C O N F I D E N T I A L | DO NOT DISTRIBUTE Start-Up Financing and Cultural Differences Silicon...
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Transcript of C O N F I D E N T I A L | DO NOT DISTRIBUTE Start-Up Financing and Cultural Differences Silicon...
C O N F I D E N T I A L | DO NOT DISTRIBUTE
Start-Up Financing and Cultural Differences
Silicon Valley vs. Europe
Start-Up Financing and Cultural Differences
Silicon Valley vs. Europe
C O N F I D E N T I A L | DO NOT DISTRIBUTE
2
San Francisco, Paris
$550M Funds under Management
Early Stage IT
Integrated Model
Institutional Investors
PARTECH INTERNATIONAL
C O N F I D E N T I A L | DO NOT DISTRIBUTE3
INNOVATION FINANCING
Cultural Differences and Entrepreneurship
Venture Capital Overview
The Term Sheet: where it all begins
A Matter of Perspective
C O N F I D E N T I A L | DO NOT DISTRIBUTE4
INNOVATION FINANCING
Cultural Differences and Entrepreneurship
Venture Capital Overview
The Term Sheet: where it all begins
A Matter of Perspective
C O N F I D E N T I A L | DO NOT DISTRIBUTE5
THE VENTURE FUND MONEY FLOW
Venture Capital Fund
Institutional Investor IPO/M&A
$200-500M
$5-10M
$10-100M
Entrepreneur
Venture Capital Fund
Institutional Investor
C O N F I D E N T I A L | DO NOT DISTRIBUTE6
INVESTMENT SLOWING YET PACE SUSTAINED
$94.1
$36.7
$22.4
$20.1 $23.0 $24.5$29.1
$32.2 $31.1
$21.4
248928172967
2754257324312279
2472
3335
6359
$0
$25
$50
$75
$100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
0
1,000
2,000
3,000
4,000
5,000
6,000
Amount Invested ($B) Number of Deals
C O N F I D E N T I A L | DO NOT DISTRIBUTE7
YET… SMALLER ROUNDS
$7.3
$20.0
$15.0
$5.0
$3.1
$6.5
$0.6
$1.5
$0
$5
$10
$15
$20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Later Round Second Round First Round Seed Round
C O N F I D E N T I A L | DO NOT DISTRIBUTE8
MOSTLY IN IT AND HEATHCARE
0
400
800
1,200
2003 2004 2005 2006 2007 2008 2009
Healthcare IT Consumer Services Business Services Energy & Utilities
C O N F I D E N T I A L | DO NOT DISTRIBUTE9
FOCUSED ON EARLIER STAGE
18%
25%
23%25%
32%
41%35% 37%
4% 3%
0%
20%
40%
60%
80%
100%
4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09
Restart
Later
Second
First
Seed
C O N F I D E N T I A L | DO NOT DISTRIBUTE10
EXITS: MOSTLY M&A
0% 20% 40% 60% 80% 100%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
IPOs M&As
C O N F I D E N T I A L | DO NOT DISTRIBUTE11
CALIFORNIA: NEARLY 50% OF US TOTALSilicon Valley/Bay Area: 33%
Bay Area 33%
Southern California
9%New England15%
All Other US24%
Research Triangle
2%New York Metro
7%
Potomac2%
Pacific Northwest
5%
Texas3%
C O N F I D E N T I A L | DO NOT DISTRIBUTE
4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09$0
$1
$2
$3
$4
$5
$6
$7
$8
12
Am
ou
nt
Investe
d
(€B
)
US VENTURE INVESTMENT
EUROPE VENTURE INVESTMENT
EUROPE WAY BEHIND
France/US: 1/10 in number of deals, 1/20 in amount
C O N F I D E N T I A L | DO NOT DISTRIBUTE13
A CRISIS?
17.5 18.726.1
21.525.3
45.649.3
26.1
0.8 0.34.8
1.0
-7.7-12.5
-38.4
-2.3-5.3 -1.2
74.0
-60.0
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Thomson Reuters
Average IRR by Fund Vintage
C O N F I D E N T I A L | DO NOT DISTRIBUTE14
KEY ISSUE: TIME-TO-EXIT
2.52.1
2.8
3.7
4.6
5.4
6.06.3 6.0
5.0
0
2
4
6
8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
7.9
8.7
6.8
6.2
5.75.75.7
3.6
4.7
3.1
0
1
2
3
4
5
6
7
8
9
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
C O N F I D E N T I A L | DO NOT DISTRIBUTE15
INNOVATION FINANCING
Cultural Differences and Entrepreneurship
Venture Capital Overview
The Term Sheet: where it all begins
A Matter of Perspective
C O N F I D E N T I A L | DO NOT DISTRIBUTE16
WHY SILICON VALLEY?
Many VCs: sure, but why are they here?
Culture creates systemSuccessful system fosters culture
Many tried…
Universities: sure, but many other
Sunshine, beautiful bay: true, unreplaceable
Economic and tax environment: not unique
The real reason: culture really hard to reproduce
Good lawyers, PR firms, engineers: not unique
C O N F I D E N T I A L | DO NOT DISTRIBUTE17
A LOOK AT THE TERM SHEET
Reaction Tells All
Silicon Valley
France (Europe)
Liquidation Preferences
Expected Why?
Employee Option Pool
Negotiate reasonable
range
Eliminate or minimize
Founder Vesting
Negotiate protective exit
clausesMajor shock!
Preferred Voting Rights
Course of business
Hard to accept
Board Structure &
Control
Course of business
Distrust, suspicion
C O N F I D E N T I A L | DO NOT DISTRIBUTE18
INNOVATION FINANCING
Cultural Differences and Entrepreneurship
Venture Capital Overview
The Term Sheet: where it all begins
A Matter of Perspective
C O N F I D E N T I A L | DO NOT DISTRIBUTE
A Matter of Perspective
19
•Decision Making
• Influence Sharing
• Capital Sharing
•Hiring and Firing
How cultural context changes everything
C O N F I D E N T I A L | DO NOT DISTRIBUTE
A MATTER OF PERSPECTIVE: DECISION MAKING
20
• Silicon Valley• Focus: Act => Fast
decisions• OK to be wrong, just adjust• If you are right 70-80% of
the time…
• Mostly Pragmatic decisions
• France• Focus: Think =>
Optimized decisions• Avoid mistakes at all costs
• Often Emotional decisions
• Example: NEU• Decision to focus on market… painfully long meetings
• Example: MSY• “I know it is the right decision but…”
C O N F I D E N T I A L | DO NOT DISTRIBUTE
A MATTER OF PERSPECTIVE: INFLUENCE SHARING
21
• Silicon Valley• Recognize expertise …and
lack thereof• Open management
communications (including strategic matters)
• Uneducated about foreign markets, but know it.
• France• Problem delegating to
functional experts• Tight-lips management
and information control• More educated about Intl.
markets, but harder to let local execs drive strategy
• Example: INO• Could not give up leadership for larger goal
• Example: KTK• We dominate at home, therefore we know…
C O N F I D E N T I A L | DO NOT DISTRIBUTE
A MATTER OF PERSPECTIVE: CAPITAL SHARING
22
• Silicon Valley• Ownership is part of
standard compensation• Dilution creates value• OK to own 5-10% of
company at IPO
• France• Ownership is founder
privilege
• Dilution robs founders• Unfair to own 5-10% of
company founded
• Example: SWY• US: everyone a shareholder – France: 7 shareholders (out
of 100+)
• Example: TI• Missed exec hires, conflict with French management and
board structure
C O N F I D E N T I A L | DO NOT DISTRIBUTE
A MATTER OF PERSPECTIVE: HIRING AND FIRING
23
• Silicon Valley• Employment is business
contract
• One month notice: you’re a softie
• France• Employment is moral
contract
• One month notice: you’re a cold-blooded capitalist
• Example: SWY• Hunt versus nurture
• Example: IMM• Incapable of hiring execs, looking for perfect match (see
also indecision)
C O N F I D E N T I A L | DO NOT DISTRIBUTE
UNDERSTAND THE LOCAL CONTEXT, BUT…
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• The obvious: (most) markets are global
• Competition can come from anywhere• Ex: CLAP didn’t see European competitor emerging
• Local advantage may be blinding• Ex: MIA ignored rise of US giants
• Cultural advantage may be carry limits• Ex: PCT stayed local lifestyle company
Always keep a global perspective