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VC Crash Course - Feb 24 2009

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VC Crash Course - Feb 24 2009

VC Crash Course - Feb 24 2009

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    • 1. ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group Jason Mendelson Guest of Silicon Flatirons February 24, 2009 Boulder, Colorado Venture Capital Crash Course - Everything that you wanted to know about VCs, but were afraid to ask
    • 2.
      • Today’s Agenda:
        • What Makes VCs tick?
          • How do VCs answer to?
          • How do you impress them?
          • How do you know if you are talking to the right one?
          • How is today’s economy affecting them?
        • What’s Hot?
          • What companies are getting funded?
          • How do I make my company more attractive?
          • Do I need a team before I approach a VC?
        • What’s Not?
          • Exits and IPOs
        • What’s VCs don’t want to tell you
          • How they value your company
          • Failure isn’t always bad
          • Returns, Ownership and Fundraising
      ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group
    • 3. About Me
      • Co-Founder and Managing Director of Foundry Group
      • Managing Director, CAO and GC at Mobius Venture Capital
      • Adjunct Professor at CU
      • Co-author of www.askthevc.com
      • Lawyer at Cooley Godward Kronish
      • Software Engineer at Accenture
      • Frustrated Musician
      • House-poor home remodeler
      • www.jasonmendelson.com
      ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group
    • 4. What Makes VCs Tick ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group Fund Raising Cash Equity Returns Investors Venture Capitalists Firms ( aka Start-Ups; Portfolio Companies) Who Do VCs Answer to?
    • 5. What Makes VCs Tick ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group Besides cash, What do we do?
    • 6. What Makes VCs Tick
      • How Do You Impress?
        • Know the “rules” beforehand
          • Short communications, versus long. Emails versus phone calls, Executive Summaries versus Business Plans
          • Well crafted communications, just doesn’t save VC time, but shows quality of thought of the entrepreneur
          • Don’t make rookie mistakes like asking for a NDA
        • Know your market, know you competitors and be original
          • Being the 256 th social network is not original
          • Saying you have “no competition” is not believable
          • Not knowing the market is not wise (especially for you!)
        • VCs need to invest in transformative companies, not “next best”
          • It’s hard to sell stuff as a startup. Be compelling
        • Be smart, but don’t be arrogant
          • VCs have large egos and some even are smart
      ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group
    • 7. What Makes VCs Tick
      • How Do You Know If You Are Talking To the Right VC?
        • Do they invest in your similar companies?
          • You don’t want a VC that’s invested in a competitor, but worry that the VC hasn’t a clue about what you are doing
          • Do they invest in your stage?
        • Do they have money to invest?
          • Don’t be afraid to ask about the status of their fund
        • Do they have the power to get a deal done?
          • Partner versus Associate
          • Lots of Associates go “fishing”
        • Do you like them?
          • Would you rather have a beer with your mother-in-law?
      ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group
    • 8. What Makes VCs Tick
      • How Is the Economy Affecting VCs?
        • Depends who you are:
          • If you are an early stage fund with plenty of money, life is good
          • If you aren’t, life is less good
            • Later stage investors don’t see exits
            • VCs without money are finding fundraising brutally hard
        • Limited Partners are cash constrained. Rumors of missed capital commitments abound
        • Boulder versus the rest of the U.S. versus the World
          • All about the same – it’s tough all over
          • Interesting factoid:
            • Most of Boulder VC money comes from out of state
      ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group
    • 9. What’s Hot
      • First before we go “there,” are you sure you want VC funding?
        • Bootstrapping
        • How much do you want to raise?
          • Many VCs need to invest substantial amount of cash
      • What companies are getting funded these days?
        • Capital Efficient Businesses
          • Much hard for VCs to get their deals funded by others
          • Bank financing is harder to come by
        • Experienced management teams
        • Early Stage versus Later Stage
        • Sector Review:
          • Cleantech, Software / IT, Medical / Bio, Mobile, Gaming, Retail, Sustainable Markets
        • Experience Entrepreneurs who lived through tough times before
      ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group
    • 10. What’s Hot
      • How do I make my company more attractive?
        • Do your homework
        • Talk to people – even VCs!
          • Informal conversations are good
          • Fundraising conversations before ready are bad
        • Do all that YOU can do / don’t sweat what you can’t
      • Be crisp
        • VCs have two limited resources – time and money
      • Do I need a team?
        • You need at least one partner
        • No one person knows everything
        • Also proves that someone else believes in what you are doing
        • A good management team has comprehensive experience and great self awareness
      ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group
    • 11. What’s Not
      • There are no exits
        • IPO Market is gone
        • Mergers are scarce
      • What is the affect on VCs and your fundraising?
        • Going to scare some VCs
        • Going to really scare late stage investors
      • What normally are VC expectations of exits?
        • 50% of companies return zero
        • 70% probably don’t return that “much”
        • Really need big returns on the rest (5x? 10x? 100x?)
        • Old days and exit was around 5 years, now more like 7 years
      ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group
    • 12. What VCs Don’t Want To Tell You
      • We aren’t valuation experts. We don’t know your valuation, either
        • It’s part art and part science. Okay, it’s mostly art
      • We don’t know the right amount of money for you to raise as well as you do. We have past experience as our largest guide
        • Get to a milestone. Don’t get stranded
        • Raise an amount appropriate to the particular VC
      • You can know everything we know about negotiating term sheets
        • www.feld.com (Term Sheet Series)
      • VCs have certain ideas regarding ownership
        • 10% / 20% / 30% - more?
      • Nothing is better than an intro from a VC’s friend / trusted source
        • However, an introduction from another VC who is not investing in your company is usually bad
      • Failure is not always Failure. It can be attractive
      ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group
    • 13. Questions and Answers
      • Q&A
      ©2009, Jason Mendelson. All Stupidity contained within is his own and not that of Foundry Group