8.2 vc psychology 101.pptx

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An attempt to dissect what Venture Capitalists are thinking while you're pitching to them...

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8.2 vc psychology 101.pptx

  1. 1. This presentation is made possible by the support of the American People through the United States Agency for International Development (USAID). The contents of this presentation are the sole responsibility of Rick Rasmussen and do not necessarily reflect the views of USAID or the United States Government. VC Psychology 101 1
  2. 2. Anatomy of a VC Money In à $ Money Out à $$$$$ $$$$$ What’s in it for me? Risk Factors
  3. 3. The odds are against you Per month Per year 60 new deals 720 companies 8 for pre-screen 3 make it to dinner meeting 36 companies Maybe one new investment 8 per year 3 Approximately 1.1% funding rate
  4. 4. Money In: •  How  much  funding  is  required?   –  Is  this  within  the  size  and  scope  of  my  fund?   –  Should  I  syndicate?      With  whom?   •  Where  does  this  move  the  company?   –  Next  proof  points   –  Timelines  to  next  steps   –  How  much  runway   –  Can  I  “stage”  the  investment  to  lower  risk?   •  ValuaGon   –  Compared  to  other  companies  in  the  field   –  Compared  to  other  companies  I  can  invest  in   –  Can  I  syndicate?   –  Are  they  desperate?  Can  I  cut  a  bargain  deal?  
  5. 5. Traction is a Magic Word •  Traction: the progress of a start-up company and the momentum it gains as the business grows –  Proof-points that validate your business projections •  VCs invest in businesses – not just ideas •  The likely success of startups is often determined by –  Market potential of their product –  Velocity of product development
  6. 6. Money Out •  VCs only profit where there is an exit •  What is the most likely exit? •  Acquisition •  How much work is required? •  Building team •  Getting partnerships •  Metrics for success 6
  7. 7. Money out •  Is there a market? •  Timing, liquidity, # of other transactions •  What are industry multiples? •  Who would most likely buy this company? •  Partners •  Customers •  Competitors •  What’s the turn around time?   7
  8. 8. Risk Factors •  What risks might stop me from an exit? –  Team –  Market –  Competitor –  Technology –  Potential IP / Patent claims –  Legal (incorporation, stock claims) •  This is what due diligence is all about –  Start to finish for due diligence can take 3 to 6 months
  9. 9. Team Risk •  By far the number one risk factor •  Most companies fail due to team issues •  Which is better? –  An average team with a great product? –  A great team with a decent product? •  Great team knows the journey, can pivot, realign strategy, etc. •  CEO –  Credible, honest, trustworthy –  A motivator, a manager –  Can make tough decisions
  10. 10. Market Risk •  Market needs to develop along with the company •  Room to grow, expand, think BIG –  TAM, SAM, SOM •  Looking for a $1B market •  Risk examples: –  Too early: market for product doesn’t exist yet –  Too late: too many competitors, market saturated –  Too small: won’t grow to a size that’s worth while –  Too regional: will only grow to fill a country, can’t cross borders
  11. 11. Competitive Risks •  Know all your potential competition –  Are there competitors that can take away your lead? •  Want to invest in #1 or #2 in market •  Direct competition –  Exact product –  Better, faster cheaper •  Indirect competition –  Another way to solve the problem –  Substitution 11
  12. 12. Technology Risks •  Applicable for some businesses •  Hardware: –  Costs, manufacturability, safety, source of supply •  Limits of physics –  Semiconductors, industrial •  Efficacy –  Medical devices, pharma •  Regulatory –  Approval issues –  Timing 12
  13. 13. IP/Legal Risks •  Was the company incorporated properly –  (Delaware C corp, LLC) •  Who are prior shareholders and their rights? –  Are they superior to yours? •  Lawsuits pending •  Intellectual Property (IP) ownership –  Are there possible patent infringements? •  What is the legal landscape (people suing each other)? 13
  14. 14. VC World - What’s in in for me? •  Bragging rights –  Want a Cool market sector –  Want a Leader in the field •  Promote through conferences, blogs, etc… •  Good reputation for better deal flow •  Raising next fund…
  15. 15. Money In à $ $ Money Out à $$$$$ $$$$$ What’s in it for me? Risk Factors

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