Post on 27-Jul-2015
How To Get Started In VC (On & Off Sand Hill Road)Kate Mitchell, Scale Venture Partners, @KateDMitchell
PreMoney SF 2015 Investment Conference
2Kate Mitchell @KateDMitchell
Why Are We Talking About This?
• Venture Returns Not Entirely Persistent
• LP Interested In “Next Generation” Managers
Q: How Reduce Risk Of Investing In New Managers?
A: Get Educated On How To Reduce That Risk
4Kate Mitchell @KateDMitchell
Are You Right For It?
Do You Have Relevant Skills From The Venture Ecosystem??
7Kate Mitchell @KateDMitchell
Technical/Startup Skills
More Common…
& More Predicative of VC Success
8Kate Mitchell @KateDMitchell
Why Skills Matters to LPs
Relevant Experience Provides Context …
Improving Probability of SuccessA:
9Kate Mitchell @KateDMitchell
Is It Right For You?
• Player vs. Coach?
Entrepreneurs Are “In the Game”
10Kate Mitchell @KateDMitchell
Is It Right For You?
• Are You A Player or A Coach?
• VCs Role is “NIFO” (Nose In/Fingers Out)
11Kate Mitchell @KateDMitchell
Is The Model Right For You?
Invest Personal Savings & Sweat Up FrontCo-Invest Alongside LP Partners
12Kate Mitchell @KateDMitchell
Is The Model Right For You?
Repay All Called Capital First (Including Fees)Before the “Equity” or Carry Benefit Begins
20Kate Mitchell @KateDMitchell
Source: Hewitt EnnisKnupp, An Aon Company Global Invested Capital Market June 2014,
Public Equity 36%
Fixed Income 43%
Cash & Other 6%
Alternatives15%
• Concentration In Liquid Assets
• Alternatives For Return
$101.1 Trillion INVESTED CAPITAL
Alternatives Are Small Part Of Portfolios
21Kate Mitchell @KateDMitchell
Source: Hewitt EnnisKnupp, An Aon Company Global Invested Capital Market June 2014,
Private RE Debt 38%
Private RE Equity30%
Hedge Funds 16% Private Equity15%
• PE is 2% of Total Invested Capital
• Endowment Model Is 7%
$15 Trillion INVESTED CAPITAL IN ALTERNATIVE ASSETS
PE Is Small Part Of Alternatives
22Kate Mitchell @KateDMitchell
Source: Hewitt EnnisKnupp, An Aon Company Global Invested Capital Market June 2014,
Buyouts53%
Growth, Mezzanine & Distressed
22%
Other10%
Venture15%
• VC Is 0.3% of Invested Capital
• Illiquid, Long Term• Providing Needed
Return
$2.5 Trillion INVESTED CAPITAL IN PRIVATE EQUITY
Venture Is Small Part Of Private Equity
23Kate Mitchell @KateDMitchell
Cambridge Venture Return vs. Russell 2000 Return
Source: Cambridge Associates, U.S. Venture Capital Index, September 30, 2014
As of September 30, 2014
1 Year 5 Year 10 Year 20 Year
Cambridge Venture
Russell 2000
24.5%
14.9%
10.0%
34.1%
3.9%
14.3%
8.2% 9.0%
Venture Cyclical But Outperforms Over Time
24Kate Mitchell @KateDMitchell
Fear of Reentry At Wrong Time In Cycle
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-20%
0%
20%
40%
60%
80%
100%
120%
US Venture % of GDP Vintage Year Pooled Return
Venture Returns & Capital as % of GDP
Source: Thomson Reuters/National Venture Capital Association/Cambridge Associates
25Kate Mitchell @KateDMitchell
Returns Are Widely Disbursed In Venture
Pitchbook, 2Q 2015 VC PE Report
Top Quartile
Second Quartile
Third Quartile
Bottom Quartile
27Kate Mitchell @KateDMitchell
Know What Venture “Product” You Are Selling?
• Develop Tech• Product/market fit
• Sales & marketing execution• Management team build out
• Financial risk • Market Conditions
LATE: VALUATION RISK
MID: SCALING RISKEARLY BINARY RISK
Understand• Risk Profile• Return Expectations
(Multiple & IRR)
• Expected Liquidity• Passive vs. Active
Role
28Kate Mitchell @KateDMitchell
Be Willing To Stand Out From The Crowd
Why? LPs Want Portfolio Diversification
29Kate Mitchell @KateDMitchell
Are You Doing What You Do Best?
• Avoid Being A Lemming
• Follow What You Know
30Kate Mitchell @KateDMitchell
Know What Makes Your Fund Unique
• Deal Flow • Geography• Sector Focus• Partner Expertise• Team
Composition
32Kate Mitchell @KateDMitchell
It Is All About The People
• Individual & Team Experience– Individual Skills– Complementary Skills
• Relationship– Experience As A Team– Individual vs. Team Sport
33Kate Mitchell @KateDMitchell
Take The Limited Out Of The Term “LP”
LPs Invest In 10+ year Blind Pool
• Based on Trust In You
• & Your Honest Relationship With Them
34Kate Mitchell @KateDMitchell
Do Your Fundraising Homework
• Get The Best Advisors
• Get Tough Feedback/Market Test
• Invest In Materials/Data
• Governance Matters
• Do Homework on LPs
How To Get Started In VC (On & Off Sand Hill Road)Kate Mitchell, Scale Venture Partners, @KateDMitchell
PreMoney SF 2015 Investment Conference