Finance Intro 2010 Final


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  • Finance Intro 2010 Final

    1. 1. Entrepreneurial Finance intro<br />IntroduceBasicFinanceConcepts and Present Lenders and Investors ViewonCapital Markets <br />
    2. 2. Before we start…<br />3<br />The Importance Money<br />Cash is everything<br />7<br />Venture Capital Fill a Void<br />VC fills a void between banks and markets<br />12<br />Venture Capital in Denmark<br />Public money plays an important part in the Danish venture capital market<br />17<br />VCs Invest In<br />VCs invest in high-growth industries and A-teams<br />21<br />Workshop<br />Pitch a company that you know…<br />31<br />A Venture Capital Deal<br />A VC addresses the risk in the investment process, the contract and active involvement<br />35<br />Exit Strategies<br />Failure is the most common occurrence – however the most likely attractive exit is a trade sale<br />40<br />The Venture Model<br />The general partners are those we refer to as venture capitalists<br />44<br />Summary<br />A quick review<br />51<br />
    3. 3. Before We Start…<br />
    4. 4. .. I need three volunteers?<br />Before We Start…<br />
    5. 5. Tweet key learnings… <br />Before We Start…<br />MCF10<br />Control10<br />Password:<br />
    6. 6. Assignment for every study group!<br />Deadline - the lecture on Options<br />Email me a list of the names in your study group (at the end of this lecture –<br />Every study-group should find 10 tweets that:<br />You find interesting / funny<br />That can serve as a either a summary of the lectures or that explores an important topic<br />Upload the Powerpoints at Slideshare and tweet the link in Twitter in MCF10 account<br />Two groups will present – randomly chosen<br />Before We Start<br />
    7. 7. The Importance of Money<br />
    8. 8. Once upon a time…<br />The Importance of Money<br />…CASH WAS KING<br />
    9. 9. The Importance of Money<br />Nowadays…<br />…CASH IS EVERYTHING<br />
    10. 10. (Shane) Stating the obvious…<br />The Importance of Money<br />You are more succesfull if you have the cash to pay you bills. Not having the cash is what kills you....<br />.....Obviously it is a good thing too have as much capital as possible to begin with for the company to survive<br />Shane, 2003<br />
    11. 11. However…<br />The Importance of Money<br />However too much money often results in burning more than neccessary....<br />.....These days it is a good thing to bootstrap your company and get the cheap financing from your customers<br />
    12. 12. Venture Capital Fills a Void<br />
    13. 13. The void between banks and the stock market<br />Venture Capital Fills a Void<br />Zider, 1998<br />Market<br />Equity<br />New<br />Debt<br />Existing<br />Product<br />Existing<br />New<br />Debt<br />Interest is Regulated and the Risk is to High <br />IPO<br />The Venture is Too Small for an IPO<br />
    14. 14. Cost of capital is directly linked to the risk<br />Venture Capital Fills a Void<br />Risk<br />Moderate <br />Venture capital<br />High<br />Subordinated debt /<br />Mezzanine financing<br />Seed-investors(>10x returns)<br />Loan WarrantySchemes<br />Incubators<br />The Bank<br />(<10% interest)<br />
    15. 15. …and it is difficult to get financing from your customers<br />Venture Capital Fills a Void<br />
    16. 16. Filling a void in the capital market<br />How Venture Capital Works<br />16<br />
    17. 17. Venture Capital in Denmark<br />
    18. 18. The Danish Venture Market<br />Venture Capital in Denmark<br />Vækstfonden<br />Capital under <br />management<br />BI Life Science<br />Nordic Biotech<br />Biotech<br />$ 50 Million<br />InventureCapital<br />Vækstfonden <br />Seed Capital Denmark<br />Dansk Kapital anlæg<br />Nordic Venture Partners<br />Via <br />Ventures<br />LD Equity<br />ICT/industrial technology<br />NorthCap<br />Northzone<br />Ventures<br />$ 400 Million<br />BI New Energy<br />Early stage<br />Later stage<br />Strong leverage effect from Vækstfonden’s involvement<br />
    19. 19. The players…<br />Venture Capital in Denmark<br />Vækstfonden<br /><ul><li>Incubators (”Innovationsmiljøer”) 7
    20. 20. Business Angels 200+
    21. 21. Venture Capitalfirms 45 (3-5 withmoney)
    22. 22. Vækstfonden 1</li></li></ul><li>Investment activity<br />Venture Capital In Denmark<br />VækstfondenKvartalsanalyse Q4 2008<br />
    23. 23. VC’s Invest in..<br />
    24. 24. Exponential Growth…<br />VC’s Invest in<br />Zider, 1998<br />High growth industries with a big potential and scalable business models<br />Timing is everything<br />
    25. 25. VC Classics…<br />VC’s Invest in<br /><ul><li> New Technologies
    26. 26. Mobility
    27. 27. Internet
    28. 28. Increasing Population
    29. 29. Health Problems
    30. 30. Lack of ressources
    31. 31. Infinitedemand</li></li></ul><li>Opportunities arise…<br />VC’s Invest in<br /><ul><li> New Lifestyles
    32. 32. Change in preferences
    33. 33. Increase in wealth
    34. 34. Increasing aged Pop.
    35. 35. Health Problems
    36. 36. General Purpose Technologies</li></li></ul><li>VC’s Invest In<br />VC’sprefer A-teams withsecondclassideasthan B-teams withfirstclassideas<br />It is all aboutexecution<br />
    37. 37. Management is the most important factor for success<br />VC’s Invest in<br />Study of key success factors for MIT start-ups. Percentage of cases when this factor was one of the top one or two most influential factors in the success<br />
    38. 38. The Ideal Entrepreneur - Is a team<br />
    39. 39. The Google Team – Technical and Commercial Masterminds<br />VC Invest In<br />
    40. 40. However the perfect entrepreneurs don’t always look great<br />VC’s Invest in<br />
    41. 41. A good business case and plan..<br />VC’s Invest in<br />
    42. 42. Workshop<br />
    43. 43. Pitch a company that you know – Imagine the early beginnings of the company…<br />Workshop<br />
    44. 44. Process<br />You have 30 minutes to prepare<br />5 minutes to present<br />Maximum of 5 slides<br />5 minutes questions from VC audience<br />Two teams will present<br />Workshop<br />
    45. 45. Be back on time<br />The doors will lock<br />Don’t keep VC’s waiting<br />
    46. 46. A Venture Capital Deal<br />
    47. 47. The problems a VC must address<br />A Venture Capital Deal<br />Leach & Melicher, 2006<br />
    48. 48. Two ways of addressing the problems...<br />A Venture Capital Deal<br />
    49. 49. The Process<br />A Venture Capital Deal<br />
    50. 50. Contractual…<br />A Venture Capital Deal<br />
    51. 51. The Value VCs Provide<br />
    52. 52. Enabling the venture…<br />The Value VCs Provide<br />100% of a small pie<br />20% of a large pie<br />
    53. 53. Smart Money<br />The Value VCs Provide<br />
    54. 54. Typical Entrepreneur mistakes…<br />Overoptimistic about atttractivenss of idea – don’t research<br />Overestimate how many will buy the solution<br />Underestimate entry barriers<br />Underestimate capital need, cost and timing of capital need<br />Has no plan B<br />Lack of focus<br />Hire the wrong people<br />Lack of focus on EBITDA<br />Seek confirmation rather than the truth<br />Complicated vision<br />Lacks exit strategy<br />The Value VCs Provide<br />SVASE<br />
    55. 55. Exit Strategies<br />
    56. 56. What is the value of a company…<br />Exit Strategies<br />The value of a company is measured in it’s ability to generate free cash flow, meaning surplus of cash. <br />...However not all venture exits were known for that ability. Youtube was a good deal. 12 mio. USD => 450 mio. USD windfall to Sequoia Capital, but the company barely creates a free cash flow<br />
    57. 57. Planning<br />Exit Strategies<br />
    58. 58. Types of Exits<br />Exit Strategies<br />
    59. 59. The Venture Model<br />
    60. 60. The Venture Model<br />The Venture Model<br />Limited Partner<br /><ul><li> Fund of Funds, Pension Funds
    61. 61. Seek 20% IRR</li></ul>General Partner – The VC<br /><ul><li> Partner
    62. 62. 20% of the return (after LP)
    63. 63. 2-3 % of capital pool in Fees</li></ul>Funds<br />10 Y Funds<br />Exit Target (IPO & Trade Sale)<br />Entrepreneur<br />
    64. 64. Taking a portfolio approach<br />The Venture Model<br />If probability of one parameter drops to 50% the combined probability drops to 10% and there are more success factors out there<br />
    65. 65. One slide summary<br />Cash is everything<br />VCs fill a void between the banks and the markets<br />VCs invest in high-growth industries, A-teams, great plans and execution<br />A VC addresses risk problems with the investment process, the contract and their involvement<br />The most likely exit in a Danish context is a trade sale <br />Summary<br />