Deal with investors_StartupBus @Google Switzerland_Nicolas Berg_oct2013
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How a startup should deal with investors, Speech for StartupBus Europe at Google Switzerland by Nicolas Berg from Redalpine Venture Partners

How a startup should deal with investors, Speech for StartupBus Europe at Google Switzerland by Nicolas Berg from Redalpine Venture Partners

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Deal with investors_StartupBus @Google Switzerland_Nicolas Berg_oct2013 Presentation Transcript

  • 1. early stage investments by entrepreneurs NICOLAS BERG How a startup should deal with investors StartupBus @Google Switzerland Zurich 28th Oct 2013 Redalpine Venture Partners Ltd, Pfingstweidstrasse 60, 8005 Zurich, Switzerland, +41 44 271 15 30, www.redalpine.com
  • 2. Agenda 1. 2. 3. 4. 5. 6. 7. 8. 9. About me, Redalpine & Eco system of startups & venture investors Know everything about your potential investors! Why do you go for investors? Why should an investor invest in YOUR startup? What drives an investor & how does he select deals? Which investor type fits for my startup? How do I identify & approach investors? How do I pitch for & negotiate with investors? How do I treat investors after I got money? Copyright Redalpine Venture Partners AG, Switzerland 2
  • 3. Speaker: Nicolas Berg  Serial entrepreneur with 10 start-ups (1984-2011) e.g. founder of Borsalino 1998, sold 2000 at 20x multiple to Ringier iCEO Sharoo June-September 2013  Full time angel investor in 16 start-ups (2000-2006) e.g. Investor & Country Manager XING 2004-2010 IPO at 30x multiple 2006  Partner at Redalpine Venture Partners (since 2007) Built a portfolio of 20 European high innovation start-ups with Redalpine Capital I & II 5 portfolio companies ranked among 13 Swiss top start-ups in 2011  Lecturer, journalist and jury member Teaching students & entrepreneurs at venturelab.ch since 2006 Jury member of business plan & seed money contests (Venture kick, SVC, Suvorov) Copyright Redalpine Venture Partners AG, Switzerland 3
  • 4. Redalpine in a nutshell  Manages Redalpine I CHF 20M micro VC fund (2007-2015)  Manages Redalpine II CHF 30M* micro VC fund (2012-2020) Seed/early-stage in continental Europe (* aims at CHF 60M in 2nd closing)  Most innovative sectors in Europe Technology/New Media and Life Science  Fund thesis European seed/early stage offers potential for superior exit multiples Best choice in Switzerland – leading accelerator in Berlin  Convincing track-record Copyright Redalpine Venture Partners AG, Switzerland 4
  • 5. Intro A typical successful Top-10-Swiss-Startup 2013  2/3 from Zurich or Lausanne  20 out of 26 founders were not Swiss!  80% ICT, Life Science or Electronics  2/3 with links to ETH, UZH or EPFL Typical Swiss seed & early stage investors:  200’000+ CHF millionaires  2000 angel investors + VC funds (shrinking since 2000)  20 successful investors (2+ double digit CHF million exits) Source: Top 100 Swiss Startups Copyright Redalpine Venture Partners AG, Switzerland 5
  • 6. Conditions to become a high-tech cluster ① Successful startup founders  role models 44 ② Successful early-stage investors  Venture Capital 4 ③ International Top-10-university  innovation, spin-offs 44 ④ Qualified immigrants  recruiting, risk takers 44 ⑤ Vital support ecosystem  entropy thru networking, training 444 ⑥ Non bureaucratic research grants  transfer 44 ⑦ Mature companies of same sector  cooperation, M&A, recruiting 44 ⑧ General economic conditions & infrastructure image, recruiting 444 ⑨ Attractive home market  faster & safer Proof of Market 4 Copyright Redalpine Venture Partners AG, Switzerland 6
  • 7. Great job creation impact of startups  US start-ups create 3 million jobs per year, existing firms slash 1 million jobs (Kauffman Foundation Jobs 4m 3m 2m 1m US start-ups create 3 million jobs per year Net job change startups <5 yrs 0 Net job change companies >5 yrs - 1m - 2m Source: Kaufmann Foundation, Business Dynamics Statistics, Tim Kane - 3m - 4m Copyright Redalpine Venture Partners AG, Switzerland 2005 2003 2001 1999 1997 1995 1993 1991 1989 1987 1985 1983 1981 1979 1977 - 5m 7
  • 8. Spin-offs by international top-10-university ① Most Swiss university spin-offs by ETH, EPFL, UZH ② Number of spin-offs independent from economic sentiment (e.g. 2008/09) Copyright Redalpine Venture Partners AG, Switzerland 8
  • 9. Top exits of Swiss ICT startups 1998 – 2008 (10 years) ① ② ③ ④ ⑤ ⑥ ⑦ ⑧ ⑨ ⑩ 11 12 13 Scout24/Human Line  Ringier Auktion24  Ricardo Comparis  Investors Borsalino  Cash Ringier Kelkoo  Yahoo Oanda  Index Ventures Search.ch  Post  Tamedia LeShop  Bon appétit Mediastreams  Microsoft LeShop  Migros Endoxon  Google Jobs.ch  Tiger Fund Green  TIC Copyright Redalpine Venture Partners AG, Switzerland 2009 – 2012 (4 years) ① ② ③ ④ ⑤ ⑥ ⑦ ⑧ ⑨ ⑩ 11 12 13 14 15 Wuala  LaCie Svox  Nuance DeinDeal  Ringier Doodle  Tamedia Liberovision  Vizrt Procedural  Esri Trigami  eBuzzing Fashionfriends  Tamedia Borsalino/Cash  Bankzwei Umantis  Haufe Jobs.ch  Ringier/Tamedia Spontacts  Scout Digitec  Migros Housetrip  Index NetBreeze  Microsoft 9
  • 10. Top exits of Swiss life science startups 1999-2004 (5 years) 2009 – 2013 (4 years) ① Actelion  IPO ① Esbatech  Alcon ($589m) ② Prionics  30x pay-back ② Neurimmune  Biogen ③ Axovan  Actelion ③ Levitronix  Thoratec ④ Jomed  IPO ④ Okairos  GSK ⑤ Glycovaxyn  Investors ⑥ Endosense  St. Jude Medical ⑦ Neocutis  Merz Pharma 2005 – 2008 (4 years) ① Arpida  IPO ② Glycart  Roche ($200m) ③ Serono  Merck (€10.2b) ④ Speedel  Novartis ($880m) Copyright Redalpine Venture Partners AG, Switzerland 10
  • 11. About 2000 Swiss early-stage investors ICT: Early-stage VCs, angels & founders with recent top exit Live Science: Early-stage VCs, angels & founders with recent top exit ① Index Ventures ① Index Ventures ② VI Partners ② VI Partners ③ Brains-to-ventures ③ Redalpine ④ Redalpine ④ Nexgen ⑤ Creathor ⑤ NVF ⑥ Beat Schillig ⑥ BioBAC Basel ⑦ Peter Schüpbach ⑦ Bruno Oesch ⑧ Klaus Hommels ⑧ Peter Pfister ⑨ Oliver Jung ⑨ Jürg Geigy ⑩ Roland Zeller (…) ⑩ George Haas (…) Copyright Redalpine Venture Partners AG, Switzerland 11
  • 12. Challenges for early-stage investors ① Early-stage  smaller transactions  small fund  lower fees ② Active investment managers  higher returns  5 startups per manager ③ Diversified portfolio 15+  better risk return  3+ investment managers ④ Entrepreneurial skills needed to select winning early-stage deals Copyright Redalpine Venture Partners AG, Switzerland 12
  • 13. Opportunities & risks ① Early-stage angel investments deliver 27% IRR -8 studies in US/UK on historical return in business angel markets, RSCM 2010 But <10% of virtual portfolio (>6000) delivered >70% of returns ③ «Average» investor got 27% IRR, but median investor looses money ② Copyright Redalpine Venture Partners AG, Switzerland 13
  • 14. Wanted investor types for Switzerland ① Serial entrepreneurs with at least one top exit ② Micro VC funds managed by serial entrepreneurs (age 25-45) and successful angels Very active investment approach in seed and early-stage Diversified portfolio of 15+ Entrepreneurial LPs (serial entrepreneurs 50+, family offices) ③ Co-investment & side-car funds Less active or passive investment manager approach Government and corporate funded (e.g. HTGF) Driven by economic impact, not returns only Copyright Redalpine Venture Partners AG, Switzerland 14
  • 15. Why do you go for investors?      Secure innovation lead/USP Unlock maximum market potential Gain experience & network Probably better exit Share risk (upside & downside)  Best startups are sourced by best investors  Best startups approach best investors Alternatives  Grow slower  loose lead  Self financed  independent  Work capital financed by customers, bank credit or leasing Copyright Redalpine Venture Partners AG, Switzerland 16
  • 16. Why investors go for startups  Adrenalin  Being useful providing network & know-how  High profits possible  High-innovation  But startups as an asset class provide 25% IRR majority of investors (median) looses money Alternatives  Consume (Villa, yacht, golf, hotels, private jet)  Classic assets (Listed equity, funds, bonds, money market)  Alternative assets (real estate, commodities, gold, hedge fund) Copyright Redalpine Venture Partners AG, Switzerland 17
  • 17. What drives the investor (motivation)  Profit opportunity High-innovation startups as an asset class provide 27% IRR, but majority of investors (median) looses money!  Adrenaline  Being active & useful Network Knowledge Alternatives    Consume (Villa, yacht, golf, hotels, private jet) Classic assets (Listed equity, funds, bonds, money market) Alternative assets (real estate, commodities, gold, hedge fund) Copyright Redalpine Venture Partners AG, Switzerland 18
  • 18. What investors are looking for (criteria)     Team, team, team At least 2 extraordinary personalities that can IMPLEMENT milestones of next 2 years Disruptive idea, technology or business model Attractive market 10% probability for 30x exit multiple Copyright Redalpine Venture Partners AG, Switzerland 19
  • 19. Founder types  Which founder types investors like or don’t like … Copyright Redalpine Venture Partners AG, Switzerland 20
  • 20. Close to reality distortion, psycho Copyright Redalpine Venture Partners AG, Switzerland 21
  • 21. Selectively focused, autistic Copyright Redalpine Venture Partners AG, Switzerland 22
  • 22. Stubborn and autistic   Resistant to advice – or asking mom, dad and grandma till she gets the answer she wants Says “smart investor” but thinks “just give me the money for MY company, sugar daddy!” Copyright Redalpine Venture Partners AG, Switzerland 23
  • 23. Naïve model pupil    Reacts and obeys to any advice naïve, model pupil or weather vane Definitely not an entrepreneur! Copyright Redalpine Venture Partners AG, Switzerland 24
  • 24. Selectively honest, dishonest    Communicates only good news instantly Not honest Secret agenda Copyright Redalpine Venture Partners AG, Switzerland 25
  • 25. Con artist, scammer, manic    Communicates only good news instantly Not honest Dubious genius Copyright Redalpine Venture Partners AG, Switzerland 26
  • 26. Egotist, no team player    Poor alpha animal, can’t delegate Never recruits strong team member Non empathic, poor motivator Copyright Redalpine Venture Partners AG, Switzerland 27
  • 27. Money driven, not by results    Exit, salary, participation and bonus in focus Vision, cause and results only second priority Self marketer Copyright Redalpine Venture Partners AG, Switzerland 28
  • 28. What many investors like or dislike  I follow the lead wolf (brand name) in my investor network, and I avoid startups in fundraising mode since >9 months  I go for the hockey stick OR I don’t want to loose any investment  As soon as there is a gap to the plan I quit OR as soon as there is good news I invest more  If there are no news for several months I expect bad news OR If I get good & bad news instantly my confidence rises  Founders that follow each of my advises have no clew OR founders that never listen are autistic  Good people help the weak and poor OR professional investors focus on fittest & strongest portfolio companies Copyright Redalpine Venture Partners AG, Switzerland 29
  • 29. Investor types  Business Angels (>90%) Virgin angels Super angels (successful, xx millions, portfolio) Smart co-investing angels Operational/consulting/passive angels Angel networks: b-to-v, mountain-clug.ag, BAS, StartAngels, BioBAC…  Micro Venture Capital / Superangel Funds (<10%) Seed & early, small & bigger transactions, entrepreneurial VC approach or co-investments/sidecar  Corporate Venture  Other Seed Money Sources Seed money & Business plan contests: Venture Kick, de Vigier, Heuberger, Venture, Technopark Research grants: CTI, Nationalfonds, EU Rahmenprogramme “Government” aided funds: ZKB, HGF, EVA-Basel, SZKB Innovationsstiftung, LUKB… Foundations Family, Friends & Fools (3F) Copyright Redalpine Venture Partners AG, Switzerland 30
  • 30. Identify best investors for your startup  Best exits in your sector last 5 years?  Identify investors and founders of those startups!  Which top investors are close to me (1-2h by car/plane) and have an affinity to my market and idea?  Which investors have resources just now? (time, money; stage of investment portfolio, last closing or exit)  Check references on investors contacting portfolio companies  Only best investors are good enough for ambitious startups  Ambition level of founder and investor must match (1b, 100m, 10m exit goal?)  Always pitch for & negotiate with 2-4 alternative investors Copyright Redalpine Venture Partners AG, Switzerland 31
  • 31. Examples for good early stage VCs Switzerland  Index Ventures, Geneva  Brains-to-ventures, St. Gallen  Redalpine Venture Partners, Zürich  VI Partners, Zug/Morges  Creathor, Zürich/Germany  Innovationsstiftung SZKB, Schwyz European early-stage VCs  Atomico, HTGF, Earlybird, Sofinnova, Eden, Partec, Wellington … Superangels & Fresh Angels (entrepreneurs with a good exit) Copyright Redalpine Venture Partners AG, Switzerland 33
  • 32. How do I approach investors Tailor made approach, do research first (portfolio CEO’s)  Identify door openers in your network to target  Portfolio companies Co-Investors Lawyer, Banker, Incubator, University tech transfer etc. Phone, Email, Youtube, Powerpoint, Word, Excel…  Find out best timing for first contact  Never look desperate  If it hurries it’s often not interesting (except if top investors already are lined up with subscriptions)  Good investors want to discover startups  «Didn’t answer my mail» doesn’t mean no Copyright Redalpine Venture Partners AG, Switzerland 34
  • 33. How do I pitch for investors  Be extremely well prepared (exercise 30x, get feedback!)  Enthusiastic, relaxed, competent  Simple, simple, simple – reduced to the MAX  Only target is to achieve a next meeting  Switzerland: Benefit of Venturelab, CTI coaching, Startup Weekend, actor school, CTI-invest, Venturekick …  Pitch:  10-12 Slides  5-10 Min  not smaller than Font Copyright Redalpine Venture Partners AG, Switzerland 24 35
  • 34. How do I negotiate with investors  Agile, not stubborn and not soft  Learn venture terms before you negotiate Tag along, ABV, pre money, liquidation preference, anti dilution, options… Choose experienced M&A lawyer with startup experience in your sector  Always tell the truth, but don’t tell everything if not necessary  Show self-confidence, always organize more than one option  Investor must see that founder is hurt hardest if there is no success  Investor must feel that founders will fight 100% to succeed Copyright Redalpine Venture Partners AG, Switzerland 36
  • 35. How do I treat my investors?  Honestly  Pro-actively information information information! Communicate good news instantly Bad news as well!  Ask actively & regulary for advice & network  Always remember who is the owner of the company: All shareholders, not only you! Copyright Redalpine Venture Partners AG, Switzerland 37
  • 36. Thank you  Questions?  Remarks? Read!  Guy Kawasaki: The Art of Start  Amis: Winning Angels Slides:  Slideshare.net/nicoberg (Nicolas Berg) Copyright Redalpine Venture Partners AG, Switzerland 38
  • 37. Bonus slides for investors ① Scouting talents delivers better multiples than acquiring stars ② Pro-active investors know where the puck is going to be ③ PE best asset class 10 out of 20 years (and worst 4 out of 20) ④ PE best in class if combined with commodities and healthy bonds* (* = bonds from governments & corporations with little debt) Copyright Redalpine Venture Partners AG, Switzerland 39
  • 38. Grow big stars by scouting many talents Analogue to a football team you have 2 options:  invest $100m to buy a star (Bale, Messi or Ronaldo)  try to earn $110m extra with him (1.1x) or  invest $5m to scout & train 20 young talents  sell best one (Doumbia, Shaquiri) for $20m (4x)   good Micro VCs prefer a movie rather than a photo (= 3 pitches) Copyright Redalpine Venture Partners AG, Switzerland 40
  • 39. Invest pro-active – don’t follow the crowd An ice hockey player can either:  skate to the place where the puck is now – as most players – or  to the place where the puck is going to be (Wayne Gretzky) Source: http://www.brainyquote.com/quotes/authors/w/wayne_gretzky.html Copyright Redalpine Venture Partners AG, Switzerland 41
  • 40. Private equity best in class – sometimes Returns year by year 1990 1991 1993 1994 1995 2007 2008 2009 29.1% 48.3% 14.2% 31.5% 5.3% 60.6% 36.8% 54.0% 48.5% 40.9% 49.7% 13.4% 32.1% 45.5% 32.2% 25.6% 36.4% 32.7% 6.6% 41.9% 28.3% 17.5% 41.0% 12.3% 26.3% 5.1% 22.2% 34.4% 18.6% 24.3% 34.6% 27.3% 10.3% 11.6% 36.4% 17.3% 12.9% 22.8% 9.0% 4.1% 30.0% 23.0% 9.0% 19.4% 9.7% 22.5% 4.4% 20.7% 33.9% 16.2% 8.7% 26.5% 11.3% 9.3% 10.1% 33.1% 15.6% 9.5% 20.1% 8.3% -4.9% 26.1% 11.9% 8.8% 18.5% 8.7% 14.0% 3.1% 20.6% 17.8% 15.8% 8.6% 24.9% 9.1% 4.9% 3.5% 20.7% 14.7% 8.5% 10.4% 7.4% -23.3% 19.7% 11.8% 7.1% 18.3% 8.2% 13.0% 1.7% 20.3% 14.4% 13.7% 5.8% 14.9% 8.7% 2.8% 2.0% 19.8% 11.8% 7.8% 9.3% 6.6% -25.4% 18.7% 9.0% 1.5% 16.7% 7.1% 12.2% 1.4% 16.6% 13.5% 10.2% 2.9% 5.6% 6.8% -3.9% 1.0% 12.0% 5.4% 3.4% 5.2% 5.7% -38.4% 13.5% 9.0% -4.7% 14.5% 4.4% 10.3% -2.4% 12.1% 5.8% 8.2% -5.1% -0.7% 4.1% -16.8% 0.2% 8.2% 3.1% 2.7% 4.3% 4.6% -40.7% 13.4% 5.2% -17.0% 7.1% 4.2% 3.5% -3.5% 11.1% 4.0% 6.0% -17.8% -2.0% -13.2% -18.0% -19.9% 3.2% 2.7% 2.0% 4.3% 4.2% -46.5% 5.1% -34.2% -6.1% 1992 -5.2% -12.3% -3.9% 6.5% 1996 3.3% 1997 1998 1999 2000 2001 2002 -14.1% -35.7% -6.0% -18.6% -31.9% -32.5% 2003 1.3% Equally weighted Portfolio Private Equity USA Corporate Bonds USD Equitiy Developed Countries 1.7% 2006 -15.1% -17.1% -50.7% 3.3% 1.4% 2010 0.5% Real Estate USA Bonds USD 1.5% 2005 Hedge Funds Liquidity USD 2004 Commodities Source: UBS QIS Nur zur Veranschaulichung. Die Marktbedingungen können sich ändern und die Renditen schwanken. Bitte lesen Sie die Erklärungen unter «Simulierte historische Performance» am Ende dieses Dokuments. Bitte beachten Sie, dass diese Seite immer in Verbindung mit den Risikoinformationen und Begriffserklärungen im Anhang zu dieser Präsentation zu 42 lesen ist. BEST ASSET CLASS Highest return that year WORST ASSET CLASS Lowest return that year
  • 41. PE always best in class – if combined 1.00 0.08 -0.07 0.09 0.28 0.12 Equity MSCI World 0.08 1.00 0.18 0.48 0.30 0.72 Commodities -0.07 0.18 1.00 0.16 0.04 0.18 Hedge Funds 0.09 0.48 0.16 1.00 0.16 0.42 Real Estate (REITS) 0.28 0.30 0.04 0.16 1.00 0.27 Private Equity 0.12 0.72 0.18 0.42 0.27 1.00 Commodities Hedge Funds Real Estate REITS Private Equity Bonds (USD) Bonds (USD) Equity MSCI World Go for a mix with low correlation and high returns: Combine PE with commodities, corporate bonds or real estate Source: UBS WMR; generated by QIS 43
  • 42. «You miss 100% of the shots you don't take.» «To evaluate the potential of a new idea requires a clear understanding of the market dynamics. We trust in the team of Redalpine to master this challenge successfully.» Wayne Gretzky, Hockey legend Jürg Staub, Reichmuth & Co www.redalpine.com www.facebook.com/redalpine www.twitter.com/redalpine Redalpine Venture Partners AG Pfingstweidstrasse 60 CH-8005 Zürich Switzerland phone +41 44 271 15 30