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Venture capital 101 Slide Deck
This document provides an overview of venture capital, including: - The key difference between startups and SMEs, and between private equity and venture capital - What venture capital is and examples of major investments like Accel Partners in Facebook - The premise of venture capital being high risk but also high reward - A brief history of venture capital and its growth in Australia - How venture capital funds are typically structured and the types of venture capital - Current areas of interest for venture capital like fintech, AI, and blockchain - The key decision criteria venture capitalists examine like metrics, business dynamics, deal terms, and team
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Venture capital 101 Slide Deck
- 1. 1 reinventure.com.au Venture Capital 101 DannyGilligan Twitter: @dannygililigan
- 2. 2 Start-up vs SME Start-up Newand experimental business models Focused on growth High risk Equity financed SME Follows existing business models Focused on sustainability Low risk Debt financed
- 3. 3 Private Equity vsVenture Capital Private Equity Established companies with substantial revenues Established business models Look for under performing assets Take controlling stake 51 – 100% 2-3x return on each investment Venture Capital Early stage companies with limited revenues and profit New and emerging business models and products Look for high growth assets Take minority stake 10-20% 10x return on each investment
- 4. 4 What is VentureCapital? Start-up financing cycle: Series C + Series B Revenue Avg. Funds Raised Bootstrapped By Founder(s) Angel Investors Accelerators Exit: IPO Trade Sales Management Buyout Venture Capital Early Stage Later Stage Series A Seed Capital Runway $1m $2-$5m $10 - $20m $20m+ 12m 12-18m 24m 24m+ Definition: Venture Capital is a form of funding which specifically invests in new businesses with high growth potential and super normal returns. Examples: 2005 - Accel Partners investing $12.7m in Facebook 2008 – Sequoia Partners investing $8m in WhatsApp
- 5. 5 The key premiseof Venture Capital is convexity Possible Upside Possible Downside VentureCapital Payoff f(x) Time (x) 2005 Accel Partners invested $12.7m (Series A) in Facebook for 10% equity In 2010, Accel sold off ~2% of their stake at 247x initial investment value. The remaining ~8% would be worth 3,302x initial investment value today.
- 6. 6 Company Building Brief Historyof Venture Capital 1946 1972 20102007 2009 2011 2014 2017 First VC Accelerator Equity Crowdfunding SPAC Sand Hill Rd Platform VC ICO Product Crowdfunding VC ICO 2005 Angel List
- 7. 7 Venture Capital inAustralia Sources: AVCAL, CBinsights 154 124 325 568 1320 2013 2014 2015 2016 2017 Australian VC Fundraising ($m)$1.3B Funding in last year 125 Deals in the last year +24.37% YoY Deal growth 68 Venture Capital firms $82B Funding in last year 5,083 Deals in the last year +12.28% YoY Deal growth 798 Venture Capital firms Australia U.S.
- 8. 8 How Venture Capitalis set up Venture Capital Fund Limited PartnersInvestment Team General Partners Portfolio Company Portfolio Company Portfolio Company Portfolio Company Capital Interest Carried Interest & Management Fees Average Fund Lifetime: 7-10 years
- 9. 9 Types of VentureCapital Standard VC Corporate VC • Financial objectives • Dedicated funding • Long term • Strategic objectives • On balance sheet • Holding period can change • Access to networks • Operational expertise • Access to distribution • Access to deep industry expertise Structure Value add • Financial objectives • Dedicated funding • Long term • Distribution • Industry expertise • Access to networks • Operational expertise
- 10. 10 Current Areas ofInterest Fintech A.I Blockchain Cyber Security Data Payment Solutions Crypto P2P Lending
- 11. 11 Decision Criteria Metrics • Monthly Recurring Revenue •Customer Acquisition Cost • Life time value (of customer) • Churn • Total Addressable market Business Dynamics • Disruptive or sustaining • Network effects • Virality Deal Terms • Valuation • %holding • Board seat
- 12. 12 Decision Criteria Team • Co-founderdynamics • Founder blind spots • Repeat founders • Experts in the subject matter • High amount of grit • Hustle • Get shit done gene
- 13. 13 Reinventure’s Philosophy Pioneering Founder-FirstCorporate Venture Capital
- 14. 14 Get in touchwith us! Website: http://reinventure.com.au/ @ReinventureFundmedium.com/the-ouroboros-effect linkedin.com/company/reinventure-group/
Editor's Notes
- #3 Objectives of a VC in the investment mandate of the fund For Reinventure they are: Opportunities where a relationship with WBC can offer significant advantage to a venture We believe fintech is for the most part an inherently regional opportunity, so prefer ventures targeting the APAC region Parties Involved: Limited Partners Investors in a VC fund that hold ownership shares in the fund Liability is limited to amount of capital they contribute Institutional investors and high net-worth individuals General Partners Managers of the VC fund Hold unlimited liability Entrepreneurs Individuals that seek VC funds and assistance Underwriters Assists in IPO exits of VC investments
- #4 Objectives of a VC in the investment mandate of the fund For Reinventure they are: Opportunities where a relationship with WBC can offer significant advantage to a venture We believe fintech is for the most part an inherently regional opportunity, so prefer ventures targeting the APAC region Parties Involved: Limited Partners Investors in a VC fund that hold ownership shares in the fund Liability is limited to amount of capital they contribute Institutional investors and high net-worth individuals General Partners Managers of the VC fund Hold unlimited liability Entrepreneurs Individuals that seek VC funds and assistance Underwriters Assists in IPO exits of VC investments
- #5 Objectives of a VC in the investment mandate of the fund For Reinventure they are: Opportunities where a relationship with WBC can offer significant advantage to a venture We believe fintech is for the most part an inherently regional opportunity, so prefer ventures targeting the APAC region Parties Involved: Limited Partners Investors in a VC fund that hold ownership shares in the fund Liability is limited to amount of capital they contribute Institutional investors and high net-worth individuals General Partners Managers of the VC fund Hold unlimited liability Entrepreneurs Individuals that seek VC funds and assistance Underwriters Assists in IPO exits of VC investments
- #7 Link: https://techcrunch.com/2017/11/09/70-years-of-vc-innovation/ One of the first famous venture capital investments was Digital Equipment Corporation (DEC). In 1957 American Research and Development Corporation (AR&D), one of the first venture capital firms, invested $70,000 in DEC. When DEC went public in 1968, this investment was worth over $355 million, or a return of over 5,000 times the invested capital. AR&D's investment in DEC was one of the original venture capital home runs. SPAC: Special Purpose Acquisition Companies Origins – Military with ADR Silicon Valley - India & China
- #8 Australian VC Ecosystem Largest Unicorns out of VC Atlassian Canva Aconex Greensill
- #9 Trust structures Liability Investment mandates
- #10 Differences between Standard VC/ CVC and Reinventure Focus – Standard VC (no specific focus – can be early stage and late stage), CVC (linked to expertise of the corporation backing it – generally later stage/ looking to buy), Reinventure (linked, but broad – done seed/ early stage investments) Objectives – Standard VC would have Financial Objectives, CVC would have strategic objectives Control – Standard VC want a level of control, CVC like to sit back Exit strategy – Standard VC like quick returns, CVC are more long term – acquisition, OEM partnership Objectives of a VC in the investment mandate of the fund For Reinventure they are: Opportunities where a relationship with WBC can offer significant advantage to a venture We believe fintech is for the most part an inherently regional opportunity, so prefer ventures targeting the APAC region Parties Involved: Limited Partners Investors in a VC fund that hold ownership shares in the fund Liability is limited to amount of capital they contribute Institutional investors and high net-worth individuals General Partners Managers of the VC fund Hold unlimited liability Entrepreneurs Individuals that seek VC funds and assistance Underwriters Assists in IPO exits of VC investments