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![Copyright (c) 2003 Ziya G. Boyacigiller
Term Sheet
TERM SHEET
FOR SERIES A PREFERRED STOCK FINANCING OF
[Insert Company Name], INC.
[ __, 200_]
This Term Sheet summarizes the principal terms of the Series A Preferred Stock
Financing of [___________], Inc., a [Delaware] corporation (the “Company”). In
consideration of the time and expense devoted and to be devoted by the Investors with
respect to this investment, the No Shop/Confidentiality and Counsel and Expenses
provisions of this Term Sheet shall be binding obligations of the Company whether or
not the financing is consummated. No other legally binding obligations will be created
until definitive agreements are executed and delivered by all parties. This Term Sheet is
not a commitment to invest, and is conditioned on the completion of due diligence, legal
review and documentation that is satisfactory to the Investors. This Term Sheet shall be
governed in all respects by the laws of the [State of Delaware].](https://image.slidesharecdn.com/newventurefinancing2003-150602133808-lva1-app6892/85/New-venture-financing-2003-Ziya-Boyacigiller-26-320.jpg)
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New venture financing, 2003,Ziya Boyacigiller
This presentation provides an overview of new venture financing and was originally created and presented by Ziya Boyacigiller, a leading angel investor in Turkey. The presentation covers topics such as the high-risk nature of new venture investing, venture capital fund structures and returns, factors for success like industry selection and team execution, and considerations for entrepreneurs seeking funding like valuation and term sheet negotiations. It aims to educate entrepreneurs on understanding venture capital and making good funding decisions.
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New venture financing, 2003,Ziya Boyacigiller
- 1. New Venture Financing 2003 Thispresentation was created and given by Ziya Boyacigiller who was leading Angel Investor and a loved mentor to many young entrepreneurs in Turkey. We have shared it on the web for everyone’s benefit. It is free to use but please cite Ziya Boyacigiller as the source when you use any part of this presentation. For more about Ziya Boyacigiller’s contributions to the start-up Ecosystem of Turkey, please go to www.ziyaboyacigiller.com
- 2. Copyright (c) 2003Ziya G. Boyacigiller New Venture Financing Ziya Boyacigiller Sabanci University (Based on a Presentation by Andy Rachleff, Benchmark Capital)
- 3. Make a bet: 1.Give me 10TL each now, and I will give everyone back 11TL (except for one person randomly) at the end of this presentation. 2. Give me 10TL each now, and I will give back one of you randomly 65TL next month, and the others 1TL. Copyright (c) 2003 Ziya G. Boyacigiller
- 4. New-Venture Financing is aboutmanaging high-risk investments Copyright (c) 2003 Ziya G. Boyacigiller
- 5. Poker as aMetaphor… Copyright (c) 2003 Ziya G. Boyacigiller Wipe Out Ante Follow on Bets Chips Cards Dealt
- 6. Ziya G. Boyacigiller(c) 2008 6 In 2000, there were 454 spinoffs, within all American academic institutions, pp57 In 2000, average was 4.2% spinoffs-to-disclosures ratio within 26 selected universities (~37% of total with spinoffs) in USA. Pp68 During 1980-1996, MIT spinoffs = 134, went public = 24, 18% public “spin-off ratio, pp19 & pp30 Using 4.2% and 18%, we get 0.3%. This means only 3 spinoffs for each 1,000 disclosures succeed to go public (IPO). (Note that this ratio is for MIT and is much higher than non-academic success rates. For example, the rate for most startup companies is probably over 10 times worse!) < 3 in 1,000 success rate…
- 7. “Success Bias” Idea toIPO Reviewed plans to IPO Funded plans to IPO 6 in 1,000,000 60 in 10,000 Less than 1 in 10 Source: Saratoga Venture Finance
- 8. 8 Venture Capital -Size of the Market US - 2006 $27.5 bn 1446 transactions $10.5 M average investment Europe - 2006 Euro 4.1 bn 867 transactions Euro 14 M average investment
- 9. Copyright (c) 2003Ziya G. Boyacigiller Venture Capital Food Chain INSTITUTIONAL INVESTORS (Limited Partners – e.g. Endowments, Pension Funds, High worth individuals) VENTURE CAPITALISTS (Finding and Funding Entrepreneurial Companies) ENTREPRENEURS (Starting and Building Companies)
- 10. 10 Venture Capital -How the VCs make money? Raise “fund” every 2-4 years Pension funds, financial institutions, and specialist “fund of fund” investors, high net-worth individuals/families Invest money over 3-5 years ~ 1/2 investments lose money ~ 1/3 investments break even ~ 1/6 investments make (hope lots of) money Very small “management fee” on funds managed ~1-2.5% PA “Carry” ~20-25% x (Total Return-Total Amount Invested)
- 11. Copyright (c) 2003Ziya G. Boyacigiller Asset Allocation for a Limited Partner
- 12. Copyright (c) 2003Ziya G. Boyacigiller The Trade-off Between Risk & Return
- 13. Metric Used: IRR Copyright(c) 2003 Ziya G. Boyacigiller IRR “Internal Rate of Return” Parameters: • Initial Investment • Follow on Investments • Cash Out • Time (maximum 10-12 years) Use Excel built in formula….
- 14. VC Firms Performance Kleiner Perkins Caufield& Byers IRR Sequoia IRR Matrix Partners IRR 1992 fund 39%/y 1992 fund 110%/y 1995 fund 223%/y 1994 fund 122%/y 1995 fund 175%/y 1997 fund 516%/y 1996 fund 287%/y 1998 fund 93%/y 2000 fund -30%/y 1999 fund -21%/y 1999 fund -5%/y 2001 fund -39%/y 2000 fund -16%/y 2000 fund -25%/y Source: Venture Scoreboard
- 15. VC Returns (asof 3/31/04) VC Fund Type 1 year 3 year 5 year Early Seed funding -2.9% -19.8% 47.1% Balanced funding 20.5% -9.4% 17.5% Later stage funding 38% -6.0% 7.1% All venture funds 15.7%* -13.3% 22.0% Stock Indexes Nasdaq 48.7% 2.7% -4.1% S&P 500 32.8% -1.0% -2.6%% Source: SJMN 7/22/04 * First double digit yearly return since 2000
- 16. Copyright (c) 2003Ziya G. Boyacigiller Which of the following firms would you rather invest in? Each invests $1 million per company in 10 companies: 1. One gets 2x their money on all 10. 2. The other loses all their money in 8 and gets >20x their money on the remaining 2.
- 17. Copyright (c) 2003Ziya G. Boyacigiller Summary of the Investment Business
- 18. Copyright (c) 2003Ziya G. Boyacigiller How do you find Right/Non-Consensus?
- 19. Copyright (c) 2003Ziya G. Boyacigiller How can you recognize vision? •Early insight into technology inflection point (disruptive innovation) •The Napkin test
- 20. Single most important determinantof success that overwhelms all else is the choice of industry. Copyright (c) 2003 Ziya G. Boyacigiller
- 21. Copyright (c) 2003Ziya G. Boyacigiller Buffet’s Law of Startup Success •When a great management team meets a lousy market market wins •When a lousy management team meets a great market market wins •When a great management team meets a great market something special happens
- 22. Execution “Effectof Management Team” Copyright (c) 2003 Ziya G. Boyacigiller
- 23. Copyright (c) 2003Ziya G. Boyacigiller Capital Intensity •Least Amount of Money = Most Attractive Business •Minimize Capital Required by High gross margins (Unfair advantage) Rapid escape velocity (Product/Market fit)
- 24. Copyright (c) 2003Ziya G. Boyacigiller How do Valuation & Terms get established? •Look at milestones achieved (aynasi istir kisinin, lafa bakilmaz…) (credibility is delivering what you promise…) •Look at comparables (It’s just like buying a house…) •Then it’s up to supply & demand
- 25. Copyright (c) 2003Ziya G. Boyacigiller Milestones Chart to CF+
- 26. Copyright (c) 2003Ziya G. Boyacigiller Term Sheet TERM SHEET FOR SERIES A PREFERRED STOCK FINANCING OF [Insert Company Name], INC. [ __, 200_] This Term Sheet summarizes the principal terms of the Series A Preferred Stock Financing of [___________], Inc., a [Delaware] corporation (the “Company”). In consideration of the time and expense devoted and to be devoted by the Investors with respect to this investment, the No Shop/Confidentiality and Counsel and Expenses provisions of this Term Sheet shall be binding obligations of the Company whether or not the financing is consummated. No other legally binding obligations will be created until definitive agreements are executed and delivered by all parties. This Term Sheet is not a commitment to invest, and is conditioned on the completion of due diligence, legal review and documentation that is satisfactory to the Investors. This Term Sheet shall be governed in all respects by the laws of the [State of Delaware].
- 27. Copyright (c) 2003Ziya G. Boyacigiller It is all about the pie… 50% 10%
- 28. Copyright (c) 2003Ziya G. Boyacigiller
- 29. Copyright (c) 2003Ziya G. Boyacigiller
- 30. Copyright (c) 2003Ziya G. Boyacigiller
- 31. Ref: Golden HornVentures 31 Reasons to Raise VC Unique Product or Concept Excellent Development Capability Large Potential Market Opportunity Intense Competition Likely Need to Move Rapidly Implications VC Funding Supports: • Capital • Network • Experience & Expertise • Credibility & PR
- 32. Copyright (c) 2003Ziya G. Boyacigiller What VCs Don’t Look For •Another Microsoft! •Do you think they care if you build a long-term great company (beyond their holding period)? - No benefit to IRR or distributions - Impacts their reputation
- 33. Copyright (c) 2003Ziya G. Boyacigiller Who is the ideal funding source? Potential Market Size Ideal Funding Source Small Bootstrap or Angel Unclear Bootstrap or Angel then VC Large Venture Capital
- 34. Copyright (c) 2003Ziya G. Boyacigiller How should you choose among Venture Capitalists / Investors •Industry experience / perspective •Recruiting help (network) •Partnering/Contacts •Brand/Credibility •Price/Stage •Funding Required •Location •Chemistry
- 35. Copyright (c) 2003Ziya G. Boyacigiller Who should you ask for advice? •Successful Entrepreneurs •Top deal lawyers •Investment bankers •Frequent advisors to the VCs - Professors - Angel Investors •Inovent •Endeavor