The Glasshouse - Early Stage Funding Workshop presentation | Nov 14th 2011
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Transcript of The Glasshouse - Early Stage Funding Workshop presentation | Nov 14th 2011
Venture CapitalWhen and how to raise VC finance
14 Nov 2011
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Agenda
• Overview of Venture Capital
• When to raise VC finance?
• Strategies for VC fundraising
Venture Capital – How the VC makes money
• Raise fund every 2-4 years• Pension funds, financial institutions and specialist
“fund of fund” investors
• Invest money over 3-5 years~ 1/2 of investments lose money~ 1/3 of investments break even~ 1/6 of investments make (lots) of money
• Very small management fee on funds managed~ 1-2.5% pa
• Carry~ 20-25%x (Total Return – Total Amount Invested)
Venture Capital – Stages of Investment
SeedEarly StageSeries A, (B)
Later Stage(B),C,D…
Pre-IPO / Buy-out
PrivateEquity
Investment Size
Potential Sources of Funds
0 - €1m
Grant-funding
University seed funds
Friends and family
Angel Investors
(Venture Capital)
€2m-€20m
Venture Capital
(Wealthy) Angel investors
€5m-€20m
Venture Capital
€30m+
Specialist Late stage tech investment funds
Hedge Funds
Venture Capital – What a good VC will add
• Advice and Strategy
• Hiring• Developers• Country Managers• Sales• CEO / CFO / COO• Advisory Board
• Partnerships
• Profile and PR
• Internationalisation
• Trusted service provider relationships
• Search / recruiting• Branding / PR• Finance, etc
• Exit optimisation• Knowledge / contacts
with relevant buyers• Experience with
process
Venture Capital – Typical Deal Terms
• Target 20-35% ownership
• Board Representation
• Liquidation Preference
• Participation rights
• Element of reverse vesting
• Certain control and veto rights
• Option Pool
• Period of exclusivity to close legals
but that’s so
unfair…
Photo Source: Philip Greenspun, MIT
Agenda
• Overview of Venture Capital
• When to raise VC finance?
• Strategies for VC fundraising
Good reasons to raise VC
Large PotentialMarket Opportunity
Unique Product Or Concept
PassionateFounding Team
Pre-requisites
Intensecompetition
likely
Need to moverapidly
Implications…
Hiring
Infrastructure
VC funding supports
Rapid Product Development
Internationalisation
Partnerships
Commercialisation
When NOT to raise VC
Applicationis a feature
not a product
Market size istoo small
Motivation isnot financial
• Risk is not that you waste time unsuccessfully trying to raise finance …
• … real danger is that you do succeed in raising VC funds
• Lose opportunity for small exit which could be personally lucrative
• Lose opportunity to run lifestyle business• Get bound in to 3+ yrs work you may not enjoy
Agenda
• Overview of Venture Capital
• When to raise VC finance?
• Strategies for VC fundraising
What does a VC look for?
Technology Traction
• Can evaluate each as• Exceptional• Good / credible• Mediocre / incomplete
• Misconception that being good / credible across the board is what VCs look for
• Can always add credible attributes to the mix later
• We focus on finding opportunities which rate as exceptional in one attribute
Team
Identifying relevant VC partners
Has funds to invest
Match of Size/Stage/Geography
RelevantPortfolio
No directlycompetitiveinvestments
Excellenttrack record
Shortlist
• Do create a shortlist
• Rifle is a better weapon than a shotgun
Good free sources on VC fundinghttp://www.thealarmclock.com/euro/http://www.vecosys.com
Getting on radar screens
• Out of the blue email is a longshot
• Try to build context• Analyse portfolio companies – are there any links
there• Analyse contact network and advisors• Analyse press coverage• Participate in blog conversations• Attend events and conferences• Relevant PR around product also helps
• VCs spend their time looking for businesses with momentum
Sharing relevant information
• 100 page business plan not required
• 20 page ppt which clearly answers main questions is best bet
• Product• Market• Business Model• Team• Competition• Product Roadmap• Technology Overview• Business Development• Financial Status
Pre - first meeting Pre - termsheet Post - termsheet
• Dialogue rather than documentation – expect lots of meetings
• Calls with current / prospective customers or partners
• Meeting broader team
• Brainstorming around strategy
• Identifying key hires post closing
• Formal presentation to VC partnership
• Some additional reference calls with partners / customers
• Personal reference calls
• Legal / accounting audit (if relevant)
• Drafting legal documentation
2-4 weeks 1-2 Months
Key things to consider
1. RelationshipWith key individual(s); and broader team
2. ReferencesSpeak to other founders
3. PortfolioRelevant experienceNon competitiveCommunity you want to be part of
4. Valuation and associated deal terms
Right partner at a fair price
vs.
Any partner at best price
Valuation should not be the decisive factor
Value at exit
Probability of getting there
% share of business at exit
Entrepreneur’s Equation • Revenues / Profitability
• Growth rate
• Team quality
• Strategic fit with buyer community
• Well managed exit process
• Fewest strategic errors made
• Hiring (quality & speed)
• Partnerships
• Product development
• Valuation at initial round
• Valuation and dilution at subsequent rounds
• Option grants