early stage investments by entrepreneurs

NICOLAS BERG

How a startup should deal with investors
Venture ideas @ETH

– 7th...
Agenda
1.
2.
3.
4.
5.
6.
7.

ABOUT me,Redalpine Venture Partners &
Eco system of startups & venture investors
RESEARCHever...
Speaker: Nicolas Berg


Serial entrepreneur with 10 start-ups (1984-2011)
e.g. founder of Borsalino 1998, sold 2000 at 20...
Redalpine in a nutshell


Manages Redalpine I CHF 20M micro VC fund (2007-2015)
 Manages Redalpine II CHF 30M* micro VC ...
Intro
A typical successful Top-10-Swiss-Startup 2013
 2/3 from Zurich or Lausanne
 20 out of 26 founders were not Swiss!...
Intro
A typical successful Top-10-Swiss-Startup 2013
 2/3 from Zurich or Lausanne
 20 out of 26 founders were not Swiss!...
Numbers





8b People
400m European
100m DACH (German speaking Europe)
8m Swiss
What’s ambitious & successful?
B2C/P2P...
Great job creation impact of startups


US start-ups create 3 million jobs per year,
existing firms slash 1 million jobs ...
Spin-offs by international top-10-university
①

Most Swiss university spin-offs by ETH, EPFL, UZH

②

Number of spin-offs ...
Top exits of Swiss ICT startups
1998 – 2008 (10 years)
①
②
③

④
⑤
⑥
⑦
⑧

⑨
⑩
11
12
13

14

Scout24/Human Line  Ringier
Au...
Top exits of Swiss life science startups
1999-2004 (5 years)

2009 – 2013 (4 years)

①

Actelion IPO

①

Esbatech Alcon ...
About 2000 Swiss early-stage investors
ICT: Early-stage VCs, angels
& founders with recent top exit

Live Science: Early-s...
Opportunities & risks
①

Early-stage angel investments deliver 27% IRR
-8

studies in US/UK on historical return in busine...
Why do you go for investors?







Secure innovation lead/USP
Unlock maximum market potential
Gain experience & netw...
Why investors go for startups


Adrenalin



Being useful providing network & know-how



High profits possible
 High-...
What drives the investor (motivation)


Profit opportunity
High-innovation startups as an asset class provide 27% IRR,
bu...
What investors are looking for (criteria)






Team, team, team
At least 2 extraordinary personalities that can IMPLE...
Founder types


Which founder types investors like or don’t like …

Copyright Redalpine Venture Partners AG, Switzerland
...
Close to reality distortion, psycho

Copyright Redalpine Venture Partners AG, Switzerland

23
Selectively focused, autistic

Copyright Redalpine Venture Partners AG, Switzerland

24
Stubborn and autistic



Resistant to advice – or asking mom, dad and
grandma till she gets the answer she wants
Says “s...
Naïve model pupil




Reacts and obeys to any advice
naïve, model pupil or weather vane
Definitely not an entrepreneur!...
Selectively honest, dishonest




Communicates only good news instantly
Not honest
Secret agenda

Copyright Redalpine V...
Con artist, scammer, manic




Communicates only good news instantly
Not honest
Dubious genius

Copyright Redalpine Ven...
Egotist, no team player




Poor alpha animal, can’t delegate
Never recruits strong team member
Non empathic, poor moti...
Money driven, not by results




Exit, salary, participation and bonus in focus
Vision, cause and results only second p...
What many investors like or dislike


I follow the lead wolf (brand name) in my investor network,
and I avoid startups in...
Identify best investors for your startup


Best exits in your sector last 5 years?
 Identify investors and founders of t...
Examples for good early stage VCs
Switzerland
 Index Ventures, Geneva
 Brains-to-ventures, St. Gallen
 Redalpine Ventur...
How do I approach investors
Tailor made approach, do research first (portfolio CEO’s)
 Identify door openers in your netw...
How do I pitch for investors


Be extremely well prepared (exercise 30x, get feedback!)
 Enthusiastic, relaxed, competen...
How do I negotiate with investors


Agile, not stubborn and not soft



Learn venture terms before you negotiate
Tag alo...
How do I treat my investors?


Honestly



Pro-actively information information information!
Communicate good news insta...
Thank you


Questions?



Remarks?

Read!


Guy Kawasaki: The Art of Start



Amis: Winning Angels

Slides:


Slidesh...
Bonus slides for investors
①

Scouting talents delivers better multiples than acquiring stars

②

Pro-active investors kno...
Grow big stars by scouting many talents
Analogue to a football team you have 2 options:


invest $100m to buy a star (Bal...
Invest pro-active – don’t follow the crowd
An ice hockey player can either:
 skate to the place where the puck is now – a...
Private equity best in class – sometimes
Returns year by year
1990

1991

1993

1994

1995

2007

2008

2009

29.1% 48.3% ...
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

0.3...
«You miss 100%
of the shots you
don't take.»

«To evaluate the potential
of a new idea requires a
clear understanding of t...
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Nicolas Berg_venture ideas eth nov 2013

  1. 1. early stage investments by entrepreneurs NICOLAS BERG How a startup should deal with investors Venture ideas @ETH – 7th November 2013 Redalpine Venture Partners Ltd, Pfingstweidstrasse 60, 8005 Zurich, Switzerland, +41 44 271 15 30, www.redalpine.com
  2. 2. Agenda 1. 2. 3. 4. 5. 6. 7. ABOUT me,Redalpine Venture Partners & Eco system of startups & venture investors RESEARCHeverything about your potential investors! WHY do you go for investors? Why should an investor invest in YOUR startup? What MOTIVATES an investor & how does he select deals? HOW do I identify, approach, pitch for & negotiate with investors? How do I treat investors AFTER I got money? Copyright Redalpine Venture Partners AG, Switzerland 2
  3. 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 iCEOSharooJune-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. 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. 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 Source: Top 100 Swiss Startups Copyright Redalpine Venture Partners AG, Switzerland 5
  6. 6. 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 Source: Top 100 Swiss Startups Copyright Redalpine Venture Partners AG, Switzerland 6
  7. 7. Numbers    8b People 400m European 100m DACH (German speaking Europe) 8m Swiss What’s ambitious & successful? B2C/P2P: 1% of above numbers x CHF 100 = ? 8m Swiss 200’000 Swiss millionaires 2000 Active angel investors 40 professional full-time angels 10 really successful angels 5 deal proposals per day 5 deals done per year = <0.5% probability for each deal proposal Copyright Redalpine Venture Partners AG, Switzerland 7
  8. 8. 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 jobchangestartups<5 yrs 0 Net jobchangecompanies>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 9
  9. 9. 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 10
  10. 10. Top exits of Swiss ICT startups 1998 – 2008 (10 years) ① ② ③ ④ ⑤ ⑥ ⑦ ⑧ ⑨ ⑩ 11 12 13 14 Scout24/Human Line  Ringier Auktion24  Ricardo Comparis Investors BorsalinoRingier KelkooYahoo Silverwire HP 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 11
  11. 11. 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  MerzPharma 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 12
  12. 12. 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 JürgGeigy ⑩ Roland Zeller (…) ⑩ George Haas (…) Copyright Redalpine Venture Partners AG, Switzerland 13
  13. 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 15
  14. 14. 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 18
  15. 15. 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 19
  16. 16. 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 20
  17. 17. 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 21
  18. 18. Founder types  Which founder types investors like or don’t like … Copyright Redalpine Venture Partners AG, Switzerland 22
  19. 19. Close to reality distortion, psycho Copyright Redalpine Venture Partners AG, Switzerland 23
  20. 20. Selectively focused, autistic Copyright Redalpine Venture Partners AG, Switzerland 24
  21. 21. 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 25
  22. 22. 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 26
  23. 23. Selectively honest, dishonest    Communicates only good news instantly Not honest Secret agenda Copyright Redalpine Venture Partners AG, Switzerland 27
  24. 24. Con artist, scammer, manic    Communicates only good news instantly Not honest Dubious genius Copyright Redalpine Venture Partners AG, Switzerland 28
  25. 25. 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 29
  26. 26. 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 30
  27. 27. 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 strongest portfolio companies Copyright Redalpine Venture Partners AG, Switzerland 31
  28. 28. 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 33
  29. 29. 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 35
  30. 30. 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 36
  31. 31. 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 37
  32. 32. 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 38
  33. 33. 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 39
  34. 34. 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 40
  35. 35. 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) PE best in class if combined with commodities and healthy bonds* (* = bonds from governments & corporations with little debt) ④ Copyright Redalpine Venture Partners AG, Switzerland 41
  36. 36. 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 42
  37. 37. 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 43
  38. 38. 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% Equallyweighted Portfolio Private Equity USA Corporate Bonds USD EquitiyDeveloped 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 44 lesen ist. BEST ASSET CLASS Highestreturn thatyear WORST ASSET CLASS Lowestreturnt hatyear
  39. 39. 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; generatedby QIS 45
  40. 40. «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.» WayneGretzky, Hockey legend JürgStaub, 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
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