Yoav Leitersdof: Early Stage Venture Investments


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Yoav Leitersdof: Early Stage Venture Investments

  1. 1. Web.Start Zagreb May 2008
  2. 2. BIO SNAPSHOT – YOAV ANDREW LEITERSDORF <ul><li>Managing partner of YL Ventures </li></ul><ul><ul><li>European & Israeli early stage tech VC w/Silicon Valley presence </li></ul></ul><ul><ul><li>Unique medium-size exit strategy to known acquirers </li></ul></ul><ul><li>Founded, grew and successfully sold 3 tech businesses </li></ul><ul><ul><li>Movota (London) – Cofounder, MD & CEO (exit Bertelsmann ‘05) </li></ul></ul><ul><ul><li>ExchangePath (New York) – Cofounder & CTO (exit CMGI ‘99) </li></ul></ul><ul><ul><li>PcEntertainer Magazine (Tel Aviv) – Founder & CEO (exit ‘93) </li></ul></ul><ul><li>VC Associate at Draper Fisher Jurvetson </li></ul><ul><li>15 yrs coding, engineering & telecom experience </li></ul><ul><li>MBA ( Columbia University ); studied at IMD , Switzerland </li></ul>
  3. 3. MOVOTA LTD. – 18 MONTHS FROM INVESTMENT TO EXIT <ul><li>Company founded : London, March 2004 </li></ul><ul><li>Capital : $1MM from founders and several investors </li></ul><ul><li>Business : Mobile software for TV broadcasters & producers </li></ul><ul><li>Product : Mobile games synchronized with TV game shows </li></ul><ul><li>Customers : BBC, RTL, SBS, Endemol, FremantleMedia… </li></ul><ul><li>Months 1-6 : invention, product development, prototyping </li></ul><ul><li>Months 7-12 : proof of concept deployments with the BBC </li></ul><ul><li>Months 13-18 : minor revenues, expansion, exit negotiations </li></ul><ul><li>Acquired : Bertelsmann AG, September 2005 </li></ul>
  5. 5. EXCHANGEPATH LTD. – 2.8 YEARS FROM INVESTMENT TO EXIT <ul><li>Company founded : New York, January 1997 </li></ul><ul><li>Capital : $3MM from angel investors </li></ul><ul><li>Business : Person-to-person & micro online payment system </li></ul><ul><li>Product : Online payments for data & auction items </li></ul><ul><li>Customers : MasterCard International, Hoovers, 20 others </li></ul><ul><li>Consumers : 25,000 accounts </li></ul><ul><li>Revenues : Minor, product in Beta (pre-breakeven) </li></ul><ul><li>Acquired : CMGI, September 1999, $25MM </li></ul>
  6. 6. PROBLEMS WITH TODAY’S EARLY-STAGE VENTURE CAPITAL <ul><li>Funds are too large ; entrepreneurs are too frugal! </li></ul><ul><li>VCs look for billion-Euro exits ; founders want to make 1 st million </li></ul><ul><li>Average time-to-exit: 5.8 years ; investors in VC get impatient </li></ul><ul><li>Multiple rounds of VC investment; founders get diluted to <5% </li></ul><ul><li>1-2 portfolio companies win; another 8-9 completely lose </li></ul><ul><li>Funds launched in 1999 & 2000 have negative returns </li></ul><ul><li>At 2008, the IPO window is still closed to all but a few </li></ul>Is early stage venture capital in trouble? Is there another way?
  7. 7. EARLY EXITS APPEALING TO FOUNDERS – LESS CAPITAL AND DILUTION REQUIRED Microsoft , Google , Yahoo! & AOL acquired 57 companies Q1 ’07 to Q1 ‘08 (inc.), vast majority of which are valued at under $100MM or “value undisclosed” Motivation for the founders? Lower probability of $200MM exit owning 5%-10% of the company in 5-7 yrs Higher probability of $50MM exit owning 40%-60% of the company in 2-3 yrs OPTION A OPTION B * Note YL Ventures typically invests 1 year after the start Founders’ Share = $15MM Founders’ Share = $25MM Date Company Acquirer Price Funding Comments 17 Apr ‘08 Sphere AOL Undisc $4MM 3 years* start to exit 28 Feb ‘08 Yadata (Israel) Microsoft $25MM $2.5MM 1.5 years* start to exit 5 Feb ‘08 Foxytunes (Israel) Yahoo! $40MM <$1MM 3 years* start to exit 4 Feb ‘08 Goowy AOL Undisc <$1MM 4 years* start to exit 12 Dec '07 Multimap (UK) Microsoft $50MM $6MM $25MM went to founder 9 Dec ‘05 Del.icio.us Yahoo! $30MM Undisc 2 years* start to exit 20 Mar ‘05 Flickr Yahoo! $40MM <$1MM 3 years* start to exit
  8. 8. INTRODUCING: THE YL VENTURES ( “Y LV ” ) WAY <ul><li>Seek good valuation opportunities that YLV can improve quickly, with low burn, to maximise near-term exit value </li></ul><ul><ul><li>Back start-ups suited as corporate divisions rather than standalones </li></ul></ul><ul><ul><li>Stage-invest to fund 24 months of burn-rate through to acquisition </li></ul></ul><ul><ul><li>Guide company strategy and provide access to customers & partners </li></ul></ul><ul><li>In parallel, introduce qualified, pre-identified acquirers for speedy, successful (IRR/x) sale </li></ul>Time (and capital) Enterprise Value 5+ Years ~24 Months Hyper Growth Venture Chasm Home Run 1-2 per Portfolio Most YLV deals exit here Some YLV exits YLV investment
  9. 9. YLV EXIT STRATEGY Start Early Exit Aptly <ul><li>Manage companies towards accelerated exits </li></ul><ul><ul><li>Identify potential acquirers prior to investing using strategic fit </li></ul></ul><ul><ul><li>Iteratively fine-tune company strategy to acquirer tastes </li></ul></ul><ul><ul><li>Recruiting customers/partners that can later be acquirers </li></ul></ul><ul><li>Exit ‘sweet spot’ is $20MM-$80MM, with potential for more </li></ul><ul><ul><li>Acquirer motivation: technology, products & management </li></ul></ul><ul><ul><li>Valuation basis: revenue potential, not revenue history </li></ul></ul><ul><ul><li>1-2 portfolio companies will take longer and exit at over $200MM </li></ul></ul>Earn Out Period Sourcing & Negotiations Q-1 t 0 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q-2 Risk Control Stage Expansion Stage – deployments, US presence, more features Management Earn Out – acquirer synergies, revenue growth Bridge Funding Stage $ Invested: $500K-$1MM $500K- $1M $500K $ Exit: $20MM-$80MM
  10. 10. YLV SOURCING STRATEGY <ul><li>Internet, telecom (mobile) & digital media software </li></ul><ul><li>Europe & Israel (70% cheaper than Silicon Valley) </li></ul><ul><li>Deep tech intellectual property </li></ul><ul><li>Technological expertise & unquestionable ethics </li></ul><ul><li>R&D is complete and product ready for deployment </li></ul><ul><li>Bootstrapped operations / low burn rate </li></ul><ul><li>The fund can establish a clear M&A exit route </li></ul>Sectors Geography Technology Management R&D Finances Exit Blog scanning : primary deal sourcing strategy (monthly funnel routine) The firm’s researchers scan blogs and databases Associate and analyst filter 100’s of opportunities Managing Partner authorizes sending ‘ radar emails’ out to several companies Interested companies submit documentation Best prospects invited to a meeting Best of the best start due diligence
  11. 11. SUMMARY <ul><li>Early stage venture capital is going through a shakeup </li></ul><ul><li>Venture capitalists are rethinking their exit strategies </li></ul><ul><li>Not all start-ups are destined to be the next Google </li></ul><ul><li>Corporations are hungry for external talent & innovation </li></ul><ul><li>Accelerated medium-sized strategic exits might just work! </li></ul>More at www.YLVentures.com Refer start-ups to [email_address] Yoav Andrew Leitersdorf Managing Partner