Venture Capital

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Venture Capital - What it is, how it's used and strategies implemented

Venture Capital - What it is, how it's used and strategies implemented

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  • 1. VENTURE CAPITAL HTW – University of Applied Sciences International Business Law Prof. Dr. S. Dietrich Navi K. J. Phifer, Janin Viere, Lucia Soskova, Lisa Petzold
  • 2. Table of Contents 1. Introduction • Definitions 2. Venture Capital • Historical Background • What, Why, Who ? • How to find Investors • The role of VC investors • VC financing cycle • Direct/indirect VC 23.03.12 2Venture Capital 1. Exit Strategies • IPO‘s • Trade Sales • Secondary Sale • Buy Backs • Liquidation • Advantages/Disadvantages • Discussion Points • Conclusion
  • 3. Definitions enture Capital orporate Venture Capital rivate Equity 23.03.12 Venture Capital 3
  • 4. Definitions 23.03.12 Venture Capital 4
  • 5. Historical Background 1946 – 1977: started out in USA 1960s: Germany 1970 – 1971: Financial support offered 2000 – 2001: “.Com-Bubble Burst“  total investment 2000: $ 16.8bn 23.03.12 Venture Capital 5
  • 6. VC - What, Why, Who ? Helps to foster growth Innovation capital“ echnology 23.03.12 Venture Capital 6
  • 7. How to find VC investors? nternet searches ersonal contacts / recommendations anks 23.03.12 Venture Capital 7
  • 8. The Role of VC-Investors inance dvice onsultation 23.03.12 Venture Capital 8
  • 9. Types of VC - Financing • Expansion Financing • Bridge Financing • Turnaround Financing • Replacement Capital 23.03.12 Venture Capital 9
  • 10. VC Financing - Cycle 1. Screening 2. Seed Financing 3. Early Stages 4. Growth Finance 5. Exit Strategies (Janin) 23.03.12 Venture Capital 10
  • 11. Phase 1: Screening usiness plan creation elect and contact investors creening 23.03.12 Venture Capital 11
  • 12. Questions to ask before considering VC financing  Do we have high growth prospects and a team ambitous enough, to grow rapidly?  Do we have a competitive edge or a unique selling product? 23.03.12 Venture Capital 12
  • 13. Questions to ask before considering VC financing  Are we willing to sell company shares to a private equity investor?  Do we have a realistic exit opportunity for all shareholders to realise desired 23.03.12 Venture Capital 13
  • 14. Phase 2: Seed Financing & R (Development & Research) ery high risk ifficult to judge commercial success 23.03.12 Venture Capital 14
  • 15. Phase 3: Early Stages ests (esp. in pharmaceutical and bio-tech. fields) arketing activities 23.03.12 Venture Capital 15
  • 16. Phase 4: Growth Finance ompany hits market eeds to stay afloat and grow to compete urther advice 23.03.12 Venture Capital 16
  • 17. Phase 5: Exit Strategies • IPOs • Trade Sales • Secondary Sales • Buy Backs • Liquidations 23.03.12 Venture Capital 17
  • 18. Phase 5: Exit Strategies • IPOs 23.03.12 18Venture Capital
  • 19. Phase 5: Exit Strategies • Trade Sales 23.03.12 19Venture Capital
  • 20. Phase 5: Exit Strategies • Secondary Sales 23.03.12 20Venture Capital
  • 21. Phase 5: Exit Strategies • Buy Backs 23.03.12 21Venture Capital
  • 22. Phase 5: Exit Strategies • Liquidations 23.03.12 22Venture Capital
  • 23. Phase 5 Exit Strategies - Statistics • 2008, in exit volume terms: • trade sales dominated at 35% • sales to other private equity firms came to 30% • divestments by IPO/sale of quoted equity were 9% • trade sales dropped from 89 to 74 • sales to private equity firms increased from 10 to 29 • Total losses were down from € 139 million and 151 companies to € 118 million and 136 companies • As a result of declining share prices both declined the number of exits by IPO (from 7 to 3) and through the sale of shares (from 34 to 10). 23.03.12 Venture Capital 23
  • 24. Advantages/Disadvantages • The VC Investor • Investment • Experience, advice, mentoring • Objectivity • Networking • Recruitment • Credibility • Shared risk 23.03.12 Venture Capital 24 Mandatory exit Loss of independence Right to lay off the workforce
  • 25. Advantages/Disadvantages • Capital • Solely for our business • Start-up financing • Liable equity within the company • Improved rating 23.03.12 Venture Capital 25
  • 26. Advantages/Disadvantages • Due Diligence Advantages Disadvantages • Company realises: − Where it stands in the market − What/where to improve − Possible future developments 23.03.12 Venture Capital 26 ime oney
  • 27. Advantages/Disadvantages • The Company Advantages • Growth • Value • Security • Equity ratio 23.03.12 Venture Capital 27
  • 28. Advantages/Disadvantages • Dilution Disadvantages • Dilution-decrease of sth • Anti-dilution protection − Milestone financing − Pay-to-play − Liquidation preferences 23.03.12 Venture Capital 28
  • 29. Advantages/Disadvantages • Contractual protection for the VC investor • Information rights • Control rights • Representation and warranties • Anti-dilution protection 23.03.12 Venture Capital 29
  • 30. Advantages/Disadvantages • Restrictions on the Transfer of Shares by Shareholders • The articles and shareholders‘ agreement • Exceptions − Investors‘ shares − Founders‘ shares 23.03.12 30Venture Capital
  • 31. Advantages/Disadvantages • Investor‘s Protection-Exit • Drag-alone rights • Tag-along rights 23.03.12 31Venture Capital
  • 32. Advantages/Disadvantages • Taxation 23.03.12 32Venture Capital
  • 33. Discussion Points • Obstacles • Alternatives • Our best options 23.03.12 Venture Capital 33
  • 34. Conclusion • Augumus Pecumian GmbH 23.03.12 Venture Capital 34