How Venture Capitalists Source Great Startup Investments

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Where Are the Great Startups?!

Best Practices of Venture Capital Funds in Finding Growth Companies

presentation by David Teten

based on research projects completed and interviews with over 150 private equity and venture capital funds

Published in: Economy & Finance, Business
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  • 91 PE funds and 54 VC funds.
  • 1. 2. 3. e.g., using Amazon S3 instead of your own servers
  • The funds with sophisticated non-venture center outbound origination programs have almost all have been able to raise funds equal or larger than their preceding fund in the economically challenging period 2007-2010. They are typically among the top quartile performers. These funds use a combination of cold-calling, travel, expert networks, and technology to identify investment opportunities outside of their neighborhood.   The funds with more traditional origination are primarily focused on their local venture center network, and many have had difficulty raising funds in recent years, with several unable to raise new funds since late 2005.
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  • J.H. Cohn’s Award-Winning Private Equity Deal-Flow Initiative J.H. Cohn LLP, a top 20 accounting and consulting firm, has long supported the private equity (“PE”) community through a wide-ranging series of PE service offerings, including transaction services, tax and audit services (fund level and portfolio level), and consulting services. Our first-hand knowledge of the many advantages that PE funds can bring to their portfolio companies, combined with our constant mission to bring added value to our operating clients, has led us to institute the J.H. Cohn Private Equity Deal-flow Initiative program. This unique program is designed to create a direct link between the private equity community and our clients and as a result of its ongoing success was named the “M&A Product/Service of the Year” by M&A Advisor. “ J.H. Cohn created this initiative to provide our clients with a clearer understanding of the potential benefits of private equity. Once a client decides that private equity may be an option, we provide appropriate introductions and the funds will explain how the selection and investment process works. In addition, J.H. Cohn also runs several industry-specific programs for clients, prospects, and funds that specialize in their particular industry,” explains Steven Pinsky, Principal and Private Equity Services Practice Director. In addition to providing unique value to our clients, the deal-flow initiative has created tremendous value to private equity funds, including: Reducing the time needed to identify a specific target acquisition; Identifying synergistic opportunities they may not have found without a professional advisor’s in-depth knowledge of the target company; Introducing PEGs to quality targets who may not have previously considered a private equity investment; Creating a smoother deal process by having the target’s CPA firm involved from the beginning. The J.H. Cohn Private Equity Deal-flow Initiative program consists of several components, several of which are listed below: Private Equity Weekly Spotlight. This communication tool allows the PE Practice to communicate to the partnership specific acquisition criteria for those private equity funds with whom we have a relationship. The communication often prompts Partners in the firm to consider whether any of their clients may be a good match for this PE firm. Industry Vertical-Focused Private Equity Events. From fun, interactive, game-show style events, like “Deal or No Deal—the Hospitality Edition” or industry roundtables on topical issues such as sourcing and setting up retail operations in China, J.H. Cohn includes strategic private equity relationships in a number of industry-focused events. J.H. Cohn Deal Cohnnection. This program allows clients of the firm to work with us to prepare a confidential profile of their company, which we share with a select group of private equity firms to determine if there is investment interest. Clients benefit from this no-risk opportunity to “put the feelers out” and PE firms value having a sneak-peak at these companies. Preemptive Private Equity Client Introductions. By raising awareness among our Partners, we actively identify clients who may be considering a merger or other growth or exit strategy and will arrange for them to confidentially meet with appropriate private equity funds if interested. J.H. Cohn has developed a proprietary list of 10 profiles that could predetermine if a company could benefit from having a private equity partner or investor. Intermediary Extension Program . Because J.H. Cohn does not act in the capacity of an intermediary, nor do we accept fees for the majority of our deal flow initiatives, we are a “natural extension” for the intermediary community. Smaller intermediaries may have a limited geographic or industry knowledge that may prevent them from fully canvassing the PE funds for ideal partners. These intermediaries often send their deals to us to see if we may have a strong relationship with a PE fund that would be interested in getting involved. J.H. Cohn Private Equity Initiative Named M&A Service of the Year Roseland, NJ - January 6, 2009 - M&A Advisor , a leading information publisher for middle-market mergers and acquisitions and finance, has named J.H. Cohn LLP—the largest independent accounting and consulting firm in the Northeast—the winner of the M&A Product/Service of the Year award.   J.H. Cohn’s Private Equity Services Practice was awarded for the Private Equity Deal-Flow Initiative program, which is designed to create a potential relationship between the private equity community and the Firm’s clients. The initiative has provided unique value to J.H. Cohn’s clients and fostered important, business-building relationships for the Firm.   “ J.H. Cohn created this initiative to provide our clients with a clearer understanding of the potential benefits of private equity. Once a client decides that private equity may be an option, we provide appropriate introductions and the funds will explain how the selection and investment process works. In addition, J.H. Cohn also runs several industry-specific programs for clients, prospects, and funds that specialize in their particular industry,” explains Steven Pinsky, principal and Private Equity Services Practice Director. “We are honored that M&A Advisor has recognized our program with this award.”   In addition to assisting clients, the deal-flow initiative has created tremendous value to private equity funds, including: Reducing the time needed to identify a specific target acquisition; Identifying synergistic opportunities they may not have found without a professional advisor’s in-depth knowledge of the target company; Introducing PEGs to quality businesses who may not have previously considered a private equity investment; Creating a smoother deal process by having the target’s CPA firm involved from the beginning. The M&A Advisor Middle-Market M&A Awards honors the deal teams and deal-makers that have closed M&A transactions and firms whose activities set the standard for the industry. Two-hundred-and-twenty finalists representing 66 firms were named finalists in 35 categories. An independent body of experts that span the M&A industry determined the ultimate recipients of the awards. In addition to its M&A Product/Service of the Year win, J.H. Cohn was a finalist for Accounting Due Diligence Firm of the Year.   About J.H. Cohn J.H. Cohn is one of the top 20 accounting and consulting firms in the United States and the largest independent accounting firm headquartered in the Northeast. The firm has earned a strong reputation for its industry specialization and ability to help clients drive profits and increase wealth by providing custom solutions. J.H. Cohn professionals are passionate about providing personalized and attentive service, the success of their clients and staff, and their role as community leaders. J.H. Cohn is a member of Nexia International, the world’s ninth-largest network of independent auditors, business advisors, and consultants. More information about J.H. Cohn can be found at www.jhcohn.com .     Natalie Kandik Marketing Specialist Marketing Tel: 973-364-7869 Fax: 973-364-6678 [email_address] www.jhcohn.com J.H. COHN LLP Accountants and Consultants since 1919 The information included herein is not intended or written to be used, and it cannot be used by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing or recommending to another party any tax related matters. (The foregoing disclosure has been affixed pursuant to U.S. Treasury Regulations governing tax practice.) The information in this transmission is privileged and confidential and intended only for the recipient listed above. If you are not the intended recipient, please advise the sender immediately by reply e-mail and delete this message and any attachments without retaining a copy. If you are not the intended recipient, you are hereby notified that any disclosure, copying or distribution of this message, or the taking of any action based upon it, is strictly prohibited.  Thank you.
  • Targeted strategy builds reputation more effectively than generalist strategy Use industry-specific white paper as carrot to motivate information-sharing
  • Money Market Directory, Nelsons
  • Requires good relationships with other investors in your focus area Investors who are “incomplete”, e.g., lack international reach, are particularly valuable if you are synergistic to them
  • Goal: Identify companies which meet Fund’s investing criteria and which are likely to have an interest in outside capital (equity or debt) Process: Interview Fund investment team to determine profile of ideal investments (e.g., automotive companies experiencing cash flow difficulty). Build database of companies which meet given criteria, e.g.: Review global public financial filings for given financial parameters. Look in news stories for companies reporting high levels of layoffs. Look in obituaries for unexpected deaths of sitting CEOs. Review private equity databases for investments which have been held for over 6 years, which the existing investors likely wish to exit. Deliverable: Database of companies which meet Fund’s investing criteria, and appear to have immediate interest in outside capital. Includes contact information for CEO of each company. Estimated # person-minutes per lead: 60-120 minutes` http://generalatlantic.com/en/news/article/58 based on http://www.generalatlantic.com/en/news/article/57
  • Peter Rip, General Partner, Crosslink Capital : “The biggest part of your growth network are the deals you turn down. You provide value to the person even if you don’t give them a check. You’ll turn down some really good opportunities . “ Welsh Carson: Since its formation, WCAS has worked with over 600 senior executives in its two target industries. Successful executives have a long-term career path through WCAS and seek multiple professional opportunities within the Firm’s portfolio, as evidenced by approximately 40% of the Firm’s current portfolio company management teams working in their second, third or fourth WCAS portfolio company. A well-seasoned executive may begin as a senior manager at one WCAS portfolio company and develop over time into a COO or CEO at another WCAS portfolio company. Frontenac Capital sources C-level executives and works with them to identify deals. Some VCs use Entrepreneurs-in-Residence Rejected Executives Entrepreneurs in Residence Portfolio Executives Welsh, Carson, Anderson & Stowe Deal Executives Senior Advisor Networks 3i Cerberus Goldman Sachs Special Situations Group General Atlantic
  • Ernst & Young [2006, p. 5] found that ¾ of the largest PE investments in 2006 resulted from proactive deal origination strategies, including "company or sector tracking, building relationships with management, [and/or] introductions from established contacts". Only 11% of the deals resulted from PE investors starting work during the formal sale process. "Better preparation, strength of relationship with target management, and sector focus were the most important factors cited in winning a deal."
  • J.H. Cohn’s Award-Winning Private Equity Deal-Flow Initiative J.H. Cohn LLP, a top 20 accounting and consulting firm, has long supported the private equity (“PE”) community through a wide-ranging series of PE service offerings, including transaction services, tax and audit services (fund level and portfolio level), and consulting services. Our first-hand knowledge of the many advantages that PE funds can bring to their portfolio companies, combined with our constant mission to bring added value to our operating clients, has led us to institute the J.H. Cohn Private Equity Deal-flow Initiative program. This unique program is designed to create a direct link between the private equity community and our clients and as a result of its ongoing success was named the “M&A Product/Service of the Year” by M&A Advisor. “ J.H. Cohn created this initiative to provide our clients with a clearer understanding of the potential benefits of private equity. Once a client decides that private equity may be an option, we provide appropriate introductions and the funds will explain how the selection and investment process works. In addition, J.H. Cohn also runs several industry-specific programs for clients, prospects, and funds that specialize in their particular industry,” explains Steven Pinsky, Principal and Private Equity Services Practice Director. In addition to providing unique value to our clients, the deal-flow initiative has created tremendous value to private equity funds, including: Reducing the time needed to identify a specific target acquisition; Identifying synergistic opportunities they may not have found without a professional advisor’s in-depth knowledge of the target company; Introducing PEGs to quality targets who may not have previously considered a private equity investment; Creating a smoother deal process by having the target’s CPA firm involved from the beginning. The J.H. Cohn Private Equity Deal-flow Initiative program consists of several components, several of which are listed below: Private Equity Weekly Spotlight. This communication tool allows the PE Practice to communicate to the partnership specific acquisition criteria for those private equity funds with whom we have a relationship. The communication often prompts Partners in the firm to consider whether any of their clients may be a good match for this PE firm. Industry Vertical-Focused Private Equity Events. From fun, interactive, game-show style events, like “Deal or No Deal—the Hospitality Edition” or industry roundtables on topical issues such as sourcing and setting up retail operations in China, J.H. Cohn includes strategic private equity relationships in a number of industry-focused events. J.H. Cohn Deal Cohnnection. This program allows clients of the firm to work with us to prepare a confidential profile of their company, which we share with a select group of private equity firms to determine if there is investment interest. Clients benefit from this no-risk opportunity to “put the feelers out” and PE firms value having a sneak-peak at these companies. Preemptive Private Equity Client Introductions. By raising awareness among our Partners, we actively identify clients who may be considering a merger or other growth or exit strategy and will arrange for them to confidentially meet with appropriate private equity funds if interested. J.H. Cohn has developed a proprietary list of 10 profiles that could predetermine if a company could benefit from having a private equity partner or investor. Intermediary Extension Program . Because J.H. Cohn does not act in the capacity of an intermediary, nor do we accept fees for the majority of our deal flow initiatives, we are a “natural extension” for the intermediary community. Smaller intermediaries may have a limited geographic or industry knowledge that may prevent them from fully canvassing the PE funds for ideal partners. These intermediaries often send their deals to us to see if we may have a strong relationship with a PE fund that would be interested in getting involved. J.H. Cohn Private Equity Initiative Named M&A Service of the Year Roseland, NJ - January 6, 2009 - M&A Advisor , a leading information publisher for middle-market mergers and acquisitions and finance, has named J.H. Cohn LLP—the largest independent accounting and consulting firm in the Northeast—the winner of the M&A Product/Service of the Year award.   J.H. Cohn’s Private Equity Services Practice was awarded for the Private Equity Deal-Flow Initiative program, which is designed to create a potential relationship between the private equity community and the Firm’s clients. The initiative has provided unique value to J.H. Cohn’s clients and fostered important, business-building relationships for the Firm.   “ J.H. Cohn created this initiative to provide our clients with a clearer understanding of the potential benefits of private equity. Once a client decides that private equity may be an option, we provide appropriate introductions and the funds will explain how the selection and investment process works. In addition, J.H. Cohn also runs several industry-specific programs for clients, prospects, and funds that specialize in their particular industry,” explains Steven Pinsky, principal and Private Equity Services Practice Director. “We are honored that M&A Advisor has recognized our program with this award.”   In addition to assisting clients, the deal-flow initiative has created tremendous value to private equity funds, including: Reducing the time needed to identify a specific target acquisition; Identifying synergistic opportunities they may not have found without a professional advisor’s in-depth knowledge of the target company; Introducing PEGs to quality businesses who may not have previously considered a private equity investment; Creating a smoother deal process by having the target’s CPA firm involved from the beginning. The M&A Advisor Middle-Market M&A Awards honors the deal teams and deal-makers that have closed M&A transactions and firms whose activities set the standard for the industry. Two-hundred-and-twenty finalists representing 66 firms were named finalists in 35 categories. An independent body of experts that span the M&A industry determined the ultimate recipients of the awards. In addition to its M&A Product/Service of the Year win, J.H. Cohn was a finalist for Accounting Due Diligence Firm of the Year.   About J.H. Cohn J.H. Cohn is one of the top 20 accounting and consulting firms in the United States and the largest independent accounting firm headquartered in the Northeast. The firm has earned a strong reputation for its industry specialization and ability to help clients drive profits and increase wealth by providing custom solutions. J.H. Cohn professionals are passionate about providing personalized and attentive service, the success of their clients and staff, and their role as community leaders. J.H. Cohn is a member of Nexia International, the world’s ninth-largest network of independent auditors, business advisors, and consultants. More information about J.H. Cohn can be found at www.jhcohn.com .     Natalie Kandik Marketing Specialist Marketing Tel: 973-364-7869 Fax: 973-364-6678 [email_address] www.jhcohn.com J.H. COHN LLP Accountants and Consultants since 1919 The information included herein is not intended or written to be used, and it cannot be used by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing or recommending to another party any tax related matters. (The foregoing disclosure has been affixed pursuant to U.S. Treasury Regulations governing tax practice.) The information in this transmission is privileged and confidential and intended only for the recipient listed above. If you are not the intended recipient, please advise the sender immediately by reply e-mail and delete this message and any attachments without retaining a copy. If you are not the intended recipient, you are hereby notified that any disclosure, copying or distribution of this message, or the taking of any action based upon it, is strictly prohibited.  Thank you.
  • Lehman Formula
  • This sent out in 3-D
  • Also: university technology licensing offices venture development organizations
  • Market mapping is the act of identifying the key players within an industry or subsector. Goal: Identify companies which meet Fund’s investing criteria and which are likely to have an interest in outside capital (equity or debt) Process: Interview Fund investment team to determine profile of ideal investments (e.g., automotive companies experiencing cash flow difficulty). Build database of companies which meet given criteria, e.g.: Review global public financial filings for given financial parameters. Look in news stories for companies reporting high levels of layoffs. Look in obituaries for unexpected deaths of sitting CEOs. Review private equity databases for investments which have been held for over 6 years, which the existing investors likely wish to exit. Deliverable: Database of companies which meet Fund’s investing criteria, and appear to have immediate interest in outside capital. Includes contact information for CEO of each company. Estimated # person-minutes per lead: 60-120 minutes` http://generalatlantic.com/en/news/article/58 based on http://www.generalatlantic.com/en/news/article/57
  • Contextual Info about each Company Management strength Product strength Client desirability ROIC
  • Contextual Info about each Company Management strength Product strength Client desirability ROIC
  • www.oreillynet.com/pub/a/oreilly/tim/news/2005/09/30/what-is-web-20.html
  • 39% of completed deals had a private equity seller in KPMG private equity study. Find private equity funds motivated to sell (because fully invested, or because investment has aged over 5-7 years). Review PE fund portfolios from PE firm websites and databases (VentureOne) looking for older investments Review M&A databases (SDC) and look for companies acquired by PE firm over 5 years ago with no subsequent acquisition reported Synthesize data from investment consultants Use Freedom of Information Act to acquire data from governmental investors (experimental) Seek equity owners with the right situation to benefit from the particular tax incentive More than one senior manager with the same last name News stories about familial legal battles Search for distressed corporations with non-strategic assets
  • Methods To Identify Such Companies Identify and then reach out to successful entrepreneur and offer to back him/her on the next effort Serial entrepreneurs are well-networked in their sector and will make referrals Look for CEOs over age 65 Job openings for new CEO or new COO News announcements about a new CEO hired by a company; target the CEO’s prior employer Obituaries the tax rate on an exit for a UK equity owner, under some circumstances, will go from 10 to 18% on Apr 5, 2008
  • Layoffs/ number of resumes updated on major job boards Factory/office shut downs Financial review of public companies for those that meet certain criteria Senior executives leaving News about proxy battles Companies that are targets of activist investors A business that is highly geographically concentrated is usually one with a high, defensible market share, which simultaneously has a lot of growth opportunity outside of its immediate vicinity
  • Layoffs/ number of resumes updated on major job boards Factory/office shut downs Financial review of public companies for those that meet certain criteria Senior executives leaving News about proxy battles Companies that are targets of activist investors
  • Identify areas of increased M&A activity Frequent capital-raising in sector Speak with experts globally, e.g., in alternative energy Literature search – both business literature and academic journals Use of products by growth sectors: young people, emerging markets, etc. Companies with low cash levels Layoffs New debt issued at higher rates than before Also, discuss peer pressure of other CEOs selling (cf. Fedex/Kinkos, UPS/Mailboxes Etc.)
  • D = D iversity = heterogeneity of people in your network C = C redibility and reliability = strength of your sales proposition in eyes of people in your network = “I trust what she says about... I can trust her to….” R = R elevance of person = credibility, reliability and seniority of the person in your network S = Strength = mutual link strength and degree of orientation to the person = “I feel comfortable with him; he cares about me.”
  • “ Email Groups” file. Master file with short email lists of friends, sorted by area of interest Chinese New Year Valuable data, but… Privacy issues
  • “ Email Groups” file. Master file with short email lists of friends, sorted by area of interest Chinese New Year Valuable data, but… Privacy issues
  • Prominent French angel investor November 1999: Sent mail to Stanford Graduate School of Business alumni list that he was seeking capital for startup March 2000: Raised $8m through referral from alum
  • http://www.scoreboard-media.com/vc-blogs /
  • Interface Software, Spoke Software, Contact Network, Visible Path, Leverage Software Build new relationships Benefits: insight, access, and influence Improve close rates, deal velocity, revenue per customer Privacy Attached is a slide that shows how the relationship data is integrated into a firm’s intranet (example from a global law firm).  Contact Networks found all relationships that the firm has with Barclays.  It shows which colleagues know someone at Barclays, and which Barclays employees they know.  And all of this is discovered by analyzing email patterns and address books – no data entry or link requests involved, so the number of relationships uncovered is very large
  • Goal: Increase efficiency of processing investment opportunities Process: Gather data from individual executives’ inboxes into Fund central database. Run analytics Deliverable: Accurate database of past and current flow.. Estimated # person-minutes per updated contact: TBD
  • rate of 2.5 to 3.5 percent a month. Within a year, one-third of the information in a database can easily become outdated. http://www.information-management.com/specialreports/20030701/7053-1.html Coordinates Category (1 through 6) Spouse Children Birthday Background Education Connections Affiliations Interests Mini-resume Holiday greeting Importance of information decay Market leaders: Salesforce, angelsoft http://insidesalesprofessional.wordpress.com/2006/08/10/data-decay-is-killing-your-lead-generation-response-rates/ http://www.information-management.com/specialreports/20030701/7053-1.html http://helpit.com/folders/case_studies/crm_management_us/ Providers: ITS Profiles , Jigsaw IRIS Business Card Scanner http://www.irislink.com/ Plustek Business Card Scanner http://www.plustek.com/product/center.asp?center_id=1 Card Scanning Solutions http://www.card-reader.com/ Neat Business Card Scanner http://www.neatco.com/
  • Pete Villhard's brother (Doug Villhard) owns a company, http:// www.secondstreetmedia.com/UpickemHome.aspx , and also built the PING database which we use to track all activity. Very unusually, they have a "NFL Picks" game on the site. That's a vehicle to drive traffic to the site. We have 800 people who play that game. Have done this for 6-7 years. We know this gets referred out to other people. Total prizes of about $1,000. And we pay Doug about $600 to run the service. So cost is trivial.
  • Rules of the Road Customize standard intro Lurk before you leap Dive in, but do not splash
  • Rules of the Road Customize standard intro Lurk before you leap Dive in, but do not splash
  • Slide for VCs: http://www.flickr.com/photos/superrabbit/319538167/
  • How Venture Capitalists Source Great Startup Investments

    1. 1. Best Practices of Venture Capital Funds in Finding Growth Companies Where Are the Great Startups?! http://flickr.com/photos/krikit/2745563123/sizes/o/ David Teten HOF.capital / @HOFcapital teten.com / @dteten New York, NY
    2. 2. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart Don’t Take Notes! Download detailed slides and see the video at: teten.com/deals
    3. 3. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart Past audiences for this presentation include investor conferences, private equity funds, and investment banks. • Association for Corporate Growth (ACG) Intergrowth, and Capital Connection Chicago • Alliance of Merger & Acquisition Advisors • CFA Society of Los Angeles • Columbia Business School Alumni Club of New York • Harvard Business School Club of London • Harvard Business School Association of Southern California • Kauffman Fellows program participants • NYU Stern Private Equity and Venture Capital Conference • Wharton Alumni Club of Northern California • Yale Club of Singapore • Singapore Venture Capital and Private Equity Association • CFA Singapore • Women’s Association of Venture & Equity • Leading investment banks, private equity funds, venture capitalist funds, and hedge funds
    4. 4. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart Background David Teten and Chris Farmer published the first-ever research project on “Best Practices in Private Equity and Venture Capital Deal Origination” in the Journal of Private Equity (Winter 2010); Mergers & Acquisitions (December 2010); Institutional Investor (October 2010); and Harvard Business Review (June 2010). These slides provide some of the learnings and underlying data from the research study. Chris Farmer is CEO of Signalfire, a VC fund. Evalueserve, a global research firm and the acquirer of David’s former company (Circle of Experts), provided supporting research and analytics in the initial phases of this study. We also thank Yujin Chung (Andreessen Horowitz) and Neha Kumar (Anklesaria Group), our research associates who provided invaluable support, and interns Corentin Roux dit Buisson, Dan Clark, Nitin Gupta, and Nikhil Iyer .
    5. 5. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart David Teten  Managing Partner, HOF Capital  Previously Partner for six years, ff Venture Capital, one of the best- performing seed- and early-stage VC firms in the U.S.  Previously serial entrepreneur and Bear Stearns technology investment banker  Advised clients such as Goldman Sachs Special Situations Group, Icahn Enterprises, LLR Partners ($1.4b fund), Birch Hill Equity Partners (C$2B fund), and other institutional investors  Harvard MBA; Yale BA  Teten.com / @dteten / info@teten.com
    6. 6. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart • Introduction • Organizational Structure • Traditional Deal Origination • Social Media • Signals of a Potential Investment • Growing Your Corporate Network • Next Steps Agenda
    7. 7. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart We interviewed over 150 private equity and venture capital funds globally for this study. David Teten, Chris Farmer, Evalueserve, Yujin Chung, Neha Kumar Analysis of Private Equity and Venture Capital Funds in Study
    8. 8. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart Thompson Venture Economics, Franklin Park -10% -5% 0% 5% 10% 15% 20% 6% 3% 5% 9% Spread between 1st & 3rd Quartile return Median Return US Fixed Income US Public Equity US Private Equity US Venture Capital Asset Class Returns by Quartile (20 years ending Sep. 2005) The median PE/VC fund underperforms public markets, but the top quartile consistently outperforms.
    9. 9. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart 0% 20% 40% 60% 80% 100% Firms Value Firms Value Other Top 50 13% 44% 4% 66% 370 Firms $67B ~1200 Firms $287B 1983-87 ‘PC Boom’ 1997-01 ‘Internet Boom’ Venture One, Focus Ventures; * Kaplan & Schoar, Journal of Finance Percentage of IPO Value Created by Top 50 VC Firms • Top 50 VC firms have persistent high returns and have increased profit pool share. • Unlike public equity asset classes, private equity performance tends to persist among top firms.* • 38 VC firms were in the Top 50 in both the ‘PC’ & ‘Internet’ Booms.
    10. 10. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart ThomsonReuters, AxialMarket estimates 2009 Deal Volume Under $200m The vast majority of transactions do not go through the best known intermediaries.
    11. 11. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart Proprietary deal origination is critical for VC funds. Lower costs of startup Smooth, not chunky, increasing cost curve of a startup Venture capital competition More Auctions  Winner’s Curse  Competing for the Lowest Return + +
    12. 12. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart Minimal outbound origination programs targeted outside of Venture Centers Firms in venture centers (Boston/NY/Silicon Valley) outperform with investments outside venture centers. Performance gap is larger for late stage (20.7% vs. 15.7%) vs. early stage (15.1% vs. 11.3%)*. Origination programs targeted outside of Venture Centers Leading Late-Stage Tech Investors Portfolio by Geography, 2000-1Q2010** * “Buy Local? The Geography of Successful and Unsuccessful VC Expansion”, Chen,Gompers,Kovner,Lerner. Success rate shown is defined as % of VC portfolio which leads to IPO. Results similar when success defined as investment either leading to IPO or acquisition. ** Only IT/related sectors. Battery & Sequoia data only late stage/growth deals. These funds are typically top-quartile performers; almost all have raised funds equal or larger than their preceding fund in the challenging 2007-10 period.
    13. 13. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart Ironically, despite increased monitoring of local investments, firms in venture centers outperform with investments outside venture centers (19.0% vs. 17.3%). • Over 50% of all the Venture Firms in Pratt’s Guide to Private Equity & Venture Capital are located in just 3 venture centers: San Francisco/San Jose, Boston, and NYC/NJ/CT. •Over 49% of the US companies that these VC firms have invested in are in the same 3 areas. • Firms based in venture centers have outperformed funds in other geographies by 4.4%. •This may be driven by superior investment experience, greater connections with corporations & stronger syndication networks. •Likely driven by lower entry valuations due to lower competition & higher hurdle rates for investments with higher monitoring costs. • This performance gap between venture centers and non-venture centers is larger for late stage (20.7% vs. 15.7%) vs. early stage investments (15.1% vs. 11.3%). •This performance applies to both probability of success and expected returns. • However, performance drops by 2.2% if a firm invests again in the same outside geography. •#1 driver of opening branch office is the percentage of investments in the region in last 5 years. •Counter-intuitively, opening an office in a region has historically lowered the expected returns in that region. Success rate shown is defined as % of VC portfolio which leads to IPO. Results are similar when success is defined as investment either leading to IPO or acquisition. “Buy Local? The Geography of Successful and Unsuccessful Venture Capital Expansion” by Chen, Gompers, Kovner & Lerner 6/09
    14. 14. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart Case study: Castle Harlan, $3b PE fund, studied correlation between different sourcing strategies and returns. Castle Harlan • Castle Harlan completed an internal study in 2009 of the sources and returns of all their completed transactions (68 deals, 38 exited). • Firm management asked the deal team on each transaction to rate the importance of seven proprietary strategies to winning each deal, on a scale of 0-10 (10=maximum). • For example, "finder" and "industry expertise" were two of the strategies. "Finder" was score-weighted in a binary way, with either a 0 for no finder involved or a 10 for a finder playing a key role in sourcing the transaction. • Across all deals, the mean total "proprietariness" score was 21.2 out of a maximum possible of 70, and 44 of the deals (65%) scored above 25. Most of these 44 deals fully exploited (i.e., 10 out of 10) at least two proprietary strategies, and benefited from some other strategies as well.
    15. 15. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart Castle Harlan • The most proprietary deals (“proprietariness” scores of 31+) had a somewhat higher return than non-proprietary deals, while at the same time the firm tended to pay on average a premium for these proprietary deals. •Includes: Deals sourced through affiliated investors; through relationships with current management; and/or through relationships with non-incumbent management. •This implies that these companies were higher quality than non-proprietary deals; Castle Harlan perceived a lower uncertainty risk; and/or the fund was able to add more value to these transactions after a transaction closed. • By contrast, deals characterized as being sourced through finders were associated with lower entry multiples, but also relatively less attractive realized outcomes. •Only 9 investments (13% of the total) had a "Finder" score of 5 or more. Castle Harlan origination study shows higher multiples for proprietary deals.
    16. 16. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart Info is private Few buyers based on Robert Bruner, Applied Mergers & Acquisitions, page 186 Ability of buyer to intervene to tailor pricing & terms Info is public Many buyers Sweet spot of highest returns Higher returns Lower returns Private information is more valuable than public information because of the leverage that discretion gives to the buyer. Buyer Power vs. Public Awareness of Transaction
    17. 17. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart You earn higher returns by investing in people you know well. Study of 2,501 portfolio managers of 1,648 actively managed equity funds that specialized in aggressive growth, growth, or growth and income stocks between January 1990 and December 2006 Source: The Small World of Investing: Board Connections and Mutual Fund Returns; Lauren Cohen, Andrea Frazzini, and Christopher Malloy, 2008 Connected Holdings=Stocks for which managers had the strongest connection to senior officials (same school at same time with same degree) Excess return=total gain minus the Treasury bill return Mutual Fund Managers’ Excess Returns in Companies Run by College/Graduate School Classmates vs. All Other Companies
    18. 18. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart Acquirer/ Investor Angel groups using Gust[i] Blackford Capital[ii] TA Associates[iii] Highland Capital[iv] AlliedSignal[v] Investing focus startups lower-middle- market growth companies growth companies synergistic businesses Profiled initially 20,850 1,394 NA NA 550 Target Selected 1,315 261 8,000 10,000 [vi] 190 Met 1,047 20 750 1,000 NA Negotiated with NA 14 NA NA 28 Detailed due diligence 577 20 NA NA 17 Acquired/ invested 541 3 10 to 12 10-20 10 Deals as % targeted companies 33.5% (2.1% of submissions) 1.1% 0.1%-0.2% 0.1%-0.2% 5.3% [i] Available at http://angelsoft.net/a/venture-valuation , as of twelve months ending March 17, 2010. [ii] 2009. [iii] Rudd, Amber. “A Kind of Magic.” Corporate Financier, October 2006. [iv] Economist, Global Heroes: A Report on Entrepreneurship, March 14, 2009., p. 9. “Targets selected” figure indicates number of business plans received. [v] Bruner, Robert F., Applied Mergers and Acquisitions. New York: John Wiley & Sons, 2004., p. 183, as of 1996-97. Closing one deal requires sourcing 80-100 deals. Investment Search Process (# Companies)
    19. 19. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart Investment Search Process (# Companies) Angel groups using Gust[i] Typical entrepreneur Profiled initially 20,850 ~3-6 Target Selected 1,315 ~3 Met 1,047 NA Due diligence 577 2 Invested/launched 541 1 Deals as % targeted companies 33.5% (2.1% of submissions) 33% [i] Available at http://angelsoft.net/a/venture-valuation , as of twelve months ending March 17, 2010.
    20. 20. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart Blackford Capital (Fundless Sponsor) Investment Search Process (# Platform Companies) Most of the deals that didn’t close were due to substantial decline in financial performance between signing of LOI and closing of deal. 1 deal did not close due to inaccurate financials/ fraud. 2007 2008 2009 Notes Deals Reviewed 962 1,264 1,394 Blackford receives 2X as many deals – only tracks those that fit criteria NDAs 104 105 261 Blackford reviews these deals in detail Indications of Interest 20 18 14 Management Visit 16 11 20 Letter of Intent Submitted 12 11 10 Letter of Intent Signed 5 6 6 Deals Closed (incl. add-ons) 4 3 3 Reflects 4 platforms, 5 add-ons, 1 exit.
    21. 21. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart David Teten, Chris Farmer, Evalueserve, Yujin Chung, Neha Kumar VCs have to filter 9% more deals than PE funds to close one deal. Median Pipeline Size Necessary to Close One Deal
    22. 22. Intro Social Media Signals Network Next Steps © 2016 David Teten. More at teten.com TraditionOrg Chart David Teten, Chris Farmer, Evalueserve, Yujin Chung, Neha Kumar Three investment professionals need 1 year to close 1 deal. Median Annual Pipeline Size per One Investment Professional
    23. 23. Intro Social Media Signals Network Next StepsTraditionOrg Chart © 2016 David Teten. More at teten.com • Introduction • Organizational Structure • Traditional Deal Origination • Social Media • Signals of a Potential Investment • Growing Your Corporate Network • Next Steps Agenda
    24. 24. Intro Social Media Signals Network Next StepsTraditionOrg Chart © 2016 David Teten. More at teten.com Deal Sourcing Strategies: Please describe if your sourcing strategy has changed, how it has changed, and how you expect it to change in the next 3 years. The most common sourcing strategy is to combine in- house/direct with sell-side intermediary. 40% of firms plan to move towards more in-house/direct in next 3 years. <10% 10%-19% 20%-29% 40%-49% 50%-59% 30%-39% * “Other” includes broken auctions, tangential relationships and well connected individuals. Parthenon Group In- House/Direct Less Same More 3 yrs from Now Currently <10% 10%-19% 30%-39% 40%-49% 50%-59% 60%-69% 70%-79% 80%-89% 90%-100% 20%-29% <10% 3 yrs ago 80%-89% 70%-79% 60%-69% 50%-59% 40%-49% 20%-29% 30%-39% 10%-19% 90%-100% Buy-side Intermediary Currently3 yrs ago <10% 10%-19% 20%-29% 30%-39% 40%-49% 50%-59% 3 yrs from Now Less Same More Sell-side Intermediary Currently 90%-100% 80%-89% 60%-69% 50%-59% 40%-49% 30%-39% 20%-29% 10%-19% <10% 3 yrs ago 80%-89% 70%-79% 20%-29% 10%-19% <10% 90%-100% 60%-69% 50%-59% 40%-49% 30%-39% 3 yrs from Now Less Same More 80% 60% 40% 20% 0% PercentofRespondents 100% Other 3 yrs ago <10% 3 yrs from Now Same More 20%-29% 30%-39% Currently <10% 10%-19% 20%-29% 30%-39% 10%-19%
    25. 25. Intro Social Media Signals Network Next StepsTraditionOrg Chart © 2016 David Teten. More at teten.com Only 10% of deal origination is outsourced, on average. 80% 60% 40% 20% 0% AverageOutsourcing% 100% 95% 93% 88% 55% 52% 50% 38% 30% 24% 16% 15% 10% 5% 2% 2% Environmental DueDiligence Legal DueDiligence Accounting DueDiligence Tax Preparation Information Technology Market DueDiligence Legal/ Compliance Accounting Marketingand communications Human Resources Financing Funds Administration Reporting Deal Sourcing Investor Relations Office Management Portfolio Management 3 years from now Currently 10% Average Outsourcing Level by Function Parthenon Group
    26. 26. Intro Social Media Signals Network Next StepsTraditionOrg Chart © 2016 David Teten. More at teten.com Over 50% of funds plan to change/improve processes for sourcing, fundraising, and portfolio management. Percent of Private Equity Funds That Plan To Change/Improve Processes In The Next 3 Years 37%Investment exit planning 40%Investment committee decisions 45% 52%Portfolio management 53%Fundraising 55%Sourcing Parthenon Group Increased competition makes firms focus on these processes now 80% believe these processes are important and already have them in place Only 25% believe this process is important Due diligence
    27. 27. Intro Social Media Signals Network Next StepsTraditionOrg Chart © 2016 David Teten. More at teten.com David Teten, Chris Farmer, Evalueserve, Yujin Chung, Neha Kumar An increasing percentage of fund employees are specialist originators. Investment Team Distribution by Job Function
    28. 28. Intro Social Media Signals Network Next StepsTraditionOrg Chart © 2016 David Teten. More at teten.com As funds grow larger the staffing leverage ratio increases, making a deliberate organizational structure more important. Private Equity Staffing Leverage Ratio (Professionals/Partner) 5x 4x 2x 3x 1x 0 <$500MM $500MM - $1B $1B - $2B $2B+ “This is a people business. Your annual Cap-Ex is people” Size of Most Recent Fund Parthenon Group Larger Funds Demand More Structure
    29. 29. Intro Social Media Signals Network Next StepsTraditionOrg Chart © 2016 David Teten. More at teten.com David Teten, Chris Farmer, Evalueserve, Yujin Chung, Neha Kumar Responses for Don’t Know/Cant say is excluded from the analysis. Percentages may not add up to 100 due to rounding off. % of Funds With At Least One Person Tasked Specifically and Primarily with Deal Origination Specialist originators are more common in more developed markets.
    30. 30. Intro Social Media Signals Network Next StepsTraditionOrg Chart © 2016 David Teten. More at teten.com • Persistence, or "hanging around the hoop" • Personality • Business judgment • Adequate financial sophistication • Seniority and appropriate title • Internal power • Creativity The best originators are aggressive, indefatigable, and personable. http://www.flickr.com/photos/randysonofrobert/2552298739/ Attributes of Top Originators (descending order of importance)
    31. 31. Social Media Signals Network Next StepsIntro TraditionOrg Chart © 2016 David Teten. More at teten.com • Introduction • Organizational Structure • Traditional Deal Origination • Social Media • Signals of a Potential Investment • Growing Your Corporate Network • Next Steps Agenda
    32. 32. Social Media Signals Network Next StepsIntro TraditionOrg Chart © 2016 David Teten. More at teten.com Sourcing the Deal, Merrill Corp./The Deal, May 2010 Professional relationships drive the great majority of deal flow. What is the most important process your company's internal group uses to locate possible deals?
    33. 33. Social Media Signals Network Next StepsIntro TraditionOrg Chart © 2016 David Teten. More at teten.com Intermediaries refer deals to funds primarily in the hopes of future revenues. • Possibility of future revenue • Integrity • High certainty to close • Responsiveness • “Fair” treatment of sellers • Experience with the industry or owner type • Friendship • Candid feedback • Maintaining a single point of contact http://www.flickr.com/photos/extranoise/3382930813/ Top Reasons Intermediaries Refer Deals to Funds (descending order of importance)
    34. 34. Social Media Signals Network Next StepsIntro TraditionOrg Chart © 2016 David Teten. More at teten.com Companies favor a particular investor for the same reasons as an intermediary (see prior page), plus a range of other factors. • Economics • Added Value • “Two bites of the apple” • Brand • No extra costs, i.e., no portfolio company fees • Fair treatment of employees post-transaction • Long hold periods • Investor location http://www.biztimes.com/news/2007/8/3/choose-the-right-private-equity-firm, http://www.growthbusiness.co.uk/news/fundraising-deals/27442/part_2/private-equity-finding-a-match.thtml , http://www.flickr.com/photos/billselak/461062697/ Top Reasons Companies Select a Given Investor (in descending order of importance)
    35. 35. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com The right type of specialization boosts returns. Lossen, Ulrich, “The Performance of Private Equity Funds: Does Diversification Matter?” Munich School of Management, Institute for Innovation Research, Technology Management and Entrepreneurship. June, 2006. Ernst & Young. "How Do Private Equity Investors Create Value? A Study of 2006 Exits in the US and Western Europe". New York, NY/London. 2006. • The rate of return of PE funds declines with diversification across financing stages… • but increases with diversification across industries. • Diversification across countries has no systematic effect on performance. • In an Ernst & Young study of the largest PE deals of 2006, US investors reported that sector focus was an advantage in 2/3 of their deals, establishing credibility with management and helping to evaluate the growth potential of the target. • In Europe, investors reported that sector focus was an advantage in 25% of deals. • In both regions, these sector-focused deals performed above average.
    36. 36. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Differentiation makes origination more efficient. Selected Highly Differentiated Investing Strategies Strategy Example Co-investments with corporates Blackstone Group, Castle Harlan, Clayton Dubilier & Rice Executive-led transactions Frontenac Company, GTCR, Housatonic Partners Intellectual property Intellectual Ventures Spinning out processes from within Fortune 500 companies and setting them up as independent ventures Exigen Capital Deep focus from early to late stage in narrow vertical Andreessen Horowitz, Healthpoint Capital Minority-owned businesses AP Capital, ICV Capital Partners Women-owned businesses Hypatia Capital Family-owned businesses Heritage Partners Film financing Relativity Media Buying Western companies and outsourcing operations to China Crimson Ventures Distressed Searchlight Capital
    37. 37. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com • Build personal relationships with journalists • Have a clear point of view and area of expertise • Develop and publicize quotable white papers and other thought leadership pieces The best reason for deals to come to you is reputation. However, the bad news is: of 109 journalists surveyed, zero rated private equity firms “excellent” in communication. Haynes, Bill. “Making Media Count”. PrivateEquityOnline, April 7, 2009. Recommendations: Journalists’ Evaluation of PE Funds’ Communication Skills
    38. 38. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Almost no one sources deals from limited partners, except: • Funds who received most or all of their funding from one entity • VCs with universities as LPs • Executive funds (with preferential economics for executives who are friends of the firm) http://www.flickr.com/photos/somegeekintn/3709203268/
    39. 39. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com 30-50% of mid-market deals are typically club deals. Private Equity Club Deals as % of Total Number of Deals, by Deal Size (US) Pitchbook.com data through May 2010
    40. 40. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com VCs are also highly interlinked, and the great majority of VC investments are club deals. West Coast Venture Capital Funds Each tie=1 partner shared Asset Management Company’s Genealogy Chart, 1958-83, cited in “Social Networks in Silicon Valley”, Castilla, Hwang, Granovetter, and Granovetter, http://web.mit.edu/ecastill/www/publications/CastillaExtract.pdf Right cluster includes Kleiner Perkins, Crosspoint, H&Q VC, Institutional Venture Partners, Mayfield Left cluster includes Sierra Capital, Davis & Rock
    41. 41. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Selected Searchable Databases of PE/VC Funds You can identify potential co-investors through any of multiple online databases. All Investors Private Equity Venture Capital • Galantes • Grey House • LP Source • Pratt’s Guide • VentureXpert • Asia PE Research • Eurekahedge • Pitchbook • PrivateEquityFirms.com • ThompsonOne PE Module • Venture Capital • CB Insights • CrunchBase • PWC MoneyTree • TheFunded • VentureDeal • Asian VC Journal • Venture Source
    42. 42. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com VCs should focus on co-investing with the best investors in your target vertical. • VCs that are better networked at the time a fund is raised subsequently enjoy significantly better fund performance, as measured by rate of successful portfolio exits over 10 years. • Network “centrality” may be a better predictor of future performance than experience or exits. • 1 standard deviation improvement in network centrality improves probability of successful follow-on round or exit by 5.8% and performance by ~2.5%.* • The benefits of a heterogeneous syndicate are well known: complementary industry expertise and network; local or geographic expertise and network; validation of investment; and future reciprocity. However, VCs demonstrate a clear preference for syndicate homogeneity: investing with firms of similar “social status”, high geographic proximity and prior co- investments.** • We recommend you market yourself as the go-to co-investor for target sectors by developing proprietary insights and a deep network of key partners and talent. • Sell value-add to entrepreneurs and key “peer” firms and actively drive syndicate creation. * “Whom You Know Matters: VC Networks & Investment Performance”, Yael Hochberg, Alexander Ljungquist & Yang Lu, Aug 2005. Network Centrality – (1) # of VC ties; (2) frequency of co-investment invites; (3) access to the best connected VC’s; (4) ability to syndicate its own deals (5) ability to make new co-investor connections. Performance data correlation – exit rates & follow-on rounds. ** “Birds of a Feather or Celebrating Differences? The Formation and Impact of Venture Capital Syndication”, Qianqian Du, Mar 2009.
    43. 43. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Although we recommend PEs partner with corporates, we identified very few investors who systematically worked with corporations as sourcing partners. Case Study: Castle Harlan, $3b PE Fund • Howard Morgan, Co-President, reports they have executed four transactions in which a corporation was key to sourcing the deal. • "Typically the corporate is a co-investor, and Castle Harlan leads the transaction. Partnering with corporations is a pathway to them owning the asset outright. Usually that is not contractually guaranteed, but happens organically. From the point of view of the corporation, we’re a risk-mitigated way to get the asset. Hopefully when we sell the business it’s at a very different stage than when we got it. In particular, strategics don’t have resources or interest to deal with stressed entities. We do. "
    44. 44. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com FundCommitment Free Agent expenses+upside Rejected Executives Senior Advisor / Deal Executive expenses+upside Executive/Entrepreneur in Residence retainer+upside Portfolio Company / NewCo Management salary+upside Executive’s Income Expert Network / Interim Executive hourly comp Operating Partner salary+carry PE Fund Structural Options in Working with Operating Executives Private equity funds have a wide range of options in working with executives, many of which have no fixed cost.
    45. 45. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com based on table from Jon Weber, Anchorage Advisors LLC Senior Advisor Network vs. Traditional Talent Sources Senior advisor networks offer a low-fixed-cost, high-return talent pool option. Experts and Consultants Senior Advisor Network Executive Recruitment Relationship Owner Expert network / consultancy Fund Recruiting firm, then handed over to fund Duration 1–2 hours to 3 months 6 months–2 years+ Permanent job and board positions Sample Service Providers Gerson Lehrman, McKinsey, Evalueserve Notch Partners Heidrick & Struggles, Russell Reynolds, Ignition Search Partners Illustrative Cost $1,000/hr for expert networks $300–700/hr for consultants Sometimes retainer, sometimes paid like investment banker 1/3 compensation Driver of Exec Compensation Length of consultation Value creation and continued involvement with client companies Winning full-time employment Confidentiality NDA possibly. Consultant may “shop” ideas. Signed, enforceable NDA NDA unusual
    46. 46. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com U.S. Funds That Typically Partner with Executives to Execute a Transaction and Bring in New Management Upon Investing Data based on firm websites. Frontenac AUM based on last two funds. # Investments/Year based on mean activity level over firm’s existence, with some adjustment for growth of fund over time. Partnering with operating executives is a successful strategy which is a focus for only a small number of funds. Private Equity Fund Founded AUM ($m) Cum. # Investments # Deals/ Year (est.) GTCR 1980 $8,000 100 7 Wind Point Partners 1984 $2,000 80 5 Frontenac Company 1971 $875 200 5 Housatonic Partners 1997 $1,000 50 4 Prospect Partners 1998 $270 35 3 Red Diamond Capital 2002 $150 8 1 Post Capital Partners 2004 $100 7 1
    47. 47. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com We expect an increase in executive-led transactions. Many motivated sellers • Wave of baby boomers who must sell their businesses. >$10 trillion enterprise value of businesses to change hands in next 10 years. • High pent-up demand to divest by corporates.* Highly inefficient and undercovered market • Current players in Executive-Led Transactions niche small and financially unsophisticated. Easier to execute executive-led transactions • Large pool of senior executives who are un/underemployed, some of whom want to be owner-operators with PE backing. These executives are difficult to reach through conventional means. • Recent decision re: John Q. Hammons Hotels enables noncontrolling management to consummate MBO without searching judicial inquiry.** * PEP Digest, http://www.pepdigest.com/index.php?option=com_content&view=article&id=2990:better-deal-flow-in-2010-as-corporates-to-increase-divestitures&catid=34:news-to-know&Itemid=24 ** “Decision May Help Revive Management Buyouts”, Steven Davidoff, NY Times, http://dealbook.blogs.nytimes.com/2009/10/19/decision-may-help-revive-management-buyouts/
    48. 48. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Entrepreneurs-in-Residence are a powerful,underused model. • An EIR is typically a serial entrepreneur or top-flight executive that a venture capital firm would like to fund in his or her next venture. • According to many industry insiders, venture firms often get better returns from companies created by EIRs than they get by buying equity in existing startups. In the early years after Benchmark’s founding in the mid-1990s, approximately half the companies the firm funded were led by EIRs. Even without the firm’s breakout investment in eBay, its early funds would rank among the all-time best in the venture industry. Other firms with active EIR programs: Benchmark Capital, General Catalyst, Accel Partners, Bessemer Venture Partners, etc. • The EIR typically joins the fund for 6-18 months and reviews business plans alongside the venture capitalists at the fund. • The benefit of the program is that the entrepreneur gets an excellent window into the marketplace, access to the firm’s resources and network, and realtime feedback from the investment partners. • The venture capital fund gains the sector expertise of the EIR and has a front row seat to invest in the entrepreneur’s next venture.
    49. 49. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.comDavid Teten, Chris Farmer, Evalueserve, Y. Chung, N. Kumar. Ernst & Young. "How Do Private Equity Investors Create Value? A Study of 2006 Exits in the US & Western Europe“ In-house relationships are the #1 source of transactions. Unsurprisingly, PE investors rely on intermediaries far more than VCs. Primary Sources of Investments Similarly, Ernst & Young found that ¾ of the largest PE investments in 2006 resulted from proactive deal origination strategies; only 11% of the deals resulted from PE investors starting work during the formal sale process. "Better preparation, strength of relationship with target management, and sector focus were the most important factors cited in winning a deal."
    50. 50. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com A core group of intermediaries are typically highly influential in their focus sector; these are the people to know. • Lawyers • Private Bankers • Accountants • Recruiters • Insurance brokers • University Technology Transfer Offices 1999 IPO Deals from IPOData.com, cited in “Social Networks in Silicon Valley”, Castilla, Hwang, Granovetter, and Granovetter, http://web.mit.edu/ecastill/www/publications/CastillaExtract.pdf IPO Deals in California Information Retrieval Services Industry Each tie=firms worked together on at least one IPO Length of tie line inversely proportional to # IPOs worked on Wilson Sonsini; Brobeck; Cooley Godward; Goldman Sachs; Morgan Stanley; CS First Boston; Pricewaterhouse- Coopers; Ernst & Young
    51. 51. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Private equity funds use expert networks to originate deals in three main ways: Based on interview with Michael Duran, Gerson Lehrman Group, and other sources • Facilitate top-down, “rainmaker” sourcing strategies. Connect to senior industry executives. • Support bottom-up, “boil the ocean” sourcing strategies. An investment team can exhaustively call experts to identify all the companies in a target sector or geography. • Enable thematic sourcing strategies. Identify experts and consultants to help develop investment themes, map target markets, and engage market-leading firms.
    52. 52. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Generalists • Gerson Lehrman Group • Coleman Research Group • Guidepoint Specialty/Other Players • Advantus Global (Circle of Experts) • Intota • Kingfish Group • Primary Global Research • Primary Insight • Round Table Group Medical • MEDACorp (Leerink Swaan) • Sermo Selected Leading Expert Networks The expert network industry is the fastest-growing sector of the investment research sector, with aggregate revenues over $300m.
    53. 53. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Transaction count includes transactions which are not Executive-Led Transactions * Harvey has participated in 110 transactions, of which 35 were platform companies. ** The equity figure shown is only for platforms, not add-ons. *** Cook’s transaction sizes have ranged from $5m to $800m. The data above implies average platform deal size of $31m for Harvey. This in turn implies average transaction fee revenues of $740K, assuming double Lehman and ignoring carry. Some acquisition search firms also help source operating executives. Selected Acquisition Search Firms Firm Founded # of Transactions # Transactions/ Year Cumulative Equity Invested ($m) Harvey & Company 1998 110* 9.2 >$1,100** Dinan & Company 1988 95 4.3 NA Cook Associates, Inc.*** 1996 65 4.6 $1,000 ValuFinder Group 1979 47 1.5 NA Richard Vander Kaay & Associates 1982 33 1.2 NA Notch Partners 2002 NA NA NA
    54. 54. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Acquisition search firms are significant resources for private equity funds, but must be managed carefully. Advantages vs. Disadvantages of Acquisition Search Firms Advantages Disadvantages Value-Add Increased flow of deals and investment opportunities Typically do not provide advice on valuation/structuring/negotiation, unlike a traditional investment banker Costs No fixed cost, other than (sometimes) retainer Additional layer of costs (typically 1% to 2% of the enterprise value) Focus Can be highly focused Can deluge a fund with inappropriate deals unless used in a focused way Database Large database in which to fish Accused by some funds of exploiting the buyer’s name to grow their own database Motivation Highly motivated Typically motivated only to close a deal, not by the quality of the deal
    55. 55. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Almost no PE funds reported using business brokers. Advantages vs. Disadvantages of Business Brokers Advantages Disadvantages Value-Add Introductions "They can't provide financing." Costs Lower fees, typically in the range of 1% of enterprise value "They can create situations where there is an auction, which is not our preferred way of buying." Focus Helpful for sourcing small targets (typical value <$10m) "The businesses (and the brokers themselves) are usually not very sophisticated." Database Price of the selling company is typically lower "The transaction can be quite unstructured and unsafe, and documentation is poor." Motivation Get the deal done "They can get in the way and muddy the waters. They can delay negotiations and make communications more difficult.“ "They can play games: the broker will say they represent a $20m Chicago company. Then we buy a $30m Chicago company, and they say it's the same firm because it grew a bit. We've had problems like that."
    56. 56. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com We expect transaction volume and value in the secondaries market to increase. For unregistered securities in private companies, secondary transaction volume declined approximately 57% to $2.4 billion in 2009 vs. $5.7 billion in 2008. • Approach a fund directly, particularly one that is in distress. • Look on the markets for secondary interests, such as SecondMarket, NYPPEX, and the PORTAL Alliance. • Approach investment banks specializing in secondary interests, such as Cogent Partners, Probitas, and Triago. Where to Buy Secondaries NYPPEX Private Markets, "2009 Secondary Private Market Review and 2010 Outlook". New York, NY, January 8, 2010.
    57. 57. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com We recommend also using traditional marketing techniques. Westshore Capital Partners; Weinbach Group • Use physical collateral. The best collateral has a long life, is creative, and has a tie to your funds’ model or portfolio. • Choose targeted names. e.g., iFund, GreenTech (KPCB), FbFund, MailRoom Fund (Accel), and FTV Capital (FinTech) • Leverage existing brands, e.g., recruit prominent leaders to your fund: Kleiner Perkins (Ray Lane and Al Gore), Maveron (Howard Schutz), and Polaris (Bob Metcalfe).
    58. 58. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com We identified almost no instances of a successful company that started as a business plan contest winner. http://flickr.com/photos/crincon/1143195754/sizes/l/
    59. 59. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Funds with cold-calling programs are consistently top-quartile performers. http://www.flickr.com/photos/23439761@N03/3258313816/sizes/l/ • Focus on geographies/sectors that are undercovered by peer firms. • Maintain clear criteria and metrics to ensure that the relationships being developed have a reasonable likelihood of yielding investments, and stick with them. • Institute a formal CRM system, tied to a formal deal tracking program. • Directly tie compensation to developing and maintaining the database; volume of flow; and quality of flow. • Require regular follow-up with priority companies. • Organize scheduled reviews with partners and sector teams. • Maintain consistent dialogue with key prospects and sources. • Use multiple outreach methods: phone, email, fax, overnight mail, etc., in order to get the attention of the person you’re targeting. Key Steps for a Successful Cold Calling Program
    60. 60. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Based on Bruner, Robert F., Applied Mergers and Acquisitions. New York: John Wiley & Sons, 2004. Page 90. You can identify target companies with four major techniques: Listen to markets (“top down”) Listen to firms (“bottom up”) Start with Data (“inside out”) Observe a pattern of attractive performance in a certain sector, e.g., past successful investments by your competitors. Analyze performance results for sectors of the market, then drill down to the most attractive companies. Analyze performance of individual companies, and seek to identify common causal patterns Start with ideas (“outside in”) Start with a theme you believe in, e.g., the aging of Western populations. Investigate the implications of your theme on your industries of interest. Investigate the implications of your theme on your companies of interest.
    61. 61. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Sample Market Mapping Approach Market mapping is a powerful way to identify white space. # Stage Example 1 Choose industries and geographies of initial interest Global growth equity fund with focus on North American and Japan. 2 Define your proprietary point of view. Thesis: Population in developed countries is aging rapidly. 3 Translate into investment theme for specific industries and/or geographies of interest. We expect growth of financial services providers with low-risk investing products. 4 List major players in target industries/geographies, and how each will be impacted by investment themes. Asset managers with expertise in annuities and fixed income products will likely benefit. 5 Iteratively improve market map based on feedback from industry Publish elements of the market map to key sector players through industry forums and mass media. 6 Determine which activities along the value chain offer the highest return (typically the proprietary ones). Develop deep ties in the brokerage community that distribute low risk financial products. 7 Identify areas of future growth. Fund researches bolt-on acquisitions while diligencing its primary target. 8 Assess fit with Fund’s strategy. Local geographic leader that would benefit from Fund’s global reach. 9 Regularly update the market map based on market feedback and lessons from investment prospects. Maintain internal wiki or database regularly updated with key market data and insights.
    62. 62. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Market Map: Social Networking, mid 2005 (Stylized, Simplified Map) This chart is purely illustrative and is not intended to be exhaustive.Geography Target Market US Europe Asia Business Dating Social LinkedIn Xing Facebook, myspace Friendster Match.com Plentyoffish StudiVZ identified a hole in the market for a Germanophone social network, built it, and sold it for over $100m in under 2 years.
    63. 63. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Quality Products Customer Segment Distribution Channel Contextual information about each company to include: • Management strength • Product strength • Client desirability • Financial returns Market maps should be built along the most pertinent axes of differentiation within an industry.
    64. 64. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Peter Drucker, Innovation and Entrepreneurship Peter Drucker identified seven sources of innovation opportunity: First four are within the enterprise --- essentially symptoms: 1. The unexpected success, failure or outside event. 2. The incongruity between reality as it actually is and reality as it is assumed to be, or as it "ought to be." 3. Innovation based on process need 4. Changes in industry structure or market structure that catch everyone unawares Second set involve changes outside the enterprise or industry: 5. Demographics (population changes) 6. Changes in perception, mood and meaning 7. New knowledge, both scientific and nonscientific.
    65. 65. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Sources of Entrepreneurial Ideas • Pattern recognition • Active search • Alertness • Prior knowledge • More than 70% of entrepreneurial businesses have their roots in the founder’s last job* * http://innovation.utdallas.edu/documents/OpportunityEvaluation.pdf: http:/www.flickr.com/photos/nasonurb/3372990703/ It is far easier to identify entrepreneurial ideas in areas where you have expertise.
    66. 66. Signals Network Next Steps Warm – Lukewarm – Ice Intro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Carl Icahn, #2 richest man in New York icahnreport.com The last option for buying a company is: make an offer to take private a public company.
    67. 67. Social Media Signals Network Next StepsIntro TraditionOrg Chart © 2016 David Teten. More at teten.com • Introduction • Organizational Structure • Traditional Deal Origination • Social Media • Signals of a Potential Investment • Growing Your Corporate Network • Next Steps Agenda
    68. 68. Social Media Signals Network Next StepsIntro TraditionOrg Chart © 2016 David Teten. More at teten.com Traditional outbound marketing still works, but less effectively. • Spam filters, email filters, and Gmail Smart Inbox make it less likely executives see unsolicited emails. • Caller ID and Google Voice make it easier to filter calls. • As networks become more visible and searchable, it becomes less likely that someone who contacts you without an introduction is a worthwhile person with whom you should talk. http://www.slideshare.net/mzkagan/what-is-social-media-2005829 . http://www.flickr.com/photos/sreejithk2000/2385193167/sizes/l/
    69. 69. Social Media Signals Network Next StepsIntro TraditionOrg Chart © 2016 David Teten. More at teten.com Social media technologies are pertinent throughout the investing cycle. Investing Cycle Use of Social Media Raise capital • Identify value-added potential investors & find a path to them • Solicit past investors in both your prior and comparable funds Originate investments • Identify and reach out to relevant people & companies • Become a magnet for investment opportunities Due diligence • Review professional and personal lives of management • Talk with firm’s network: customers, competitors, suppliers Negotiate Deal • Gain insight into counterparty’s negotiating style, motivations Improve operations • Recruit “A” performers • Accelerate sales and marketing Exit investment • Identify and more effectively negotiate with strategic acquirers How Investors Are Using Social Media
    70. 70. Signals Network Next StepsIntro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com • Introduction • Organizational Structure • Traditional Deal Origination • Social Media • Signals of a Potential Investment • Growing Your Corporate Network • Next Steps Agenda
    71. 71. Signals Network Next StepsIntro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Attractive investments typically demonstrate some of the attributes below, which are visible or scrapeable online. Industry Rapid growth in industry revenues Fragmented market suitable for acquisition Performance Rapid growth in revenues and/or profits Geographically concentrated Management Experienced, proven management team Business Model #1 or #2 market share in industry, or at least potential to reach that status Sample Growth Signals Sample Liquidity Signals Status of major equity owner Large corporation shedding subsidiaries Death, disease and divorce (“the Three Ds”) Status of CEO Older CEO seeking retirement Industry/economic trends Consolidation in industry
    72. 72. Signals Network Next StepsIntro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Effective use of social media and other research tools allows you to filter for companies who are flashing signals that they are interested in your capital. http://flickr.com/photos/krikit/2745563123/sizes/o/
    73. 73. Signals Network Next StepsIntro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Signals from the Status of Major Equity Owner • Private equity firm in need of exit • Corporation in distress / seeking to divest assets • Short-term tax incentive • Succession battle • Death, Disease, Divorce (“the Three D’s”)
    74. 74. Signals Network Next StepsIntro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com • Serial entrepreneur seeking new challenge • CEO becoming tired, aged, and/or acknowledging limits of his or her competence • Death, Disease, Divorce Signals from the CEO
    75. 75. Signals Network Next StepsIntro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Signals from Corporate Performance: Rapid growth http://flickr.com/photos/laserstars/908946494/sizes/o/
    76. 76. Signals Network Next StepsIntro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Signals from Corporate Performance: Underperformance http://flickr.com/photos/carve/2856365431/sizes/l/
    77. 77. Signals Network Next StepsIntro TraditionOrg Chart Social Media © 2016 David Teten. More at teten.com Signals from Industry/Economic Trends • Consolidation • Competitors raising capital/exiting • Company has large short-term growth opportunities which it cannot readily exploit with existing capital resources • Growth Sector (e.g., alternative energy) • Inadequate access to credit is impeding ability to finance normal operations
    78. 78. Social Media Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro TraditionOrg Chart © 2016 David Teten. More at teten.com • Introduction • Organizational Structure • Traditional Deal Origination • Social Media • Signals of a Potential Investment • Growing Your Corporate Network • Next Steps Agenda
    79. 79. Social Media Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro TraditionOrg Chart © 2016 David Teten. More at teten.com Firms typically fail to capitalize on their internal and external networks. Forrester Research/David Teten and Scott Allen, The Virtual Handshake: Opening Doors and Closing Deals Online (www.TheVirtualHandshake.com) • Knowledge not readily searchable • Knowledge not retained when employees leave • Relationships not visible • Relationships primarily tied to colocated people; people in other offices can’t leverage that knowledge and the relationships that underly them • Millennials expect and embrace social technologies, and are disappointed and less productive when they are missing Failures of Existing Corporate Networks
    80. 80. Social Media Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro TraditionOrg Chart © 2016 David Teten. More at teten.com David Teten and Scott Allen, The Virtual Handshake: Opening Doors and Closing Deals Online (www.TheVirtualHandshake.com) Ch = Character Co = Your Firm’s Competence R = Relevance of the contact S = Strength of your relationship I = Information N = Number of people D = Diversity = D * ∑ (Chn*Con *Rn* Sn*In) N n=1 Corporate Network Valuation Formula
    81. 81. Social Media Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Intro TraditionOrg Chart © 2016 David Teten. More at teten.com Average Strength = Minutes Available / Person therefore… Total Minutes Available = Average Strength * Number of People You need to balance Strength and Numbers. vs.
    82. 82. Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Social MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com Biography analysis software allows you to search by common affinity and more effective subsequent outreach. • Boardex • Klout* • LinkedIn • Saleforce Data.com • Pipl • Relationship Science • ZoomInfo Leading Providers of Biography Analysis Data * ffVC portfolio company
    83. 83. Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Social MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com • CogMap • Glassdoor • TheFunded • TheOfficialBoard Corporate analysis software provides an insider view of the org chart, compensation, and customer views of a company. Leading Providers of Corporate Analysis Data
    84. 84. Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Social MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com David Teten and Scott Allen, The Virtual Handshake: Opening Doors and Closing Deals Online (www.TheVirtualHandshake.com) • Daniel Zumino, founder of BCG Paris and angel investor, had made a small investment in a startup • November 1999: He sent email to Stanford GSB alumni list seeking capital for the startup • March 2000: Raised $8m through referral from alumni, via this list service Case study: A set of angel investors sourced a transaction and invested $8m via an alumni email list.
    85. 85. Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Social MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com 10-15% of the active VC population of 1,000 blog and tweet. Jeff Bussgang, Flybridge Capital Partners . http://www.pehub.com/59953/why-do-vcs-blog-and-tweet/ . http://techcrunch.com/2010/01/14/top-ten-vc-blogs-q409/ Top VC Blogs, Average Monthly Unique Views (4Q09)
    86. 86. Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Social MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com Best Practices in VC Blogging (written humorously, but still good advice) Hi, I’m a tech VC on Twitter. I’m @xyzvc My icon is cool. It’s a painting/cartoon/wacky photo. Shows that I’m hip and approachable. But when I meet with you, I’ll still crush your dreams. I tweet about technology, but occasionally post personal stuff. Important to show I have a sensitive side and care about more than just making tons of dough. I use # tags, sometimes as a funny form of emphasis. Kind of like a wink and a smile ;) #donttakethisposttooseriously I love Twitter because I can broadcast my blog posts. Otherwise, no one would read them! I blog at xyzvc.com! I tweet blog posts with advice on fundraising, customer acquisition, and company building. Usually, someone really smart has said it before and said it better. But I haven’t been in Hacker News for a while, so I figured there is no harm reinventing the wheel. Retweeting is fun. It’s like a virtual high-five. I retweet the posts of my partners, coinvestors, and entrepreneurs I’ve backed. Oh, I also retweet posts from guys whose butts I’m currently kissing so that they will like me. I really hope @fredwilson retweets this… I’d get so many new followers! My portfolio companies are the best. I will share so much of their good news with you it will make you want to unfollow me (unless you are a co-investor, in which case you will probably RT and add a #) If a portfolio company is doing bad, no Twitter love. It’s like going to Disneyworld and trying to find Hercules or Mulan. It’s like they never existed. I also tweet about the cool places I’ve been (via Foursquare and Gowalla), things I buy (via Swipely and Blippy), and the cool places I’m going to go (via Plancast). Wow, that’s a lot of tweeting! That’s why I also tweet about how busy I’ve been and how little I’ve slept. It’s a tough life. Full disclosure, I’ve been a tech VC and I’ve done most of these things. Hi, I’m a tech VC on Twitter (by Rob Go, NextView Ventures) http://www.robgo.org/post/890368565/hi-im-a-tech-vc-on-twitter
    87. 87. Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Social MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com We recommend search engine optimizing both your firm site and the internet presence of the individuals who work there. • Scan targets’ sites to understand the language that they use when searching. • Use keywords Inconsistently. • Name what you’re selling. • Optimize top of the page. • Accuracy matters. • https://adwords.google.com/select/KeywordToolExternal http://flickr.com/photos/neilt/2517652/sizes/o/ Search Engine Optimization 101
    88. 88. Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Social MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com Relationship capital management software helps lever corporate networks. Relationships ranked by Strength Automatically discovered from passive sources See which colleagues have best relationships to target Privacy Access Layer configured for firm’s culture Search for people, companies, industries Email traffic patterns, address books, billing systems, employment history, etc. Contact Networks (Thomson Reuters) Examples: Hubbard One ContactNet, Leverage Software Hubbard One ContactNet Screenshot
    89. 89. Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Social MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com • Phone • Email • Web conferencing • Instant messaging • Internet telephony (e.g., Skype) • SMS • Twitter Using multiple media channels promotes stronger trust- building. Caroline Haythornthwaite, “Strong, Weak, and Latent Ties and the Impact of New Media,” The Information Society, 18 ( 2002) 385–401. http://flickr.com/photos/re-ality/41676755 Major Media Channels for Origination (descending order of importance)
    90. 90. Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Social MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com Meetup creates opportunities to meet face-to-face.
    91. 91. Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Social MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com A CRM system is useless without compliance. • Senior management role modeling. • Ensure CRM generates direct value to users, e.g., by providing annual updating of information by admin staff. • Base part of compensation on compliance. • Tie compensation to firm performance, not individual performance. • Make data entry easy, e.g., by enabling sync to mobile devices. • Allow easy data export (controversial but not unheard of.) How to Ensure Use of CRM
    92. 92. Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Social MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com Well managed pipelines allow for use of a wide range of analytics to track dealflow. • Activity Measures: # Phone calls made; # Phone connects with management/board members; # Meetings; # Deals brought to Monday morning meeting; # Memos with approved budget for due diligence; # Indications of Interest; # Letters of Intent sent; #Letters of Intent signed; # closed transactions • Deal flow by source • Pipeline analytics: Conversion ratios (from each stage of the pipeline to the next); Proprietary vs. non-proprietary deals; Response time • Industry benchmarking measures: Percentage of deals seen completed by any firm; % of all deals consummated across the industry that fund would have considered which the fund saw Selected Dealflow Analytics
    93. 93. Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Social MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com Effective originators are data hounds Tools for Assimilating Data into Your Contact Relationship Management (CRM) System Data source Selected technology for inserting data into CRM Cards FullContact Data Enrichment Avention, ClearBit, Cloze, Data.com, Discover.ly, Evercontact, Introhive, LeadIQ, Plaxo, Ringlead, Salestools.io, SalesOps, VibeApp, DiscoverOrg Other LinkedIn Full CRM Microsoft Dynamics, Salesforce, SalesforceIQ, Act, Base, many others
    94. 94. Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Social MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com Originators use blog and web readers to filter the data deluge. Selected Web Analysis and Filtering Tools • Feedly • AskWonder (ffVC company) * ff VC portfolio company
    95. 95. Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Social MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com Senior executives prefer to interact online behind barriers to lower-level personnel, just as they do within traditional networks. Sample Gated Communities for Executives • IERG Online • Executive Forum • Sermo • Some LinkedIn groups
    96. 96. Signals Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity Social MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com Investors can also connect with one another via online gated communities. Sample Gated Communities for Investors Angel Group Platforms Angel Communities Consumer Loans Private Equity Public Gust AngelList LendingClub Association for Corporate Growth Albourne Village Proseeder CircleUp Prosper Axial FT Alphaville Long Room FundersClub Intralinks Deal Nexus Sum Zero OurCrowd MergerMarket Value Investors Club SeedInvest
    97. 97. Signals Network Next StepsSocial MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com • Introduction • Organizational Structure • Traditional Deal Origination • Social Media • Signals of a Potential Investment • Growing Your Corporate Network • Next Steps Agenda
    98. 98. Signals Network Next StepsSocial MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com Social media is a better platform for starting and researching transactions. Parameters Face-to-Face Social Media Character Judge by a handshake SEC filings Competence Personal resources Enterprise resources Relevance Semi-random Focused, searchable Strength Limited channels Multi-media Information Poor visibility Detailed, current data Number Small Large Diversity Restricted by time, space Crosses time & space Moving Deals Forward Face-to-Face vs. Online
    99. 99. Signals Network Next StepsSocial MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com 1. Analyze your network using the Seven Keys. 2. Use Market Mapping to develop deep, proprietary insights in target industry sectors. 3. Monitor target ecosystem for cyclical opportunities and structural shifts. 4. Align internal interests, e.g. provide performance-based compensation tied to origination metrics. 5. Divide and conquer. Assign responsibility for key relationships. Focus team by sectors/stages/structures. Consider dedicated origination professionals. 6. Centralize data and become an Information sponge. Install a CRM system. Record emails, phone numbers, the notes you take in meetings, and everything else you can about the people you know. 7. Develop a network with limited overlap. Focus on building relationships with people who do not know too many of your competitors, or know too many of one another. 8. Take control of your virtual presence. Make sure that when people look for you online, which they will, your image is both accurate and flattering. Keep your profile updated. 9. Join the in-person and virtual communities where your target market lives. Once you have joined one group, ask the members where else they connect with like-minded people. 10. Take a leadership role. Market yourself as the go-to co-investor for target sectors and geographies by developing proprietary insights, a deep network of key partners and talent, and other assets. Sell value add to entrepreneurs and key “peer” firms and actively drive syndicate creation. Write a blog to cover your domain, and perhaps create a virtual community around your unique interests. Ten Simple Steps to Improve Your Deal Origination
    100. 100. Signals Network Next StepsSocial MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com Any questions ? slides at teten.com/deals Sign up for the mailing list at teten.com @dteten
    101. 101. Signals Network Next StepsSocial MediaIntro TraditionOrg Chart © 2016 David Teten. More at teten.com A representative of an asset management firm (“Firm”) is providing this presentation for informational purposes to the intended audience. Nothing in this presentation shall constitute an offer or solicitation with respect to the purchase or sale of any security in any jurisdiction nor should anything in this presentation form the basis of, or be relied upon for, making any investment decision. Nothing in this presentation constitutes professional and/or financial advice of any kind (including business, employment, investment advisory, accounting, tax, and/or legal advice), nor does any information in this presentation constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. This presentation and the information contained herein are provided “AS IS”. The Firm and the presenter make no representation or warranty (express or implied) with respect to the information contained herein (including, without limitation, information obtained from third parties) and expressly disclaims any liability based on or relating to the information contained in, or errors or omissions from, these materials; or based on or relating to the recipient’s use (or the use by any of its affiliates or representatives or any other person) of these materials; or based on any other written or oral communications transmitted to the recipient or any of its affiliates or representatives. The Firm and the presenter undertake no duty or obligation to update or revise the information contained in this presentation. Disclaimer

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