A1258690222mQvRA

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VCIC Workshop The Game
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Agenda

• VCIC background
• Event Itinerary
• Judging Criteria
• Tips for Preparing
• Understanding VC
• Dos and Donts
• Covered in the other Prep Session (VC 101)
• VC Job Cycle
• Basic VC math
• The VC ecosystem (LPs, GPs, etc.)

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VCIC Background

• Invented at UNC in 1998 4 schools, 1 event
• In 2013
• 60 schools
• 50 events (40 internals, 10 regions, 1 finals)
• 1,200 students worldwide
• 175 VCs donating thousands of hours
• 125 entrepreneurs

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(No Transcript)
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Hall of Champions
2012 2011 2010 2009 2008
2007 2006 2005 2004 2003
2002 2001 2000 1999 1998
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Agenda

• A little VCIC background
• Event Itinerary
• Judging Criteria
• Tips for Preparing
• Understanding VC
• Dos and Donts

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Event Itinerary
On Your Own
Friday 9am
Wednesday 5pm
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Friday 10am
Research industries, markets, technology, etc.
Watch entrepreneurs pitch
Friday 430pm
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4
Read business plans
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Interview entrepreneurs
Feedback from judges
The VCIC Experience
Friday noon
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Friday 130pm
Make investment decisions
Negotiate a deal
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Wednesday-Thursday

• Receive business plans by email 5pm Wednesday
• Research industry, market, etc.
• Hold team strategy meetings
• Create lists of questions for entrepreneur

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Friday

• 900 Entrepreneur pitches
• 945 Due diligence sessions (15 minutes each)
• 1130 Working lunch Pick ONE investment
• 100 Written deliverables
• 130 Negotiations and QA
• 445 Awards Ceremony
• 500 VC Round Robin (feedback)

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Agenda

• A little VCIC background
• Event Itinerary
• Judging Criteria
• Tips for Preparing
• Understanding VC
• Dos and Donts

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How do teams Win?

• Due Diligence
• Written Deliverables
• Negotiations and QA
• BOTTOM LINE which team would judges like as a
  venture partner?

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Due Diligence 33

• These are the actual questions on the VCIC Judge
  Form
• How well did the team cover what you consider the
  key issues/questions?
• How did the team seem to understand the business
  opportunity and strategy?
• To what level was the team able to establish
  appropriate rapport with the entrepreneur?
• How appropriately did the team lead/control the
  meeting?
• How well did the team dig into the right issues?
• How skilled was the team at getting information
  (not just asking a list of questions)?
• To what level did the team appropriately
  demonstrate their value as a VC firm to the
  entrepreneur?
• How well did the team demonstrate an
  understanding of the financial requirements of
  this deal?
• How well did the group appear to work together as
  a team (as best you can tell)?

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Term Sheet and Negotiations 67

• Backed the right horse with the right terms.
• Valuation / Investment Size / Syndication /
  Board Structure / Option Pool / Liq. Pref.,
  Anti-Dilution, Dividends / Dates and other
  terms
• Teams performance during negotiation?
• Focus on the important issues? / Establish
  positive rapport? / Demonstrate firms value?
  / Made progress towards getting a deal?
• How well did the team handle QA?
• Did they demonstrate a mastery of VC skill sets
  and domain expertise?
• How well does the teams proposed deal address
  the concerns of other investors (syndicate,
  previous, future or skip if not applicable)?
• How well does the teams investment fit the fund
  profile, including syndication (or not) and
  planning for follow-on rounds?
• Other Insert any question if the team did
  something else that stood out, good or bad. For
  example, were you surprised to get a term sheet
  on this deal based on due diligence?
• How well did the group work together as a team?

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How do Negotiations Work?

• You will negotiate with the entrepreneur you
  chose for a deal
• Entrepreneur will have a copy of your term sheet
  (not your executive summary)
• You have 15 minutes to make progress and
  demonstrate to judges that you are great VCs
• Judges have 10 minutes for QA with you they
  will have all written deliverables

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Agenda

• A little VCIC background
• Event Itinerary
• Judging Criteria
• Tips for Preparing
• Understanding VC
• Dos and Donts

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Understand the VC Profile

• Strategy swinging for fences
• Need to move the needle on fund size
• Expect future rounds
• You are the experts at venture creation
• Eye on the exit

Not 3X 10X on 100k doesnt cut it And plan for
them Make strategic assertions Back into your s
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Fund Profile

• You will be given a profile explaining the size
  of your fund and focus
• For example
• 75MM fund formed in early 2007
• 20 already committed
• 85 active
• The investment you make must fit the profile
  (not be too large or small)

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Example What to do with 100M

• Really only 80M to invest (fees 2/yr x 10 yrs)
• Could be a couple different strategies
• 8-12 deals at 5-10M each
• 1st round 1-2, follow on 2-4
• One or two big gambles in the 10M range
• Or maybe 12-16 deals at 3-6M each

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Advice About Valuation

• No DCF! Find comparable investments and exits.
• Back out of exit to current need.(e.g., 200M
  exit means we need 50 with our 5M investment to
  get 20X means pre-money 5M)
• Plan for reasonable ownership through future
  rounds (keep everyone incented).
• Consider syndication.
• Gut check is a guy in his garage worth 10M?
• VCs hate it when you over-value a venture.

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Practice

• VCIC is a role-playing game due diligence and
  negotiations need to be rehearsed
• The more often your team plays the role before
  the event, the more natural you will perform
• The best performers/presenters are the best
  prepared

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Dos

• Be well-versed in simple VC math and jargon
  (pre-money, post-money, options, etc.)
• Understand that VCs need to spend 1M on each
  round and 5M on each deal total (amount will
  depend on fund profile)
• Expect follow-on rounds, even if the
  entrepreneurs dont think theyll need it
• Nail the due diligence for all the deals

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Donts

• Dont use DCF to calculate valuation.
• Dont use VC jargon if you arent comfortable
  with it.
• Dont hold to your guns in QA. If judges are
  pushing back on something you did, you probably
  screwed up.
• Dont get fancy with the term sheet. VCs tend to
  see creativity on the term sheet as unnecessary
  risk.

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Term Sheet Cheat Sheet for IT
(optional) Organizers, put in typical terms for
deals in your area

• 1st round investments usually 1-3M
• Dont take more than 50 (maybe 40) in first
  round
• Use higher option pool if new CEO or other major
  management needed (15-20)
• Make sure board seats correspond to ownership

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Term Sheet Cheat Sheet for IT
(optional) Organizers, put in typical terms for
deals in your area

• Use vanilla terms (the industry standard)
• Dividends 8
• Liquidation preference 1x
• Anti-dilution half-ratchet
• Industry standards change year to year and
  region to region. It is important for teams to
  get coaching from VCs about local conditions.
  These terms are negotiable, but be careful if you
  dont fully understand them.

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Appendix

• Extra VC math advice

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Lingo

• A round is described as X investment on Y
  pre-money
• E.g., 10 on 5 means a 10M investment on a
  5M pre-money valuation, resulting in a 15M
  post-money valuation

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Example 2 on 2
Preferred Shares
Common Shares
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Adding Option Pools

• Generally 10-20
• Higher pool when lots of talent needed, e.g., new
  CEO
• of option pool refers to POST money
• Conventionally, pool always comes out of
  founders side

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Example 2 on 2 with 10 Option Pool
Preferred Shares
Common Shares
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Example 2 on 2 with 20 Option Pool
Preferred Shares
Pre-money is effectively 1.2M
Common Shares
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Math Advice

• Round everything
• Make broad assumptions about future rounds and
  exitE.g., Assuming 50 ownership at exit

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Estimating X Return

• Cash on cash
• Simple algebra proceeds/investment
• Proceeds exit Value ownership
• Investment includes all rounds
• Example
• 25 out / 5 in 5X return in __ years (estimate)
• Always include estimate of YEARS

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Estimating X Return

• Example
• Venture needs 1M now
• Anticipate future round of 3M
• Find comps for exit around 50M
• Anticipate total ownership of 60 at exit
• Proceeds 50M 0.6 30M
• 30/4 7X in __ years

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Estimating X Return

• Same example with syndication
• Venture needs 1M now anticipate future round of
  3M were in for half
• Find comps for exit around 50M
• Anticipate total ownership of 30 at exit
• Proceeds 50M 0.3 15M
• 15/2 7.5X in __ years

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Estimating X Return

• Same example with option pool
• Trick question
• No different for investors

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Dont be shy with assumptions!

• VCs have to assume a lot
• You need to indicate you understand the ecosystem
• When you cannot find data, say so and make an
  assumption