Venture CapitalAn alternative asset class. High Risk. High Reward.

ventureTo proceed despite risk

capitalWealth used to generate additional wealth

Venture Capital: High risk, high rewardAn alternative asset class. Subset of Private Equity. Invest to diversify portfolio.

Investing in VC fund is typically 2-5% of a Limited Partner’s investment portfolio. Can return 30% of the entire portfolio's performance.

High risk high reward. Outsized returns-Multiple on investment, not a percentage.

Investing in globally disruptive high growth, high-tech startups and companies with long-term growth potential. Returns when company is taken to a successful exit.

Venture CapitalA subset of private equity. Not liquid. Purchasing equity in early stage innovative disruptive companies addressing large global markets. Provide funding and active managerial/operational assistance.

Generate returns by: Adding value and guiding these investments through to a major liquidity event/exit ex: IPO, M&A or sell shares on a secondary market.

Returns on investment are very high- typically multiples, not percentages.

VC firms identify and invest in early stage high-growth startups with long-term high growth potential. High risk for the investor, but potential for very high and above-average returns.

Investment: Timeline 10 yearsAll investors can expect to receive all returns and their principal at the end of 10 years. VC fund typically has a 10 year timeline. Fund is dissolved at the end of 10 year period. Success is evaluated at this point

First 5 years are for identifying companies, deploying initial investments and capital. 50% of funds are used here for initial investments. The second half reserved for follow-on investments and managing investments through to a successful liquidity event/exit i.e. IPO.

Investment Rounds: When to invest. Identifying companies at the right stage1) Seed stage2) Series A3) Series B4) Series C (some companies may raise additional rounds

of funding i.e. Series D, E F)5) Exit (IPO, M&A)- VC returns generated (3X, 10X, 100X)

Sweet spot for investing. Low loss, big returns. Early stage.

Investing at Seed Stage: Risk + Reward

Round Description

Seed Stage At this stage a company would receive investments from friends and family, Angel Investors, or early stage VC Funds. A Seed Round is typically $100k-$1m for 20% of the company. Each investor typically writes a check of $50-$250k. A Seed stage company does not have a financial history, or much traction for the investor to analyze. At this stage investors are evaluating the strength of the team, the magnitude of the problem that they are solving, and the adequacy of their solution.

Risk 84% of seed stage companies fail. 16% of seed stage companies succeed.Failed investment here can cost between $50-$250k

Reward 644% ROI: 1 successful seed stage investment in a company can typically return 644% at exit. Can be much higher. One success here can pay off the entire fund.

Returns can range up to 10X-100X at exit.

Typically a 3X return on investment at exit is minimum accepted standard of success.

Investing at Series A: Risk + RewardRound Description

Series A After the company has a product and found a product market fit they need to initiate their go to market strategy. This requires growing the team, and possibly incurring additional cost for targeting new markets.

Typical Series A rounds are $2m-$15m for 30% of the company, and each investor writes a check of $100k-$750k. The Funds investing in Series A company typically have $10m-$100m in assets under management. Due to large check requirements Series A deals are predominantly done by VC Funds, but occasionally Angel Investors will provide a follow on investment.

When a VC is analyzing a Series A deal it is still done subjectively. In addition to the team, problem, and solution a VC wants to understand a company’s Traction, Burn Rate, and Projections.

Risk 30% of Series A companies succeed. Make it to the next round to raise a Series B investment. 70% of Series A companies failFailed series A investment can cost between $100K-$750K.

Reward 300% ROI: A successful investment here can yield returns of 300% at exit, potentially higher.

Between Seed Stage and Series A is the sweet spot for investing. Low loss, big returns. Returns can range up to 10X-100X at exit.Typically a 3X return on investment at exit is minimum accepted standard of success.

Investing at Series B: Risk + RewardRound Description

Series B Series B funding is traditionally used for scaling a product. For most companies this means not just reaching new users, but growing a sales team, marketing team, finance team, and purchasing other companies.

A typical Series B round is anywhere from $10m-10s of millions. At this point a company has been operating long enough that their projects are more reliable. This enables VCs to make objective judgments about the quality of a deal.

In this round a Series A VC Fund will provide a follow on investment, but new investments come from VC Funds that specialize in Series B companies.

Series B Funds typically have $100m-$400m under management, and each investor will typically write a check of $1m-$5m.

Risk 56% chance of success.Failed investments here can cost $1-$5m.

Reward 94% ROI: A successful investment here can typically yield returns of 94% at exit.Though Series B is less risky, you are investing significantly more money, and seeing a smaller return.

Investing at Series C: Risk + RewardRound Description

Series C Series C, and the subsequent rounds, are about continuing to Scale and purchasing companies.

Though there are Series C VC funds this is where companies may start to target institutional investors and Private Equity groups.

Here is typically when companies will look to exit, IPO or M&A.

Risk 83% of companies who close a Series C will successfully reach an exit.

Reward 20% ROI: These are much more stable investments, but they typically only yield a 20% return.

EXIT: Major Liquidity EventThis is the major liquidity event. Typically after Series C.

IPO or M&A

When startups are sold, taken public or acquired.

This is where the returns for VC are generated

10X-100X returns possible (sometimes more)

3X returns general minimum standard of success

Venture CapitalA venture capital firm raises funds from several limited partners into a pool of funds. Limited partners recognise the need to diversify their portfolio into this risky alternative asset class as the returns can be outsized. The VC firm uses the money limited partners commit to the fund to make investments in exchange for equity. Returns to be generated upon an exit.

Key Players:

1) Limited Partners2) General Partners3) Entrepreneurs

Limited Partners- Invest in the fundLimited partners are the investors that provide the money and capital by investing in a Venture Capital Fund. This money is put into a pool which the General Partners then use to invest in promising companies they have identified.

LP’s include high net worth individuals, banks, institutional investors, pensions, insurance companies, companies, endowments, universities, family offices, sovereign wealth funds, governments looking to stimulate startup ecosystem, donor agencies and the like.

After 10 years at the end of the funds life LP’s are paid out first. The principal amount invested and 80% of all profits are paid to LP’s.

General Partners- Run the fund. Make investments.General partners are the venture capital firms, venture capitalists and analysts that make up the team running the business and making the investments. This is the team in charge of the management company- employees and admin work. GP’s manage the funds and do all the work investing and guiding companies to exit. They source deal flow and identify promising companies and deploy the capital investing in selected companies. General Partners work for the LP’s and have a fiduciary responsibility to maximise their returns.

2-3% of all funds raised from LP’s is used by the GP’s as a management fee to cover all business operational expenses i.e. salaries, contracts, travel etc

GP’s keep 20-25% of all profits as carried interest- After returning principal and 80% of profits to LP’s first at the end of the fund.

General Partners can choose to raise a new fund and continue investing based on the success of their prior fund

GP’s aka Venture Capitalists Do 6 Things1) Raise money from Limited Partners for their VC fund2) Find companies to invest in (Sourcing, dealflow)3) Close Deals (make investments in desired companies)4) Invest money, time, effort to help grow companies5) Manage and guide companies to exit6) Generate big returns for LP’s

EntrepreneursThe talented people that are creating new and exciting companies that will change the world.

These are the people that make up the startups that VC’s look for to invest.

VC firms are here to back their big ideas.

VC’s have to identify these talented people and teams and filter through them to figure out which ones to invest in.