC is a financial intermediary, meaning that it takes the investors’ capital and invests it directly in portfolio companies 2. A VC invests only in private companies. This means that once the investments are made, the companies cannot be immediately traded on a public exchange 3. A VC takes an active role in monitoring and helping the companies in its portfolio. 4. A VC’s primary goal is to maximize its financial return by exiting investments through a sale or an initial public offering (IPO) 5. A VC invests to fund the growth of companies. A financial intermediary is similar to a bank because just as a bank takes money from depositors and then loans it to businesses and individuals, a VC fund takes money from its investors and makes equity investments in companies. “Venture Capital and the Finance of Innovation,” Andrew Metrick. Slide 7
    • The Venture Capital Cycle VC firms are fund managers and raise pools of capital (funds) from large investors acting as Limited Partners (LPs) – Pension funds VC funds managed by – Insurance companies General – Banks Partners (GPs of VCs) – University endowments Limited – High net worth individuals Portfolio Partners Companies LPs typically invest a small portion of their (investors or capital in VC, investing the rest in stocks, LPs) bonds and other traditional instruments. Exits: IPO of Fund structure sale of portfolio – Typically fixed lifetime of 10 years (period from companies first fund-raising to return of LP capital) – Range in size from $ millions to $ billions – Both size and fund life have severe implications for types of companies that a VC will back. Slide 8
    • What is Venture Capital?The Entrepreneurs PerspectiveSources of funding an entrepreneur may consider to fund his/her business Own capital – If you are lucky enough to be wealthy or have a business idea that requires very little capital (bootstrapped) Enterprise and development agencies – Great sources of ―free‖ money in the form of grants, but can be long process to win Equity Investors – What we are here to talk about today. Provide capital in exchange for ownership in company. Hold claims on assets and future profits of company. Greater risk to investor than debt but greater potential gains. Have specific shareholder rights. • Private investors • Friends and family • Business Angels • Venture capital Debt – Lower investor risk as debt paid back first on exit, but limited upside. Need to be backed by some form of collateral. Requires regular repayment of interest. • Bank loans • Credit cards Slide 9
    • The Equity Investor World VC in Context  VC is a subset of Private Equity (PE), but confusingly the term PE has other uses  Firms focus differentiated by – Geography e.g. Amadeus invests only Europe and Israel – Sector e.g. Amadeus does not invest in biotechnology – Stage of company – Size of deal (mostly dictated by size of fund, e.g. Amadeus III investment average $10-15m)Stage R&D Start-up Early Accelerating Sustaining Maturity Shake Out Relaunch Growth Growth Growth GrowthType of Proof of Development Replacement MBO/MBI Relist or Seed First Round Second Round Capital Capital trade saleFunding concept Delisting Public Sector (<$1m) Founder, Family & Friends Angels (< $1m)Source of Venture Capital (<$20m)Funding Corporate Venturing Public Listing/IPO Private Equity/Buyout (<$5 bn) Slide 10
    • The Equity Investor WorldSome Specific ExamplesCompany Investors Amt. Invested Round Exit sCambridge Amadeus, Intel Capital, 3i, SEP, $80m 4 £250m IPO onSilicon Radio Siemens Venture Capital, ARM, LSE Philips …Google Kleiner Perkins, Sequoia, GE $25 – 50m 3 $1.2 bn IPO on Capital … NASDAQFacebook Peter Thiel, Reid Hoffman, Accel $2.34 bn Partners, Greylock Partners, Meritech Capital Partners, Founders Fund, Microsoft, Li Ka- shing, European Founders Fund, Digital Sky Technologies, Elevation Partners, Goldman SachsFreescale Blackstone, Carlyle, TPG, … $17.6bn 1 $4.3 bn NYSESemiconductor IPOTDC Apax, Blackstone, KKR, Permira, $13.9bn 1 Providence Slide 11
    • The VC Investment ProcessStage Entrepreneur Entrepreneur & VC VC ReportsApproaching VC firm Prepare business plan Review business plan Business planand evaluating Contact firmbusiness planInitial enquiries and Provide supporting  Meet to discuss Conduct initial Term sheetnegotiation information business plan enquiries  Build relationship Value the business  Negotiate outline Consider financing terms structureDue diligence Liaise with external Initiate due diligence Consultant reports consultants exerciseFinal negotiation Disclose all relevant  Negotiate final terms Draw up completion  Disclosure letter business information  Document documents  Warrants and constitution and indemnities voting rights  Memorandum and articles of association  Shareholders agreementMonitoring  Provide periodic  Seat on board  Management accounts managerial accounts  Monitor investment  Minutes of board  Communicate  Constructive input meetingsExit regularly with  Involvement in major investors decisions Slide 12
    • What do VCs Look for in an Opportunity? Market – Large, emerging and fast growing markets – Does the company have potential for scale and sustained growth? Technology – Is the product or service commercially viable and significantly better (10x) than competition? – Defensible IP that can be protected from competitive barriers over time. Business Model – How will you make money, how will you sell? Team – Domain expertise with core technical strength and knowledge of given market opportunity – History of success. Does management have the ability to exploit this potential and control the company through the growth phases? – A willingness to allow VCs to help build team Does the possible reward justify the risk? Does the potential financial return on the investment meet their investment criteria? Slide 13
    • VC and The EntrepreneurWhat are you signing up for taking money from a VC? Cheque book. Capital to expand and run your business Experience. Can draw on many years of experience from executives at firms who have run businesses in your area before Rolodex. Can draw on the connections of the whole firm built up over many years in business. Long term partner. Will support company through many rounds of investments and ups and downs. Potentially big payoff. Entrepreneur ends up with a smaller slice of a much larger pie. Big ambitions. VCs generally want to grow big companies Loss of ownership. Equity investors will eventually own large part (generally majority) of company and share in the financial windfall of success. Loss of control. Equity investors as majority shareholders ultimately control fate of the senior management team and essentially the company Push to exit. Equity investors need to have company sold of go public in order to return investment. Slide 14
    • Venture Backed Company CycleHow do VCs (and others) Make Money The Cambridge Silicon Radio Story Source: Equity Fingerprint, The Revolutionary Business Plan Resource Slide 15
    • Entrepreneur’s PlaybookTips on Engaging VCs Determine if you need VC, and  VCs will need to see don’t approach one if you don’t. – Presentation VC money is expensive. – Financial plan Figure out your stage and sector – Current ownership structure (Cap and identify 4 – 5 firms that focus table) on this area. – Personal references Identify which partner is most – Market references relevant to your business – Market research Get an introduction to that partner – Competitive analysis – Product plan Send the partner the 1 – 2 page executive summary and be prepared  VCs will seek to give 10 – 15 slide presentation if – 20 – 50% of company for their investment you get to meet them in person. – Valuation that is a function of the Only goal of first meeting is to get a stage of the company, ultimate second meeting. potential, targeted ownership and Expect a 12 – 16 week process amount of money you are attempting to raise – Board seat – … and lots more Slide 16
    • Entrepreneur’s PlaybookMore Tips on Engaging VCs Don’t take rejection personally, the odds are against you (most good VCs fund one out of every 100 – 200 opportunities they see). Every VC is “interested” – push them to work to test their level of interest Don’t waste too much time trying to change the mind of someone who says no. Ask and accept feedback and use it to shape your next pitch Don’t shop your plan to multiple partners in a firm if the first one rejects you. Don’t ignore the junior team members—they can really help and end up doing most of the work anyway This is a business of people and personal contacts matter— focus on a firm that has some connections to you. Slide 17
    • Acknowledgements & ReferencesWhere I Borrowed Most of this Material From Presentations from my colleagues: Simon Cornwell, Bill Earner and Roy Merritt “A Guide to Private Equity,” British Venture Capital Association, http://www.bvca.co.uk/ “A Guide to Venture Capital,” Third Edition, Irish Venture Capital Association in association with InterTradeIreland’s EquityNetwork “Equity Fingerprint, The Revolutionary Business Plan Resource,” Philip Baddeley et al., http://www.equityfingerprint.com/ “Introduction to Venture Capital” Will Price, Hummer Winblad Venture Partners. http://www.slideshare.net/pricew/introduction-to-venture- capital/ “Venture capital and the finance of innovation,” Andrew Metrick. Slide 18