A tech spin-off investment is a no-brainer for VCs because of their access to the resources, reputation, and management of its established startup parent company. Piggy-backing on the strengths of a proven Silicon Valley winner makes for a less risky investment. VCs love a tech spin-off, and Larry Scheinfeld lists 5 basic reasons why.

1. 5 ReasonsVCs LoveTech Spin-offs
Presentation by Larry Scheinfeld

2. What is a
‘Spinoff’?
A spinoff is the creation of an
independent company through the sale
or distribution of new shares of an
existing business or division of a parent
company.
Source: http://www.investopedia.com/terms/s/
spinoff.asp#ixzz47Vm7aIa6

3. For example,
✤ A company might spin off one
of its mature business units
that is experiencing little or no
growth so it can focus on a
product or service with higher
growth prospects. The spun-off
companies are expected to be
worth more as independent
entities than as parts of a larger
business.
Source: http://www.investopedia.com/terms/s/
spinoff.asp#ixzz47Vm7aIa6

4. Spin-off Startups andVenture
Capital
✤ A tech spin-off investment is a no-brainer for VCs
because of their access to the resources, reputation,
and management of its established startup parent
company. Piggy-backing on the strengths of a proven
Silicon Valley winner makes for a less risky
investment.

5. VCs love a tech spin-off, and here
are 5 basic reasons why:

6. Resources
Matter
✤ Investors want to know the
product or service they are
putting their money into has a
sufficient market to ensure
maximum success.

7. ✤ A spin-off is able to determine where and when there
are available opportunities due to being able to use the
resources of its parent company.
✤ Investors can rest assured that the new business has
done the proper research with the assistance of
industry leaders before launching.

8. Proven
Reputation
✤ The reputation of the tech spin-
off’s parent company affects
how promising investors think
the spin-off will be.

9. ✤ If the established business has a viable product that
has been tested, improved, and marketed successfully,
then its spin-off has higher chances of experiencing
the same kind of accomplishment in the marketplace.
✤ The combination of low risk and potential high
returns make VCs flock to these enterprises, especially
to make up for any losses from investments in
unprofitable start-ups.

10. Skilled
Management
✤ This is just as important as the
product or service is the team
behind it.
✤ VCs often judge the
management behind the spin-
off before making a decision on
whether or not to invest.

11. ✤ How well the business operates, especially at the top
level, may be a better indicator than the product or
service of how successful the spin-off will be.

12. An Uncommon
Enterprise is RipeWith
Possibilities
✤ Although spin-offs have
higher chances of success, they
are not as common as other
types of start-ups. This may be
due to entrepreneurs putting
more focus in a single, unique
idea than in branching off of
existing ones.

13. ✤ Spin-offs tend to be found in the academic and
technological industries.

14. Benefits forTech
Spin-offs
✤ The increased likelihood of
investment brings benefits to a
tech spin-off as well.
✤ This start-up has more options
from which to choose, and
therefore more control over the
terms of the financial
agreement.

15. ✤ It may also be able to go longer before needing to
obtain venture capital because it can rely at first on the
resources of its parent company.
✤ During that time, it may be able to gain some traction
and become even more attractive to potential VCs.

16. For moreVenture Capital
News, please visit:
LarryScheinfeldvc.com
✤ Larry Scheinfeld is one of the co-
founders and partners at
Zelkova Ventures. Larry
concentrates most of his time in
working with the current
portfolio companies in deciding
strategic funding and customer
acquisition plans. Currently, he is
on the Board of Directors for
Starlight Foundation, a nonprofit
that provides quality of life
programs for seriously and
terminally ill children.