Venture capital and private equity are forms of equity funding for startups. Venture capitalists invest in high-growth companies and can provide competence, access to networks, and support for global expansion. However, VCs primarily seek significant return on investment potential, a clear path to profitability, and identifiable exit opportunities. Founders need to understand the priorities and perspective of VCs to effectively prepare their business case and negotiate terms.

1. Venture Capital and Private Equity
Crash Course into Startup Funding
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2. Funding Options for a Startup
Equity Funding
• FFF
Financial Funding Equity Funding
• Banks, Insurance • Business Angels
Companies, Pension Dumb • VC Funds
Funds Smart
• Industrial Investors
• Finnvera
Public Funding
• Tekes
• ELY-Centers
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3. Growth Companies and Venture Capital
Growth Companies
• Fast-growth companies critical for jobs and prosperity; 6-7% companies create
60-70% of net jobs.
• VC´s are investing into fast-growth companies only. Less than 2% of companies
get funded.
• Companies in VC –active areas grow 3-4 times faster than companies from non-VC
active areas
Venture Capital (VC)
• VC –funded companies create more innovations than the large companies with
their huge R&D resources
• Since 1999 over 60% of listed companies in the US have been VC –funded. In
2006 83% of the listed companies had VC funding.
• After IPO VC –funded companies overperform regular companies.
• VC –funded companies created 21% of GNP and 11% of jobs in the USA in 2008.
Lähteet:
Global
Entrepreneurship
Monitor
(2002;
2009);
Gompers
&
Lerner,
(2001);
IHS
Global
Insigth
(2009);
Industry
Canada
(2005);
Lerner
(2009);
Kaplan
&
Lerner
(2009);
Kaplan,
Sensoy
&
Strömberg
(2009)
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4. Why Venture Capital?
Venture Competence
Strongest correlation between VC Funding and Growth
Almost impossible to reach global markets without
A Real VC has made and seen all those mistakes you are about to
make
Other funding possibilities for a high-growth start-up are very
limited
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5. The Growth Company Lifecycles
Horizon 3
100 M€
Resources and Horizon 2
volume • Growth management
• Global Business
10 M€
Horizon 1
• Funding and financing
• Growth planning
1 M€ • Business planning
• Business ramp-up
1 year 3 years 5 years 7 years
Time
New Venture Established Growth-company
Business Angel Early-Stage VC Global VC
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6. What are the VC´s looking for?
Primary Secondary
• Competent and Dedicated • Fancy Strategy
Team • Cool Technology
• Protected IPR
• Unique Business Idea
• Cashflow positive
• Large and Growing
Accessible Market
• Execution Power
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7. … and more precisely
Component Definition
Significant ROI The real possibility of achieving an above market return within the
potential alternative investment asset class (e.g. 10x return within three
years).
Path to proftability A demonstrated, clear business strategy in conjunction with a
substantial revenue model
Exit Opportunity A clear understanding of how the venture will achieve liquidity on a
timeframe that is attractive to investors.
Management Team A high-energy group preferably with industry experience and the
knowledge and skills to grow the company
Growing Market Large total addressable market in a high growth space, where
customers are currently experiencing considerable “pain”
Compelling Value A product or service that is unique, with a compelling value
Proposition proposition. Are you merely building a better mousetrap or are you
creating an innovation with transformative value?
Mature Management A founder and executive team willing to share ownership and
control in exchange for capital, to help the business grow quickly. If
you do not understand this concept, go back to your day job
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8. Mentalities of Risk and Return – The Matrix
The US VC’s
Market Growth Feasible Investment Set
Cap Entrepreneurship
Return
1000M€
The Actual
The US VC’s Risk/Return
Maximum Possible Return Function
100M€
Minimum Possible Return
10M€ Finnish way
(Risk Minimizers’) The Commercial VC’s
Maximum Possible Minimum Risk
Return Maximum Risk
1M€ ROI = 0
Lifestyle
Entrepreneurship
0
0 0,5 M€ 1 M€ 5 M€ 20 M€ 50 M€ Total Funding
Finnish Way The
(Risk Minimizers’)‫‏‬ Finnish Way GAP Risk
Feasible Investment Set (Risk Minimizers’)
Maximum Risk

9. What to Demand from a VC?
§ Industry competence and focus around it
§ Personal experience from successes and failures
§ Extensive network and ability to help with the market access
§ Ability to tolerate risks and accept failures
§ Greed and the incentives to support that
§ Thorough understanding of the value creation of your idea
§ Ability and willingness to spend extensive time to develop the
portfolio companies
§ Ability and willingness to take part-time mgmt assignments if
needed
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10. VC Reality
Myths Facts
• “We are Hands-On” • “Show me the Money”
• “We are on the same boat” • “I invest, you burn”
• Trial and Error • Blue pill or the red pill
• My Company • Their Company
• Risk-Taking • Risk-Averse
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12. How to Prepare?
Homework
Portfolio
Category Matrix
Credibility
Exit Plan
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13. VC Lingo – the most important issues
Valuation
Liq. Pref.
Anti-Dilution
Good Leaver / Bad Leaver
Drag and Tag
Equity vs. Convertible
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22.10.2002 © HOLTRON

15. Entrepreneur – VC Lingo
You Say VC interprets
“Product 90% complete” “We might have a name for it”
“Leading-edge technology” “We can´t make it work”
“Limited Downside” “Thing´s can´t get any worse”
“Possibility of a shortfall” “We´re 50% below plan”
“Proven Technology” “It nearly worked once”
“We are re-positioning the company” “We are doomed”
“Upside Potential” “It stopped breathing”
“First-Mover Advantage” “The other 5 start-ups we know have
not received funding either”
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16. Entrepreneur – VC Lingo
You Say VC interprets
“No competition” “No market”
“Universal Platform” “We can´t figure out how to position this
thing”
“Unique Opportunity” “We have failed to perform a competitive
analysis”
“Disruptive Technology” “Too many bugs”
“Social Media Platform” “We cannot figure out have to make
money”
“Sustainable” “With unlimited funding this might stay
alive”
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17. Volunteering for the unknown…which meant leaving the
security of what I knew…would continually change my life.
All of you will fail at some time in your career…or in love, or
in life.
No one ever sets out to fail. But being afraid to fail means
you’ll be afraid to try. Playing it safe will get you nowhere.
Ignore them….. Be persistent… Never give up. Innovation
comes from those who see things that other don’t.
Be forever curious.
Volunteer for everything.
Show up a lot.
Treat failure as a learning experience.
Live life with no regrets.
Remembering… There is no undo button.
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