We know what you want: money. Now, you probably think that a VC will give you money and leave you alone. Sorry, it’s not that simple. In this lecture we look at: * How VCs make money * What they want in return for their money * How they structure deal Part of the CIBC Presents Entrepreneurship 101 Lecture Series: http://www.marsdd.com/ent101

1. Follow or Tweet: #ent101

5.  VC motivations
 Driven by their model
 Impacts their terms and expectations
 Most companies aren’t VC’able
 Just don’t fit the “Big Money” model
 May be good companies and businesses
 But
if you are than you’ll be better
equipped than most because of tonight

7.  1,000 companies
 10 investments
 2 may be widely successful (usually 1)
 6 “land of the living dead”
 2 fail horribly
 Winners to offset my losers
 Start ups 10-12x return in 5-7
years
 Existing companies 5-7x in 4-5 years

8.  A company that doubles isn’t enough…
 Every opportunity has to have the
potential to be a home run

10.  YouTube sold to Google for $1.65 Billion
 Sequoia invested $11.5M received $495M
 30% of the company
 43xreturn
 Great deal!

12.  6-9 months to raise capital
 Several meetings
 Want to get to know you
 Assess your “Say/Do” factor
 Close to truth
▪ Builds confidence

13.  Personal Recommendation:
 Get to know the VC
▪ Process (who makes the decision, when & how
often)
▪ Where are they in their fund life cycle
▪ What was their last deal
▪ Talk to their existing CEO
▪ Cash available to invest/reserves
▪ No “Yes” means “No”
 Have to be able to live with them “til exit do
you part”

14.  Non-binding offer to invest
 Outlines the general terms and conditions
of investment
 Which may change
 Not the definitive agreement, simply a
place to start
 Everyone uses it

15.  Non-heartache
 Company name
 Investors
 How much
 Date

22.  Founders
 Employees
 Consultants
 Students/universities/research
organizations etc
 Avoid convoluted IP structures
 Only going to be unwound

23.  Non-competition
 Non-solicitation
 Customers
 Employees
 IP Assignment

24.  Ensure one common motivator
 Need to attract talent
 15%-20% (low as 12%)
 New CEO
 New executives
 Board members
 Non-VC
 Pre-$
 Dilutive to you

25.  Preferred shares
 Accrue
 Price + dividend convert

27.  Protects an investor from down round
 As if their investment had been done at the
current lower price
 Keeps the investor whole in bad times
 Full-ratchet
 Weighted average

28.  VC can ask to have the company buy
back shares
 Life of the fund
 Investors in funds want their money back
 Outcome:
 Forces a sale
 Get minimum investment back (P+dividends)

29.  Power of “OPM”
 Get to know your VC
 Won’t matter in good times
 Can’t tell you what to do but prevent you from
doing things

30.  60-66 2/3%
 Change nature of the business (acquire/divest)
 Change capital structure/articles
▪ Default approval over future financing
 Approve business plan/operating plan
 Change in key employees (defined term)
 Creation of ESOP
 Unbudgeted expenditure in excess of $5,000
 Non-arms length transactions
 ….

31.  Monthly prepared financial provided
 20-30 days from month end
 Quarterly financials
 Analysis vs budgets
 Board material
 Yearly operating plan
 (30 days prior to beginning of fiscal year)

32.  Founder restrictions
 Drag Along
 VCs need exit
 Tag Along
 I can sell a portion if you can

33.  Friends and family
 Move to 5
 2 investor
 2 founder
 1 independent
 Expect material in advance of meeting
 Only a meeting if the VC is there
▪ Defer once

34.  Acceptance & Exclusivity
 Deadline for acceptance
 Use the time to negotiate
 No “shop”
▪ Applies to company, depending on stage founders
Be careful what you ask for …don’t send
the wrong message