Venture capital

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A primer on the fundamentals of venture capital. All ideas are primarily to make students understand the concept of VC

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Venture capital

  1. 1. An Introduction to <br />Venture Capital<br />
  2. 2. Agenda for the next 2 hours<br />Introductions <br />What is Venture Capital<br />Why VC?<br />Types of Funding<br />Process<br />What VC’s Look for<br />Exit strategy<br />Discussions<br />
  3. 3. Edventures1<br />A Learning and Development organisation<br />Experimentors<br />Over 100 years of combined experience<br />
  4. 4. Facilitator – Pradeep Yuvaraj<br />Goal for the session<br />Rules for the session<br />About <br />
  5. 5. Where do I get money from?<br />To start new business<br />Grow a business<br />Put a new factory<br />Revive a dying company<br />?<br />
  6. 6. Possible sources: Non-equity<br />Personal funds<br />Personal debt<br />Grants and awards<br />Customer pre-sales<br />Venture leasing<br />Receivables financing<br />Business loans<br />In-kind contributions<br />Joint ventures<br />or<br />
  7. 7. Sources: Equity<br />Angels<br />The “4Fs” – Friends, Family Father in law and Fools<br />Corporate direct investment<br />
  8. 8. or<br />Hero of the day: Venture Capital<br />
  9. 9. What is Venture Capital<br />Type of Equity investment<br />Above average or High returns<br />Story of the man with the idea and the man with the money <br />
  10. 10. In other words<br />… It is the business of employing capital ‘patiently’ to ‘maximizereturns’ while managing risks in a relatively high-risk venture <br />Versus <br />Simply ‘minimising risks’ for a surer fixed return<br />
  11. 11. Why take risk?<br />
  12. 12. Why is it better than all other sources<br />Spirit of partnership<br /> Risk - Reward sharing<br /> Active participation and value addition<br /> Long term perspective<br />Investment and not assistance<br /> Returns linked to performance<br /> Expects high returns<br />
  13. 13. Who become VC’s?<br />Individuals<br />Corporations<br />Private firms<br />
  14. 14. How a VC company runs?<br />General partners (GPs) manage the fund<br />Capital comes from institutional “limited partners” (LPs)<br />Singularly focused: ROI<br />GPs get an annual fee<br />Once LPs get investment back, GPs get a portion of the profits<br />LPs get the remaining profits<br />
  15. 15. Venture Capital Economics<br />GP<br />LP 3<br />2%<br />LP 1<br />LP 4<br />LP 2<br />Management<br />$100<br />VC Fund IX, L.P.<br />$10<br />$10<br />PortfolioCompany 1<br />PortfolioCompany 10<br />$10<br />$10<br />PortfolioCompany 2<br />PortfolioCompany 9<br />$10<br />$10<br />PortfolioCompany 3<br />PortfolioCompany 8<br />$10<br />$10<br />$10<br />$10<br />PortfolioCompany 4<br />PortfolioCompany 7<br />PortfolioCompany 5<br />PortfolioCompany 6<br />
  16. 16. Venture Capital Economics<br />GP<br />LP 3<br />LP 1<br />LP 4<br />LP 2<br />$20<br />$180<br />VC Fund IX, L.P.<br />PortfolioCompany 1<br />PortfolioCompany 10<br />$100<br />$35<br />PortfolioCompany 2<br />PortfolioCompany 9<br />PortfolioCompany 8<br />PortfolioCompany 3<br />$40<br />$25<br />PortfolioCompany 4<br />PortfolioCompany 7<br />PortfolioCompany 5<br />PortfolioCompany 6<br />
  17. 17. When will VC’s Fund?<br />Seed Capital <br />Only ideas<br />No product<br />Small amounts<br />Capital used <br />Market research<br />Sample Product<br />Set-up costs <br />
  18. 18. Startup Capital<br />Product development completed<br />Sample is already available<br />Initial marketing has been done<br /><2 years<br />
  19. 19. Early stage<br />2-3 years in business<br />Management in place<br />Sales on rise<br />VC could increase sales<br />Improve productivity<br />Improve efficiency<br />
  20. 20. Expansion capital<br />Company is established<br />Next level of growth<br />Enter new markets<br />Specialized VC’s <br />
  21. 21. Late stage/Mezzanine<br />Impressive sales and revenues<br />Broken even/profitable<br />Second level of management <br />Capacity increase<br />Ramp up marketing<br />
  22. 22. Other types<br />Restructuring<br />Bridge capital<br />Turnaround<br />Acquisition<br />Merger<br />
  23. 23. The process<br />
  24. 24. The process….<br />
  25. 25. Fundraising time line<br />Investor Presentations<br />FinalDocumentation<br />0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18<br />Business Plan Submissions<br />Term Sheet Negotiations<br />Funding<br />Budget 4-5 months, or more<br />
  26. 26. After funding<br />Monitoring <br />Board seat<br />Financial Performance<br />After 3-7 years: Exit<br />IPO<br />Sale back<br />M&A<br />Sale to strategic investors<br />
  27. 27. Fundraising Lessons<br />Network to gains access to VCs<br />Don’t get hung-up on confidentiality<br />Be persistent<br />Be humble yet confident, and always courteous and professional<br />Embrace and learn from rejection<br />Be greedy in the long-run (any % of something > 100% of nothing!)<br />
  28. 28. Believe In Your Idea!<br />“We don't like their sound, and guitar music is on the way out.”<br /><ul><li>Decca Recording Co., rejecting the Beatles in 1962</li></ul>“The wireless music box has no imaginable commercial value.”<br /><ul><li>David Sarnoff Associates, in rejecting a proposal for investment in the radio in the 1920s</li></li></ul><li>Believe In Your Idea!<br />“Who the hell wants to copy a document on plain paper?”<br /><ul><li>National Inventors Council, as told in 1940 to Chester Carlson, founder of XEROX</li></ul>“Many of our stockholders have asked me about this new invention by Alexander Graham Bell called the telephone. While we think it’s an interesting curiosity, there’s never going to be a market for that technology, and therefore we have declined the offer to take a license.”<br /><ul><li>Chairman of Western Union, in its annual report from the late 1800s</li></li></ul><li>Attributes of a Successful Entrepreneur<br />Problem solver<br />Decisive<br />Leader & motivator<br />Humble<br />Passionate<br />Persistent<br />Optimistic<br />Professional<br />High integrity<br />Critical path doer<br />Impatient / bias toward action (with analysis)<br />Rejoices in others’ victories<br />Focused on the long-term goal<br />
  29. 29. Closing thoughts…<br />Focus on the long-run<br />What goes around comes around<br />Friendships last longer than jobs<br />Don’t let greed blind the objective<br />Make the most of the experience<br />Listen & learn<br />Failure or rejection is what you make of it<br />
  30. 30. Entrepreneurship…<br />Entrepreneurship is a lifestyle choice<br />Balance your risk & return<br />Seize opportunities<br />Life’s short, have fun<br />
  31. 31. Discussions…<br />
  32. 32. Thank You!<br />+91-97-87- 55- 55- 44<br /><ul><li>training@edventures1.com
  33. 33. www.edventures1.com</li>

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