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What VCs Want (and why they call it 'Vulture Capital')

Speaker: Charles Plant, MaRS Advisor
In this lecture at we look at:

* How VCs make money
* What they want in return for their money
* How they structure deals
* And why they call it “Vulture Capital”

This is part of the CIBC Presents Entrepreneurship 101 lecture series. For more information and video:

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What VCs Want (and why they call it 'Vulture Capital')

  1. What VCs Want
  2. You Want Money Slide 2 MaRS
  3. VCs Want Slide 3 MaRS
  4. Slide 4 MaRS
  5. YouTube and Sequioa $1.65 Billion Slide 5 MaRS
  6. Sequoia’s Portfolio IRR(Portfolio) Slide 6 MaRS
  7. What this Means for YOU ( Slide 7 MaRS
  8. And now for something completely different… Slide 8 MaRS
  9. So What Happens if they Like You? Slide 9 MaRS
  10. What exactly is a term sheet? term sheet is an offer to invest in a company.  A is tabled by investors of all stripes: angels, VC’s,  It strategic investors is intended only to outline the basic points of an  It agreement in principle around which such binding legal documentation may be structured is not the final document on the subject.  It sheets are negotiable  Terms Slide 10 MaRS
  11. Basic Terms Date Price ation Valu oney Pre-M Investors Slide 11 MaRS
  12. Slide 12 MaRS
  13. Company Growth Forecast Slide 13 MaRS
  14. Rationalized Forecast Slide 14 MaRS
  15. Long Term Financing Strategy Slide 15 MaRS
  16. Pre-Money Value + = Pre-Money Invested Capital Post-Money (Yours) (Theirs) (Mostly Theirs) Slide 16 MaRS
  17. Building Enterprise Value Slide 17 MaRS
  18. Preferred Shares Slide 18 MaRS
  19. IP Assignment Slide 19 MaRS
  20. Employee Stock Option Plan (ESOP) Slide 20 MaRS
  21. Dividends (Not Yours) Time Slide 21 MaRS
  22. Liquidation Preference (Not Yours) YOU VC YOU VC LP LP Good Bad Times Times Slide 22 MaRS
  23. More rights and privileges (Not Yours) THEM YOU Slide 23 MaRS
  24. 60% of Preferred Share holders must -laws agree to: r by arter o t of ch ndmen me any a any sale of assets reclassifi cation of shares mer ger Slide 24 MaRS
  25. …and they also must agree to: of erms defined t in the es (as e chang Employe materia l ateria of Key any l change in t ny m he Business change in ac ent a , any materia counting poli oym l mpl cy or change e of year end ) below Blah the c re ESOP ation of t h , any chan e ESOP a n ge in the n d any incr umbe e r of d ase in the irecto who rs yees plo wco ny em ers of Ne t of a ld tmen shareho in appo s or g the , officer in nclud tors ons i ny direc acti a trans th with th leng leng rm’s rm’s on-a at a all n t acting o are n Slide 25 MaRS
  26. Shareholders’ Agreement … Information rights Slide 26 MaRS
  27. Board of Directors VC You You VC Collective Slide 27 MaRS
  28. Board Meetings Slide 28 MaRS
  31. Weasel words – there will be conditions Due dilig ence Prior agre emen ts and wa ivers ment tive Invest respec ssary Investors’ rs, as nece the y irecto Approval b Boards of D /or mittees and Com Usual representations and warranties Slide 31 MaRS
  32. Exclusivity and Acceptance Any VC giving you a term sheet will want   exclusivity for a period of time. You can’t shop it around. You’ll get a deadline for acceptance   You can negotiate some terms   Watch out what you ask for   Slide 32 MaRS
  33. The Golden Rule The man with the gold rules Slide 33 MaRS
  34. Slide 34 MaRS