1
David Teten
Managing Partner, HOF Capital
PEVCTech.com
HOF.capital // @HOFCapital
teten.com // @dteten
April 2017
The Vi...
© 2017 David Teten. 2
Don’t Take Notes!
Download the slides at teten.com/pevctech .
© 2017 David Teten. 3
David Teten
 Managing Partner, HOF Capital
 Previously Partner for six years, ff Venture Capital,
...
© 2017 David Teten. 4
International platform
Cross-border investment team fluent in 8 languages
Semi-automated, data-dr...
5
Source: The Small World of Investing: Board Connections and Mutual Fund Returns; Lauren Cohen, Andrea Frazzini, and Chri...
6
PE/VC Investors Are In General Decades Behind
Our Public Markets Brethren In Use of
Technology
 Quantitative, tech driv...
7
1. Market Fund
2. Raise Capital
3. Originate
4. Due Diligence
5. Negotiate
6. Monitor
7. Improve Operations
8. Exit
http...
8
 Build personal
relationships with
journalists
 Have a clear point of view
and area of expertise
 Develop and publici...
9
Influitive rigorously tracks, activates and
motivates influencer networks.
10
Meyler Capital Is Taking the Analytical
Rigor of Modern Internet Marketing and
Apply It to Fund Marketing
11
http://www.flickr.com/photos/23439761@N03/3258313816/sizes/l/
Social Media Allows You to Convert
Cold Calls to Warm Cal...
12
Why Should I Care About Social Media?
 Social media is now #1 online activity for Americans
 74% of online adults use...
13
But I Don’t Use Social Media, and Neither Do
(Most Of) My Co-Investors, Investment
Bankers, and Portfolio Executives!
...
14
10-15% of the Active VC Population of 1,000
Blog and Tweet; Some Individual Bloggers
Are As Influential As Entire Group...
15
Best Practices in VC Blogging
(written humorously, but still good advice)
 Hi, I’m a tech VC on Twitter. I’m @xyzvc
 ...
16
Private Equity Funds Are Not Usually
Taking Full Advantage of Technology
Tools; MCM Capital is an Exception
 Tools
 T...
17
MCM Capital Has Significantly Raised
Their Profile to Potential Companies and
LPs Via Their Social Media Presence
 Tra...
18
Healthpoint Capital Is A Much Larger
Fund Investing Significant Resources
Into Their Social Media Presence
 $750m fund...
19
Search Engine Optimize Both Your Firm Site
and the Internet Presence of Your Team
 Scan targets’ sites to understand
t...
20
1. Market Fund
2. Raise Capital
3. Originate
4. Due Diligence
5. Negotiate
6. Monitor
7. Improve Operations
8. Exit
htt...
21
Investor Network Valuation Formula
David Teten and Scott Allen, The Virtual Handshake: Opening Doors and Closing Deals ...
22
Average Relationship Strength = Minutes Available / Person
Number = # People
therefore…
Sales Is About Quality, Not Qua...
23
Always Be Closing
Alec Baldwin in Glengarry Glen Ross
http://www.onlygoodmovies.com/blog/thoughts-on-film/glengarry-gle...
24
Social Media Is A Better Platform for Starting
and Researching Transactions
Parameters Face-to-Face Social Media
Charac...
25
A Number of Companies Are Working to
Create Online Communities Where LPs and
GPs Can Meet; This Model Is Not Yet Proven...
26
CRM Applications Used by Private Equity Funds
EquityTouch. ACG Events Survey Analysis, 2009. Available at www.touchahea...
27
Effective Capital-Raisers Are Data Hounds
Tools for Assimilating Data into Your
Contact Relationship Management (CRM) S...
28
Numerous Providers Have Built Custom CRM
Solutions for PE/VC Funds
 Backstop Solutions
 Equitytouch
 Evolved Capital...
29
Well Managed Pipelines Allow for Use of A
Wide Range of Analytics to Track
Opportunity Flow of Both Potential LPs and
C...
30
A CRM System Is Useless Without Compliance
 Most important: senior management must role model use of CRM.
 Ensure CRM...
31
 Phone
 Email
 Web conferencing
 Instant messaging
 Internet telephony
(e.g., Skype)
 SMS
 Twitter
Using Multipl...
32
Target Investors Who Are One Step
Removed From You
 By geography
 By industry
 By personal
characteristics
http://50...
33
Maintain Visibility to LPs
 Keep records updated in the major data-trackers tracking the VC industry,
e.g., CB Insight...
34
1. Market Fund
2. Raise Capital
3. Originate
4. Due Diligence
5. Negotiate
6. Monitor
7. Improve Operations
8. Exit
htt...
35
Acquirer/
Investor
Angel groups
using Angelsoft
[i]
HOF
Capital
Blackford
Capital [ii]
TA Associates
[iii]
Highland
Cap...
36
Sourcing the Deal, Merrill Corp./The Deal, May 2010
Professional Relationships Drive the Great
Majority of Deal Flow
Wh...
37
Firms Typically Fail to Exploit Their Internal and
External Networks
Forrester Research/David Teten and Scott Allen, Th...
38
 Searchable
 Crosses boundaries
of time and space
 Passive presence
 Ease of forming groups
 Reduced time and expe...
39
A Host of Startups Want to Be the
“Bloomberg of Private Companies”
 Among those focused on early-stage companies are B...
40
Some VCs Are Trying to Build the Equivalent of
Quantitative Hedge Funds
 Examples include: Correlation Ventures, Googl...
41
Angel Group
Platforms
Angel
Communities
Consumer
Loans
Private Equity Public
Gust AngelList
LendingClub
Association
for...
42
 Yahoo Groups
 Google Groups
 LinkedIn
Online Community Platforms
 Ning
 Xing
Every Special Interest Group Has An
...
43
Senior Executives Prefer to Interact
Online Behind Barriers, Just As They
Do In Face-to-Face Networks
Sample Gated Comm...
44
David Teten and Scott Allen, The Virtual Handshake: Opening Doors and Closing Deals Online (www.TheVirtualHandshake.com...
45
Successful Crowdfunding Campaigns Are A
Sign of An Investable Company or Space
* ff VC portfolio company
Interaxon* Cam...
46
Relationships with investment banks drive deal
flow for many investors, but leave them
vulnerable to the winner’s curse...
47
1. Market Fund
2. Raise Capital
3. Originate
4. Due Diligence
5. Negotiate
6. Monitor
7. Improve Operations
8. Exit
htt...
48
Biography Analysis Software Allows You
to Search by Common Affinity and More
Effective Subsequent Outreach
 Boardex
 ...
49
Online Background Check Companies Do
Some of the Due Diligence for You
 HireRight
 Onfido
 OutsideIQ
(focused on
inv...
50
AskWonder* provides custom research on
marketing sizing, competitors, etc.
* ffVC portfolio company
51
Earnest Research* provides powerful analytics
based on their proprietary data sets, e.g., credit
card transaction data
...
52
Other Data Sets
 To quantify consumer trends and market opportunities, we use
IBIS World and eMarketer for “top down” ...
53
1. Market Fund
2. Raise Capital
3. Originate
4. Due Diligence
5. Negotiate
6. Monitor
7. Improve Operations
8. Exit
htt...
54
We Want Management Teams to Understand
the Implications of Different Deal Structures
 Venture Dealr is a helpful tool ...
55
Steps to Negotiation
 We gain insight into the management style of portfolio company
management by assessing their soc...
56
GF Data Resources Uses A Unique
Clearinghouse Model to Provide Clients With
Financial Multiples for Mid-Market Private
...
57
Virtual Data Rooms Speed Up Deal Making
 CapLinked, Intralinks, Merrill Datasite, SecureDocs, and RR Donnelley
Venue a...
58
1. Market Fund
2. Raise Capital
3. Originate
4. Due Diligence
5. Negotiate
6. Monitor
7. Improve Operations
8. Exit
htt...
59
Tools for Tracking Portfolio Investments
 Some family offices and other investors use Addepar* to gather and track
the...
60
EShares Is An Increasingly Popular Tool In Our
Portfolio for Tracking Cap Tables
61
ffVC Spun Off TotemVC, An
Investment Monitoring Platform
 ff Venture Capital built an in-house tool, Totem, which cent...
62
1. Market Fund
2. Raise Capital
3. Originate
4. Due Diligence
5. Negotiate
6. Monitor
7. Improve Operations
8. Exit
htt...
63
Selected Searchable Databases of Private Equity and VC Funds
We Proactively Identify Potential
Co-Investors Through Any...
64
1. Market Fund
2. Raise Capital
3. Originate
4. Due Diligence
5. Negotiate
6. Monitor
7. Improve Operations
8. Exit
htt...
65
Improving Exits
 ExitRound helps early stage companies identify buyers.
 A range of companies are trying to make the ...
66
Any questions ?
slides at
teten.com/pevctech
HOF.capital
@HOFCapital
teten.com
@dteten
67
→A representative of an asset management firm (“Firm”) is providing this presentation for
informational purposes to the...
Upcoming SlideShare
Loading in …5
×

The Virtual Handshake: How Private Equity & Venture Capital Investors Are Using Technology to Make Better Investments

4,480 views

Published on

The Virtual Handshake: How Private Equity & Venture Capital Investors Are Using Technology to Make Better Investments

0 Comments
7 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
4,480
On SlideShare
0
From Embeds
0
Number of Embeds
1,104
Actions
Shares
0
Downloads
252
Comments
0
Likes
7
Embeds 0
No embeds

No notes for slide

The Virtual Handshake: How Private Equity & Venture Capital Investors Are Using Technology to Make Better Investments

  1. 1. 1 David Teten Managing Partner, HOF Capital PEVCTech.com HOF.capital // @HOFCapital teten.com // @dteten April 2017 The Virtual Handshake: How Private Equity and Venture Capital Investors are Making Better Investments with Technology http://www.flickr.com/photos/23905174@N00/2438005410/
  2. 2. © 2017 David Teten. 2 Don’t Take Notes! Download the slides at teten.com/pevctech .
  3. 3. © 2017 David Teten. 3 David Teten  Managing Partner, HOF Capital  Previously Partner for six years, ff Venture Capital, one of the top four consistently best-performing seed- and early-stage VC firms in the U.S. (Currently continuing as Venture Partner)  Previously serial fintech 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
  4. 4. © 2017 David Teten. 4 International platform Cross-border investment team fluent in 8 languages Semi-automated, data-driven technology infrastructure Already co-invested with 7 leading VC funds in the same round with the same terms, including 8VC, Bessemer Venture Partners, First Round Capital, and Matrix Partners Strategic global enterprise LP network, including the Orascom Group, the Godrej Group, and Dallah Al Baraka to help scale portfolio investments into previously unattainable markets $9m+ of additional capital committed to the management company by the anchor LP to support and scale up operations HOF Capital: Uniquely Positioned to Outperform
  5. 5. 5 Source: The Small World of Investing: Board Connections and Mutual Fund Returns; Lauren Cohen, Andrea Frazzini, and Christopher Malloy,2008 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 Connected Holdings=Stocks for which managers had the strongest connection to senior officials (same school at same time with samedegree) Excess return=total gain minus the Treasury billreturn Investors Earn Higher Returns by Investing In People They Know; Technology Helps You Find the Right People to Know Mutual Fund Managers’ Excess Returns in Companies Run by College/Graduate School Classmates vs. All Other Companies
  6. 6. 6 PE/VC Investors Are In General Decades Behind Our Public Markets Brethren In Use of Technology  Quantitative, tech driven investment makes sense  But: it is structurally very difficult  The private markets are more opaque.  In VC specifically, early-stage companies are often operating in frontier industries where conventional analytic frameworks may be misleading.
  7. 7. 7 1. Market Fund 2. Raise Capital 3. Originate 4. Due Diligence 5. Negotiate 6. Monitor 7. Improve Operations 8. Exit http://www.flickr.com/photos/23905174@N00/2438005410/ The 8 Steps of the Private Company Investing Process
  8. 8. 8  Build personal relationships with journalists  Have a clear point of view and area of expertise  Develop and publicize unique content The Best Reason for Deals to Come to You Is Reputation. However, 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
  9. 9. 9 Influitive rigorously tracks, activates and motivates influencer networks.
  10. 10. 10 Meyler Capital Is Taking the Analytical Rigor of Modern Internet Marketing and Apply It to Fund Marketing
  11. 11. 11 http://www.flickr.com/photos/23439761@N03/3258313816/sizes/l/ Social Media Allows You to Convert Cold Calls to Warm Calls
  12. 12. 12 Why Should I Care About Social Media?  Social media is now #1 online activity for Americans  74% of online adults use social networking sites  LinkedIn is increasingly popular, with 28% of adult internet users as members, up from 22% in 2013. The site continues to be particularly popular among college graduates, those in higher-income households and the employed. http://www.pewinternet.org/fact-sheets/social-networking-fact-sheet/ http://mashable.com/2013/08/15/popular-online-activities/#UyXmgunqU8qZ
  13. 13. 13 But I Don’t Use Social Media, and Neither Do (Most Of) My Co-Investors, Investment Bankers, and Portfolio Executives!  The reality: you and your target investors are in the social media matrix whether you like it or not.  Your candidates search for you on Google before doing business with you.  You are already a member of gated online communities, which you may or may not be fully leveraging: your alumni network, your local “Moms” or “Dads” mailing list, your church/synagogue/mosque. http://www.slideshare.net/mzkagan/what-is-social-media-2005829 . http://www.flickr.com/photos/juggernautco/6440075075/lightbox/
  14. 14. 14 10-15% of the Active VC Population of 1,000 Blog and Tweet; Some Individual Bloggers Are As Influential As Entire Groups of Journalists * Individual VC blogs http://www.blogmetrics.org/venture_capital Jeff Bussgang, Flybridge Capital Partners http://techcrunch.com/2011/01/19/top-20-vc-bloggers/ Top VC Blogs (BlogRank), November 2014 Blog Title # Incoming Links (rank) Google PageRank VentureBeat 1 7 Paul Kedroskys Infectious Greed* 2 6 Redeye VC* 4 5 VC Café* 13 5 Xconomy Venture Capital Feed 1 6 India Business Blog 13 5 Web Strategy by Jeremiah 2 5 PEHub Blog 21 7 VC and Angel Investor Profiles 12 6 Union Square Ventures* 8 6
  15. 15. 15 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
  16. 16. 16 Private Equity Funds Are Not Usually Taking Full Advantage of Technology Tools; MCM Capital is an Exception  Tools  Tools: website, Facebook, LinkedIn, weekly blog, RSS feed, email newsletter, email archive page, email signature  CRM system (Microsoft Dynamics), which automatically pulls in contact inquiries from site  Target terms for search engine optimization: micro-cap private equity fund, leverage buyout, Cleveland based private equity, lower middle market, leverage buyout firm, management buyout  Cost:  New website  Four professionals collectively spend 15-20 hours / week on social media outreach MCM Capital, a MicroCap PE Fund in Cleveland, OH http://www.teten.com/blog/2010/12/05/how-a-small-private-equity-fund-uses-social-media-for-building-its-investment-pipeline-and-raising-capital/
  17. 17. 17 MCM Capital Has Significantly Raised Their Profile to Potential Companies and LPs Via Their Social Media Presence  Traffic  Overall traffic increased over 100% since site redesign 15 months ago  Deals  “Several CEOs have commented they have read our blogs and better understand what kind of partners we would be post transaction as a result of reading our investment perspectives and business best practices blogs. 60% of our overall web traffic today is a result of our blog driving users to our site. ”  Investors  Over 35 LPs have contacted them via Palico, Preqin, and their site MCM Capital Social Media Results July - October 2010 . http://www.teten.com/blog/2010/12/05/how-a-small-private-equity- fund-uses-social-media-for-building-its-investment-pipeline-and-raising-capital/
  18. 18. 18 Healthpoint Capital Is A Much Larger Fund Investing Significant Resources Into Their Social Media Presence  $750m fund for the musculoskeletal sector — specifically orthopedics and dental  Weekly email to 14,000 people  Publish a small percentage of content that 5-person research team generates  Agenda: “make our website into the virtual Silicon Valley for our industry” Healthpoint Capital Blog, a Rare Private Equity Blog
  19. 19. 19 Search Engine Optimize Both Your Firm Site and the Internet Presence of Your Team  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  Use Google’s Keyword Planner http://flickr.com/photos/neilt/2517652/sizes/o/ Search Engine Optimization 101
  20. 20. 20 1. Market Fund 2. Raise Capital 3. Originate 4. Due Diligence 5. Negotiate 6. Monitor 7. Improve Operations 8. Exit http://www.flickr.com/photos/23905174@N00/2438005410/ The 8 Steps of the Private Company Investing Process
  21. 21. 21 Investor Network Valuation Formula 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
  22. 22. 22 Average Relationship Strength = Minutes Available / Person Number = # People therefore… Sales Is About Quality, Not Quantity Average Strength * Number = Total Minutes Available vs. Quality vs. Quantity
  23. 23. 23 Always Be Closing Alec Baldwin in Glengarry Glen Ross http://www.onlygoodmovies.com/blog/thoughts-on-film/glengarry-glen-ross-my-favorite-movie-scenes/
  24. 24. 24 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
  25. 25. 25 A Number of Companies Are Working to Create Online Communities Where LPs and GPs Can Meet; This Model Is Not Yet Proven Next Generation LP/GP Platforms by Target Market Retail LPs Community Tools for Institutional LPs Artivest Palico Bison.co iCapital Network Trusted Insight CAIS Group
  26. 26. 26 CRM Applications Used by Private Equity Funds EquityTouch. ACG Events Survey Analysis, 2009. Available at www.touchahead.com/news.html 36% of Private Equity Funds Are Using Microsoft Applications for CRM Which Are Not Designed for CRM (Primarily Excel and Outlook)
  27. 27. 27 Effective Capital-Raisers 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
  28. 28. 28 Numerous Providers Have Built Custom CRM Solutions for PE/VC Funds  Backstop Solutions  Equitytouch  Evolved Capital  Investorflow  Navatar Selected specialized Contact Relationship Management (CRM) Systems for PE/VC Funds  SalesLogistix  Sevanta Dealflow  Particeep.com  Venture360
  29. 29. 29 Well Managed Pipelines Allow for Use of A Wide Range of Analytics to Track Opportunity Flow of Both Potential LPs and Companies  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
  30. 30. 30 A CRM System Is Useless Without Compliance  Most important: senior management must role model use of CRM.  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
  31. 31. 31  Phone  Email  Web conferencing  Instant messaging  Internet telephony (e.g., Skype)  SMS  Twitter Using Multiple Media Channels Makes It Easier to Build Trust with LPs 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/sizes/o/ Major Media Channels for Origination (descending order of importance)
  32. 32. 32 Target Investors Who Are One Step Removed From You  By geography  By industry  By personal characteristics http://500px.com/photo/514237
  33. 33. 33 Maintain Visibility to LPs  Keep records updated in the major data-trackers tracking the VC industry, e.g., CB Insights, Crunchbase, Dow Jones, Mattermark, Preqin, Pitchbook, and ThomsonReuters (PWC Money Tree), since they are a source of data to LPs and to potential co-investors.
  34. 34. 34 1. Market Fund 2. Raise Capital 3. Originate 4. Due Diligence 5. Negotiate 6. Monitor 7. Improve Operations 8. Exit http://www.flickr.com/photos/23905174@N00/2438005410/ The 8 Steps of the Private Company Investing Process
  35. 35. 35 Acquirer/ Investor Angel groups using Angelsoft [i] HOF Capital Blackford Capital [ii] TA Associates [iii] Highland Capital [iv] AlliedSignal [v] Investing focus startups startups/ea rly-stage lower-middle- market growth companies growth companies synergistic businesses Profiled initially 20,850 NA 1,394 NA NA 550 Target Selected 1,315 ~1,800 261 8,000 10,000 [vi] 190 Met 1,047 340 20 750 1,000 NA Negotiated with NA 75 14 NA NA 28 Detailed due diligence 577 7 20 NA NA 17 Acquired/ invested 541 12-15 3 10 to 12 10-20 10 Deals as % targeted companies 33.5% (2.1% of submissions) 0.4% 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] As of 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, as of 2008. [v] Bruner, Robert F., Applied Mergers and Acquisitions. New York: John Wiley & Sons, 2004., p. 183. As of 1996-97 Investing in one company typically requires sourcing 80-100. Investment Search Process (# Companies)
  36. 36. 36 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?
  37. 37. 37 Firms Typically Fail to Exploit 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 those relationships  Millennials expect and embrace social technologies, and are disappointed and less productive when they are missing Failures of Existing Corporate Networks
  38. 38. 38  Searchable  Crosses boundaries of time and space  Passive presence  Ease of forming groups  Reduced time and expense  Greater visibility Benefits of Online Networks http://www.flickr.com/photos/uaeincredible/3333223048/sizes/o/ Online Networks Are A More Efficient Way to Get Business Done
  39. 39. 39 A Host of Startups Want to Be the “Bloomberg of Private Companies”  Among those focused on early-stage companies are Bright*Sun, CB Insights (the highest-profile), Crunchbase, Core 2 Group, DataFox, FuelUp, Funderbeam, Mattermark, Megabuyte, Quid, Tracxn, Unomy.com, and VC Experts.  Similar companies more focused on later-stage investors include Avention, Bureau Van Dijk, Dow Jones, FactSet, Genesis, S&P Capital IQ, Dun & Bradstreet, DueDil, Core 2 Group, Hoovers, InsideView, LexisNexis, Pitchbook, Preqin, PrivCo, Thomson Reuters, and Unquote.  A number of analysts target the customers of technology companies, e.g., Gartner and 451 Research.
  40. 40. 40 Some VCs Are Trying to Build the Equivalent of Quantitative Hedge Funds  Examples include: Correlation Ventures, Google Ventures, SignalFire Quantitative VC
  41. 41. 41 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 Major Gated Communities for Investors Identify Potential Investments and Co- Investors With Online Gated Communities
  42. 42. 42  Yahoo Groups  Google Groups  LinkedIn Online Community Platforms  Ning  Xing Every Special Interest Group Has An Online Community
  43. 43. 43 Senior Executives Prefer to Interact Online Behind Barriers, Just As They Do In Face-to-Face Networks Sample Gated Communities for Executives  IERG Online  Executive Forum  INMobile  Sermo  Some LinkedIn groups
  44. 44. 44 David Teten and Scott Allen, The Virtual Handshake: Opening Doors and Closing Deals Online (www.TheVirtualHandshake.com) Case Study: Lower Mid-Market PE Fund Sourced an Industrial Deal Via an Online Job Board  Hamilton Robinson, PE fund; invested in 40 companies worth over $1b cumulatively  July 2002: Mark Riser (Darden 1994) placed ad in Darden Alumni site seeking C-level managers to back in MBOs  Riser’s classmate forwarded ad to Mark Ponozzo, President, Black Clawson Converting Machinery, $35m firm  May 2003: closed MBO of Black Clawson
  45. 45. 45 Successful Crowdfunding Campaigns Are A Sign of An Investable Company or Space * ff VC portfolio company Interaxon* Campaign on Indiegogo*
  46. 46. 46 Relationships with investment banks drive deal flow for many investors, but leave them vulnerable to the winner’s curse.  DealSheet and Sutton Place Strategies help private equity funds identify the best- positioned intermediaries (investment banks) for their sector.
  47. 47. 47 1. Market Fund 2. Raise Capital 3. Originate 4. Due Diligence 5. Negotiate 6. Monitor 7. Improve Operations 8. Exit http://www.flickr.com/photos/23905174@N00/2438005410/ The 8 Steps of the Private Company Investing Process
  48. 48. 48 Biography Analysis Software Allows You to Search by Common Affinity and More Effective Subsequent Outreach  Boardex  Klout*  LinkedIn  Pipl  Relationship Science  ZoomInfo Leading Providers of Biography Analysis Data * ffVC portfolio company
  49. 49. 49 Online Background Check Companies Do Some of the Due Diligence for You  HireRight  Onfido  OutsideIQ (focused on investors)  Sentrylink Leading Providers of Biography Analysis Data
  50. 50. 50 AskWonder* provides custom research on marketing sizing, competitors, etc. * ffVC portfolio company
  51. 51. 51 Earnest Research* provides powerful analytics based on their proprietary data sets, e.g., credit card transaction data * ffVC portfolio company
  52. 52. 52 Other Data Sets  To quantify consumer trends and market opportunities, we use IBIS World and eMarketer for “top down” assessments.  For more rigorous, bottoms-up sizing exercises we use tools such as Statista and the United States Census Bureau (also their North American Industry Classification System database) to help identify more specific data.  To measure product usage and traction over time, we use tools like Alexa and Google Analytics.
  53. 53. 53 1. Market Fund 2. Raise Capital 3. Originate 4. Due Diligence 5. Negotiate 6. Monitor 7. Improve Operations 8. Exit http://www.flickr.com/photos/23905174@N00/2438005410/ The 8 Steps of the Private Company Investing Process
  54. 54. 54 We Want Management Teams to Understand the Implications of Different Deal Structures  Venture Dealr is a helpful tool for management teams and VCs to visualize deal terms.
  55. 55. 55 Steps to Negotiation  We gain insight into the management style of portfolio company management by assessing their social media activities and digital exhaust.
  56. 56. 56 GF Data Resources Uses A Unique Clearinghouse Model to Provide Clients With Financial Multiples for Mid-Market Private Company Transactions
  57. 57. 57 Virtual Data Rooms Speed Up Deal Making  CapLinked, Intralinks, Merrill Datasite, SecureDocs, and RR Donnelley Venue all offer virtual data room products.  For simple transactions we have seen consumer-grade products such as Dropbox, Google Drive, and Box also used.
  58. 58. 58 1. Market Fund 2. Raise Capital 3. Originate 4. Due Diligence 5. Negotiate 6. Monitor 7. Improve Operations 8. Exit http://www.flickr.com/photos/23905174@N00/2438005410/ The 8 Steps of the Private Company Investing Process
  59. 59. 59 Tools for Tracking Portfolio Investments  Some family offices and other investors use Addepar* to gather and track the progress of portfolio companies.  Ipreo and Budgeta are both popular providers.  Other vendors include AltaReturn, Arkad, Investors Economic Assurance CapAssure, Davigold, eFront FrontInvest, Netage Dynamo, Shareholder InSite Qval, Sungard Investran, and Vitech V3. * ffVC portfolio company
  60. 60. 60 EShares Is An Increasingly Popular Tool In Our Portfolio for Tracking Cap Tables
  61. 61. 61 ffVC Spun Off TotemVC, An Investment Monitoring Platform  ff Venture Capital built an in-house tool, Totem, which centralizes data about portfolio companies’ management, metrics, and co-investors.  ffVC uses this to understand which companies can most benefit by support, identify problems early, and more efficiently share knowledge internally.
  62. 62. 62 1. Market Fund 2. Raise Capital 3. Originate 4. Due Diligence 5. Negotiate 6. Monitor 7. Improve Operations 8. Exit http://www.flickr.com/photos/23905174@N00/2438005410/ The 8 Steps of the Private Company Investing Process
  63. 63. 63 Selected Searchable Databases of Private Equity and VC Funds We Proactively Identify Potential Co-Investors Through Any of Multiple Online Databases All Investors Private Equity Venture Capital  Bison.co  Galantes  Grey House  LP Source  Pratt’s Guide  VentureXpert  Asia PE Research  Eurekahedge  Pitchbook  PrivateEquityFirms.com  ThompsonOne PE Module  Angel List  CB Insights  CrunchBase *  PWC MoneyTree  LinkedIn *  TheFunded *  VentureDeal  Asian VC Journal  Venture Source * Has the most data for free
  64. 64. 64 1. Market Fund 2. Raise Capital 3. Originate 4. Due Diligence 5. Negotiate 6. Monitor 7. Improve Operations 8. Exit http://www.flickr.com/photos/23905174@N00/2438005410/ The 8 Steps of the Private Company Investing Process
  65. 65. 65 Improving Exits  ExitRound helps early stage companies identify buyers.  A range of companies are trying to make the M&A process more transparent and less haphazard for later-stage companies, including Axial, CapMarket, Intralinks Deal Nexus, and MergerMarket.
  66. 66. 66 Any questions ? slides at teten.com/pevctech HOF.capital @HOFCapital teten.com @dteten
  67. 67. 67 →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

×