Venture and Growth Capital

1
Venture and Growth Capital
2
Equity Investments

• Holding on to what youve got
• Equity investments are a trade-off game

3
Do you really want an investor?

• Question Would you rather have a small slice
  of a large pie, or have the entire hostess fruit
  pie to yourself?
• Do you NEED the money?
• Do you WANT outsiders involved in your business?
• WHO do you dare bring into your circle?

4
Angels

• Definition Individual. Not an organization.
• Significant source of startup financing.
• Find an angel with expertise as well as cash.
• Terrific source for smaller startup needs and
  EARLY stage financing. (Usually smaller amounts)
• They are usually experts in your industrybeware!
• Networking is your only hope of finding them

5
Venture Capital

• Venture Capital is a Process.
• Firms look for opportunities to add to the chain
  of value creation.
• Fairly recent phenomena (last 2-3 decades have
  seen the majority of VC activity)

6
Definitions

• Venture Capital An Organization that makes
  equity investments in startup companies, seeking
  a high return.
• Private Funds
• Corporate Funds
• Lead Funds
• Niche Funds

7
VC Fund Structure

• Investor(s) Provide money
• Process is called raising a fund
• Venture Firm / Partners Do the Work
• Screen opportunities
• Close deals
• Manage portfolio companies

8
Compensation and Investor Returns

• Partners receive an annual management fee
  (usually around 2).
• Partners get (on average) 20 of capital gains of
  the fund.
• Investors receive remainder of the capital gains.
• Distributions are made over very long time frames
  (sometimes decades).this is NOT a highly liquid
  investment vehicle!

9
Industry Overview

• Total of 21.2 Billion invested in 2002
• Compares to 41.3 Billion in 2001
• 2003 figure is nearly identical with 1998s
  amount
• Look here for detail on where the money went (or
  see handout)
• http//www.pwcglobal.com/extweb/ncpressrelease.nsf
  /DocID/1BE29A405A1233D485256CBC006B65B2

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Recent Statistics
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Participation by Industry

• Medical Devices Technology
• http//www.devicelink.com/links/venture.html
• High Tech
• Softbank http//www.sbcap.com/
• Biotechnology
• Directory http//www.bioworld.com/servlet/com.ac
  cumedia.web.Dispatcher?nextvcDirectory
• Example firm Fuqua http//www.fuquaventures.co
  m/focus.html

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A look at typical VC firms

• Kleiner Perkins (The Leader)
• http//www.kpcb.com/
• Wasatch Ventures (Local)
• http//www.wasatchvc.com/
• Charles River (East Coast)
• http//www.crv.com/
• Sequoia Capital (Jobs at partner companies)
• http//www.sequoiacap.com/

13
Typical Venture target

• Low risk, versus potential return
• Industry or strategy fit
• High potential
• Fit with Venture firms goals on stage, amount,
  control, and growth rate
• Has a business plan that got an A in B475

14
Stage Preferences of VCs

• Some prefer very late stages (Mezzanine) such as
  Softbank, in order to lower risk.
• Some companies seek earlier stage financing,
  accepting inherently higher risk, hoping for much
  higher returns.
• Some will go all the way through the process with
  youothers will drop out

15
Where do these people hide?

• VC Finding tools
• http//www.ventureexchangenetwork.com/index.htm
• http//www.garage.com/
• http//www.vfinance.com/home.asp?ToolPagevenca.as
  p
• National organizations (see next slide)
• Magazines (Venture, Inc., Forbes, RedHerring,
  VCJournal)
• Broker / Dealers
• Consultants
• Investment Bankers
• COMPANIES in your industry may have a VC arm
• Intel Capital http//www.intel.com/capital/

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Key Organizations

• NVCA
• www.nvca.org
• Venture Economics
• www.ventureeconomics.com
• Price Waterhouse
• Regional Venture Organizations
• VC Journal
• Red Herring

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Typical Deal Flow

• Contact / Intro
• Business Plan review / Meet management
• Due diligence
• Valuation / Negotiation stage (depends on lead)
• Closing
• Managing the investment
• Exit (it may be a decade before you hit this
  stage)

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Due Diligence

• Background checks on management
• Verification of patents / agreements
• Complete disclosure of financials
• Review of ALL agreements (lease, customer, etc.)
• Review of corporate structure / minutes
• Review of pending litigation

19
Benefits of Dealing with VC

• Help with Strategy
• Very Experienced Partner
• Board participation
• Network of industry contacts
• Help recruiting key employees
• Access to markets, suppliers, customers, key
  industry figures

20
Drawbacks to VC funding

• It aint just your show anymore
• Depends on bargaining position / strength of your
  company

21
Increasing your odds

• Focus on a high growth opportunity with very high
  top-line potential
• Leverage relationships to find the right VC
• Make sure your business plan really works
• Seek VCs that fit your company
• Revenues today greatly increase your chances
  funding and your ultimate valuation
• Do your own due diligence
• Demand that the VC deliver Value beyond the cash

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Final Note

• If youre serious about VC
• Do a whole bunch of reading to come up to speed
  on the VC industry and current environment.
• Consider working with a broker or consultant who
  has a proven track record of investment placement