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Tactics and Strategies for Deploying Funds by Anand Lunia

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StartupCentral Venture Capital Masterclass, July 2012

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Tactics and Strategies for Deploying Funds by Anand Lunia

  1. 1. Deploying a $100 Mn early stage fund Startup Central Master-class July 21st ,2012 1
  2. 2. Please point out if you don’t understand the Jargon
  3. 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 fundSo out of $100 mn, set aside atleast $20 mn So while returns are counted on $ 100mn, the deployment is of $ 80 mn only
  4. 4. Casting the Net- Round 1 (Seed, Series A)Nos 1st Round Stake Avg6 $ 0.5M, 15%Startups,negligible revenues, incubator6 $ 2 mn, 15-30%Startup with revenues6 $3 mn 15-30%Early stage, mature startup, mature teams18 round 1 investments ( range 15-20) $32 mn
  5. 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. 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. 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. 8. Total DeploymentNos Deployment % RemarksRound 0 18 mn 18% Try to recycle some money from early exitsRound 1 32 mn 32% More companies? More stake per co?Round 2 30 mn 30% Be bold here- don’t wait for next roundRound 3 20 mn 20% Pay to Play? Does it exist?
  9. 9. Exit Scenarios- optimisticKind 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 mnWinners 5 mn 15% $ 125 mn 3 60 mnMoney-Backs 6 mn 20% $ 25-50 5 50 mn1-2X (???) mnDuds 20% - 11 30 mn0-1XTotal 200Mn Investor return post carry is $180 mn, or 1.8 times, over 7 years
  10. 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

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