This document discusses strategies for deploying a $100 million early stage venture capital fund over 10 years. It proposes allocating $20 million for pre-operative expenses, leaving $80 million to invest. The strategy is to make 18 investments in Round 1 ranging from $500,000 to $3 million each, totaling $32 million. It then discusses follow-on investments in later funding rounds with the goal of identifying potential "home run" companies that could provide exits of $500 million or more and return the fund's capital plus an 80% profit.

1. Deploying a $100 Mn early stage fund
Startup Central Master-class July 21st ,2012
1

2. Please point out if you don’t
understand the Jargon

3. Round 0- provide for the
‘expenses’
Pre-operative expenses, other expenses and fees for 10 years
@2/2.5% pa amount to around 20% of the fund
So out of $100 mn, set aside atleast $20 mn
So while returns are counted on $ 100mn, the deployment is of $ 80
mn only

4. Casting the Net- Round 1
(Seed, Series A)
Nos 1st Round Stake
Avg
6 $ 0.5M, 15%
Startups,negligible revenues, incubator
6 $ 2 mn, 15-30%
Startup with revenues
6 $3 mn 15-30%
Early stage, mature startup, mature teams
18 round 1 investments ( range 15-20) $32 mn

5. Trying to Pick Winners (Series B)
Nos Follow on Valuation Avg Stake
$
5 Potential Home 3-5mn $ 20-30mn 20-30%
Runs
4 potential 2-3mn $ 10-20mn 20-30%
winners
Total in 9 cos $ 30 mn

6. Following on- Break-outs(Series C)
Nos Follow on Valuation Avg Stake
$
4-5 Sureshot Exits 3-4 mn $50mn 20%
Total Follow on in 4- $20 mn
5 cos
So these 4-5 companies will be close to $10 mn or 10% each of the
fund

7. Deploying More money
• Very few companies go towards a $250mn plus
exit.
• So its usual for earlier funds to not invest in
beyond a point.
• However, a $200 mn fund will continue to invest in
Series C, Series D, Pre-ipo- all rounds

8. Total Deployment
Nos Deployment % Remarks
Round 0 18 mn 18% Try to recycle some
money from early exits
Round 1 32 mn 32% More companies?
More stake per co?
Round 2 30 mn 30% Be bold here- don’t wait
for next round
Round 3 20 mn 20% Pay to Play? Does it exist?

9. Exit Scenarios- optimistic
Kind of Exit Average Stake Valuation How Total Returns,
Deployed held at many $
Exit Sum (a*b)
Home Run 10mn 10-15% $500 mn 1 60 mn
Winners 5 mn 15% $ 125 mn 3 60 mn
Money-Backs 6 mn 20% $ 25-50 5 50 mn
1-2X (???) mn
Duds 20% - 11 30 mn
0-1X
Total 200Mn
Investor return post carry is $180 mn, or 1.8 times, over 7 years

10. Strategies
• Cast the net wide- take early stake in more
companies, have a better shot a winner
• For smaller funds, try to aim for early exits,
smaller $25-50 mn in niche spaces
• For larger funds, try to play PE. invest in
traditional capital intensive industries with high
revenues- healthcare, education. No
blockbusters here, but money moves and exits
are real