4. Entreprneurship Lecturer at Stanford
ecorner.stanford.edu/
Ravi Belani: Former VC, Stanford Lecturer, Alchemist Director
6 Years as a Venture Capitalist
Skype, Baidu, Hotmail, Tesla
Me: Twitch (Amazon), Pubmatic
Director, Alchemist: B2B-Focused Accelerator
AlchemistAccelerator.com
5. #1: Alchemist
#2: Ycombinator
#3: Techstars
#4: 500 Startups
PAG 4
Alchemist Tops CB Insights’ 2016 Rankings of
Accelerators Based on Median Funding Levels
Source: https://www.cbinsights.com/blog/top-accelerators-follow-on-funding-rates/
15. Management Fee Consumers 25% of a Fund
$500M Fund $125M Mgmt Fee
• 2.5% Per Year For
10 Years
• Fund Committed
after 3-4 Years
• 3 Funds Drawing
Management Fee
Down on in any
given year
17. Case Study of a Young Fund:
Kleiner Perkins I (1972)
17
Fund Size
$7.5M
# of Co’s
17 @
Check Size
$450K
Return
$345M
46x
#
How much carry did the partners get?
18. VC Profit Share: Carry Calculation
18
Fund Returns: $345M
- Fund Size: $ 7.5M
-----------------------------------
Fund Profit $337.5M
X Carry 20%
-----------------------------------
Carry $67.5M
19. Of Kleiner Perkins’ 17 Investments, 2
were responsible for 90% of returns
19
20. VC’s want to return 1/3 of their fund with each investment
$500M Fund
# of Co’s
30
#
Big Winners
1 out of 10
%
x =
3 Big
Winners
in Each
Portfolio
21. Can Make Money Several Ways: Two Case Studies
Google: Rising Star
Hotmail: Contrarian Bet
25. Valuations are a function of
fundraising dynamics NOT instrinsics
Driven by the ownership needs of the funds you raise from and
the cash needs of the company
Post–Money Valuation = Cash Needs of the
Company / Ownership Needs of the Fund
Pre-Money Valuation = Post-Money – Cash Raised
Larger Funds are Much More Sensitive about Ownership Needs than Cash
Needs!
Series A : Raising off of the IDEA
Series B: Raising off of RESULTS
Trick is balancing the Series A valuation to set you up so you can raise off of
Results in the Series B at a markup (ideally 3x!)
26. What’s the post? What’s the pre?
• $2M given for 25% of the company
• $3M given for 25% of the company
• $2M given for 20% of the company
• $1M given for 40% of the company
Post–Money Valuation =
Cash Needs of the
Company / Ownership
Needs of the Fund
Pre–Money =
Post-Money – Cash
Invested
29. NEGOTIATIONS 101: DOES A ZOPA EXIST?
BATNA: Best Alternative to a Negotiated Agreement
ZOPA: Zone of Possible Agreement
Alternative to Sell: $1 Alternative to Buy: $8
30. Capture Value: How do you know how big the ZOPA is?
Alternative to Sell: $1 Alternative to Buy: $8
ZOPA
31. Negotiations Generate Value in 2 Phases
Create Value: Focus on Interests, Not
Positions
Capture Value: Understand the
Other Person’s BATNA first
39. VALUATION IS JUST ONE TERM
Pre-Money Valuation
Option Pool
Liquidation Preferences
Board Structure
40. Employee Pool
• Employee Pools typically come out of the PRE-MONEY – that is YOUR
Total Dilution is the NEW INVESTOR’s money PLUS the Employee Pool
• Can always expand the employee pool later – and when you do, all will
be diluted equally. Try to minimize the employee pool to what’s
absolutely needed.
• Exercise: You own 40% of a company. A VC wants to put in $2m for 25%
of your company, and requires a 20% employee pool PRE-MONEY.
• What’s the Post-Money Valuation?
• What percent of the company do you own afterwards?
41. VALUATION IS JUST ONE TERM
Pre-Money Valuation
Option Pool
Liquidation Preferences
Board Structure
42. Board Composition & CEO Role
How many, and what’s the split between preferred, common, and independents?
When is the independent important?
How do you fire a board member?
43. VALUATION IS JUST ONE TERM
Pre-Money Valuation
Option Pool
Liquidation Preferences
Board Structure
44. Liquidation Preferences
Why does Preferred Exist?
Check for:
• Multiples?
• Participating vs Non- participating
• Senior or Pari-Passu
What’s this?
45. Liquidation Preferences
Why does Preferred Exist?
Check for:
• Multiples?
• Participating vs Non- participating
• Senior or Pari-Passu
What’s this?