Early-stage venture capital investing; shaping successful
high tech startup companies towards accelerated exits
TMT.Ventures Prague Presentation
September 2007
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Bio Snapshot - Yoav Andrew Leitersdorf
Managing partner of YL Ventures
European high-tech early stage venture capital fund (founded 2007)
Unique medium-size exit strategy to known acquirers
Founded, grew and successfully sold 3 tech businesses
Movota (London) – Cofounder, MD and CEO (exit Bertelsmann 2005)
ExchangePath (New York) – Cofounder and CTO (exit CMGI 1999)
PcEntertainer Magazine (Tel Aviv) – Founder and CEO (exit 1993)
VC Associate at Draper Fisher Jurvetson
15 yrs coding, engineering & telecom experience
MBA (Columbia University); studied at IMD, Switzerland
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Movota Ltd.
18 months from initial investment to exit
Company founded: London, March 2004
Capital: <€1MM
Business: Mobile software for TV broadcasters
Product: Mobile games synchronized with TV
Customers: BBC, RTL, SBS, Endemol…
Months 1-6: invention, R&D, prototyping
Months 7-12: BBC proof of concept deployment
Months 13-18: minor revenues, expansion, negotiations
Acquired: Bertelsmann AG, September 2005
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Movota Ltd. - Products and Customers
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ExchangePath LLC
2.8 years from initial investment to exit
Company founded: New York, January 1997
Capital: < €3MM
Business: Online payment system
Product: Micropayments and P2P payments
Customers: MasterCard, Hoovers, others
Consumers: 25,000 accounts
Revenues: Minor, product in Beta, pre-breakeven
Acquired: CMGI, September 1999, €25MM
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YL Ventures Can Also Be Viewed as a Start-up
Addressing problems in today‘s early stage VC
One portfolio investment returns >75% of the fund
If that one is lost, portfolio returns are most likely negative
1-2 portfolio investments break-even & the rest bust
Average time from investment to exit: 5.8 years
Source: Dow Jones VentureOne Q3 2006
That‘s a long time for some Limited Partners (investors in VC funds)
Entrepreneurs can be diluted to own <5% of their companies
Exit strategies are unknown at the time of investment
And what if an exit can‘t be found at €100MM+?
VCs won‘t sell out at low valuations because they need the home runs
Entrepreneurs can find themselves without an exit
Funds created in 1999-2000 have lost a lot of money
At 2007, the IPO window is still closed to all but few
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YL Ventures Can Also Be Viewed as a Start-up
Addressing problems in today‘s early stage VC
Is early stage
venture capital in trouble?
Is there another way
to go about it?
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Another Way?
Every since the last bubble-burst, venture-savvy Valley
entrepreneurs have been exiting ‘medium-size’
In almost all cases, VCs were not invested due to the
VCs’ home-run returns objectives
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Another Way?
Can an early stage venture capital
fund survive on medium-sized exits?
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Introducing the YL Ventures Way
Seek low-valuation (<€5MM) hi-tech start-ups that are
more suited as corporate divisions than standalones
Not all companies will become YouTube or Google. Not even 0.1%.
Find suitable acquirers at mid-size valuations (< €50MM)
that seek to plug-in product gaps or buy time-to-market
Low capital risk to obtain high-revenue potential disruptive technologies
YL Ventures is advised by or is in contact with over 50 strategic acquirers
Stage-invest to fund 6-24 mos. of burn-rate to acquisition
Accelerate company milestones while sourcing &
negotiating with acquirers to arrive at optimal strategic fit
Distribute acquisition proceeds to LPs after every exit
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Target Timeline per Company
6-24 months from initial investment to realization
0 Company founded with outside seed capital and has completed R&D to v1.0
1 Fund first round investment (€0.5MM-€1.0MM) - company added to portfolio
2 Fund second round investment (€0.5MM-€1.5MM)
3 Fund third (bridge) round investment
4 Acquisition
Company likely to be cut off here if product fails to ship
Expansion Stage – Bridge Management
Sourcing & Risk
Earn Out
deployments, Funding Earn Out –
Negotiations Control
Period
US presence, Stage acquirer synergies,
Stage
more features revenue growth,
headcount increase
Fund: Customer introductions, deployments, proofs of concept
Fund: Acquirer sourcing, introductions, negotiations, and closing
Q-2 Q-1 t0 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12
Fund
1x to 5x Multiple: low risk, predictable exit 5x to 15x: higher risk
Involvement:
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A Lower-Risk, Predictable Venture Fund
Typical VCs depend on one 15x home-run per 10 investments
High volatility: portfolio returns turn negative if that 15x goes bad
Low predictability: home-run companies take 5.8 years to build
Source: Dow Jones VentureOne Q3 2006
YL Ventures shoots for multiple 5x-range successes
High predictability: early exits are pre-designed on ‘Day -1’ (minus one)
High IRR: a 5x in 2 years is 124% IRR vs. a 15x in 5.8 years is 60%
Compare
and
Contrast
vs.
Typical VC Portfolio Performance Very Conservative YL Ventures Scenario
Same overall portfolio return (2x). Different risk profile.
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Investment Footprint - Primarily Europe
Easily accessible from fund‘s offices*
Many world-class high-tech
innovations originate in 1 hour 2 hours
to Dublin to Stockholm
European university incubators,
R&D centers and gov. grants
The fund has both unique deal
flow and on-the-ground support
40 minutes
throughout the continent to London
1 hour
to Prague
Local innovators & researches
often lack the business expertise 50 minutes
& industry network required for to Paris 1 hour
to Zurich
wide product commercialization
As a value-added investor, the
2.5 hours 4 hours
fund augments start-ups by to Madrid to Tel Aviv
guiding them to global players –
exit strategies are always pre- 1.5 hours 2 hours
thought out before going in to Nice to Rome
* Registered office is in the Cayman Islands. Representative offices are in Amsterdam and Tel Aviv.
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European Opportunity
Wide gap between buy & sell valuations; Scale
Buy Low: European private hi-tech
investment valuations are less than
1/3 of their US equivalents
* Driven down by relatively few VCs competing for deals
Sell High: European M&A targets are
valued at over 2/3 of US deals
* Communications and software industries
Large Market: No. of M&A deals in
Europe is over 2/3 of US number
* Communications and software industries
Favour US Acquirers: these pay 13%
more than EU equivalents for target
companies worldwide
* Technology is highly transferable across the Atlantic
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Summary
Early stage venture capital has changed significantly
Venture capitalists need to rethink their exit strategies
Not all start-ups are destined to be the next Google
Corporations are hungry for external talent & innovation
Accelerated medium-sized strategic exits might just work!
More at www.YLVentures.com
Refer start-ups to plans@YLVentures.com
Yoav Andrew Leitersdorf
Managing Partner
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Appendix - More About YL Ventures
Appendix -
More About YL Ventures
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The YL Ventures Team
Yoav Leitersdorf founded, grew & sold 3 tech start-ups
Movota (Bertelsmann AG) – Cofounder, MD and CEO
ExchangePath (NASDAQ: “CMGI”) – Cofounder and CTO
VC Associate at Draper Fisher Jurvetson (DFJ) Gotham Ventures
John Quigley is a seasoned private equity professional
Cofounder and Managing Partner of Nassau Capital
Managed Princeton University endowment’s private asset program
(including private equity, venture capital and real assets)
Over 20 years of private equity and VC experience
Boaz Misholi is an Israeli high-tech founding father
Cofounder and was Co-Chairman and Co-CEO (1982-1989) of
Comverse Technologies (NASDAQ: “CMVT”)
Active manager & early investor in Fundtech (NASDAQ: “FNDT”)
Founded & managed DSP, VersaMed, Aura Investments, and others
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YL Ventures Investment Criteria
Internet, telecom (mobile) & digital media software
Sectors
Europe and Israel
Geography
Deep tech intellectual property
Technology
Technological expertise & unquestionable ethics
Management
Seek early medium-size exit to a strategic acquirer
R&D is complete and product ready for deployment
R&D
Bootstrapped operations / low burn rate
Finances
The fund can establish a clear M&A exit route
Exit
Validation by known acquirers is precondition to invest
Time/investment to exit is 6-24 months & maximum €2MM
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YL Ventures Value Add
Provide access to a global business network
Network
Introduce companies to European and US customers
Search, identify & negotiate portfolio company trade sales
Directly or indirectly address all funding needs
Guidance, mentorship & access to advisor networks
Guidance
Fund managers are ex-entrepreneurs in the same sectors
Package into entities that corporations can buy
Packaging
Product specifications, contracts, patents, legal, HR
Clean cap tables, company filings, licenses, audit reports
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YL Ventures Exit Strategy
Manage companies towards accelerated exits
Start Early
Identify potential acquirers prior to investing by marrying company
potential to emerging corporate strategies
Iteratively fine-tune company strategy to acquirer tastes
Enhance the ‘story’ by recruiting marquee customers
Short-list interested acquirers and begin negotiations early
…while letting management focus on running the business!
Exit ‘sweet spot’ is up to €50MM, not €500MM
Sell Early
Acquirer motivation: technology, products & management
Valuation basis: revenue potential, not revenue history
Timing: faster and easier acquirer decision processes
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