intro entrepreneurial finance

1. Entrepreneurial Finance intro IntroduceBasicFinanceConcepts and Present Lenders and Investors ViewonCapital Markets

2. Before we start… 3 The Importance Money Cash is everything 7 Venture Capital Fill a Void VC fills a void between banks and markets 12 Venture Capital in Denmark Public money plays an important part in the Danish venture capital market 17 VCs Invest In VCs invest in high-growth industries and A-teams 21 Workshop Pitch a company that you know… 31 A Venture Capital Deal A VC addresses the risk in the investment process, the contract and active involvement 35 Exit Strategies Failure is the most common occurrence – however the most likely attractive exit is a trade sale 40 The Venture Model The general partners are those we refer to as venture capitalists 44 Summary A quick review 51

3. Before We Start…

4. .. I need three volunteers? Before We Start…

5. Tweet key learnings… Before We Start… MCF10 Control10 Password:

6. Assignment for every study group! Deadline - the lecture on Options Email me a list of the names in your study group (at the end of this lecture – kenneth@svenningsen.dk) Every study-group should find 10 tweets that: You find interesting / funny That can serve as a either a summary of the lectures or that explores an important topic Upload the Powerpoints at Slideshare and tweet the link in Twitter in MCF10 account Two groups will present – randomly chosen Before We Start

7. The Importance of Money

8. Once upon a time… The Importance of Money …CASH WAS KING

9. The Importance of Money Nowadays… …CASH IS EVERYTHING

10. (Shane) Stating the obvious… The Importance of Money You are more succesfull if you have the cash to pay you bills. Not having the cash is what kills you.... .....Obviously it is a good thing too have as much capital as possible to begin with for the company to survive Shane, 2003

11. However… The Importance of Money However too much money often results in burning more than neccessary.... .....These days it is a good thing to bootstrap your company and get the cheap financing from your customers

12. Venture Capital Fills a Void

13. The void between banks and the stock market Venture Capital Fills a Void Zider, 1998 Market Equity New Debt Existing Product Existing New Debt Interest is Regulated and the Risk is to High IPO The Venture is Too Small for an IPO

14. Cost of capital is directly linked to the risk Venture Capital Fills a Void Risk Moderate Venture capital High Subordinated debt / Mezzanine financing Seed-investors(>10x returns) Loan WarrantySchemes Incubators The Bank (<10% interest)

15. …and it is difficult to get financing from your customers Venture Capital Fills a Void

16. Filling a void in the capital market How Venture Capital Works 16

17. Venture Capital in Denmark

18. The Danish Venture Market Venture Capital in Denmark Vækstfonden Capital under management BI Life Science Nordic Biotech Biotech $ 50 Million InventureCapital Vækstfonden Seed Capital Denmark Dansk Kapital anlæg Nordic Venture Partners Via Ventures LD Equity ICT/industrial technology NorthCap Northzone Ventures $ 400 Million BI New Energy Early stage Later stage Strong leverage effect from Vækstfonden’s involvement

20. Business Angels 200+

21. Venture Capitalfirms 45 (3-5 withmoney)

23. VC’s Invest in..

24. Exponential Growth… VC’s Invest in Zider, 1998 High growth industries with a big potential and scalable business models Timing is everything

26. Mobility

27. Internet

28. Increasing Population

29. Health Problems

30. Lack of ressources

32. Change in preferences

33. Increase in wealth

34. Increasing aged Pop.

35. Health Problems

37. Management is the most important factor for success VC’s Invest in Study of key success factors for MIT start-ups. Percentage of cases when this factor was one of the top one or two most influential factors in the success

38. The Ideal Entrepreneur - Is a team

39. The Google Team – Technical and Commercial Masterminds VC Invest In

40. However the perfect entrepreneurs don’t always look great VC’s Invest in

41. A good business case and plan.. VC’s Invest in

42. Workshop

43. Pitch a company that you know – Imagine the early beginnings of the company… Workshop

44. Process You have 30 minutes to prepare 5 minutes to present Maximum of 5 slides 5 minutes questions from VC audience Two teams will present Workshop

45. Be back on time The doors will lock Don’t keep VC’s waiting

46. A Venture Capital Deal

47. The problems a VC must address A Venture Capital Deal Leach & Melicher, 2006

48. Two ways of addressing the problems... A Venture Capital Deal

49. The Process A Venture Capital Deal

50. Contractual… A Venture Capital Deal

51. The Value VCs Provide

52. Enabling the venture… The Value VCs Provide 100% of a small pie 20% of a large pie

53. Smart Money The Value VCs Provide

54. Typical Entrepreneur mistakes… Overoptimistic about atttractivenss of idea – don’t research Overestimate how many will buy the solution Underestimate entry barriers Underestimate capital need, cost and timing of capital need Has no plan B Lack of focus Hire the wrong people Lack of focus on EBITDA Seek confirmation rather than the truth Complicated vision Lacks exit strategy The Value VCs Provide SVASE

55. Exit Strategies

56. What is the value of a company… Exit Strategies The value of a company is measured in it’s ability to generate free cash flow, meaning surplus of cash. ...However not all venture exits were known for that ability. Youtube was a good deal. 12 mio. USD => 450 mio. USD windfall to Sequoia Capital, but the company barely creates a free cash flow

57. Planning Exit Strategies

58. Types of Exits Exit Strategies

59. The Venture Model

62. 20% of the return (after LP)

63. 2-3 % of capital pool in FeesFunds 10 Y Funds Exit Target (IPO & Trade Sale) Entrepreneur

64. Taking a portfolio approach The Venture Model If probability of one parameter drops to 50% the combined probability drops to 10% and there are more success factors out there

65. One slide summary Cash is everything VCs fill a void between the banks and the markets VCs invest in high-growth industries, A-teams, great plans and execution A VC addresses risk problems with the investment process, the contract and their involvement The most likely exit in a Danish context is a trade sale Summary