CUE Tech Venture Market

1
CUE Tech Venture Market Executive Summaries

• Grant J.D. Warrell, BA, MA cantab
• University of Cambridge
• November 2008

2
Introduction

• My Bio
• Former University of Cambridge Math and Computer
  Science (Here?)
• Lehman Brothers, Inc! (London NY)
• Omnicom Group, Inc (NY, NY)
• Pegasus Capital, LLP. (Cos Cobb, CT)
• Manticore Partners, LLP. (Greenwich, CT)
• Cambridge Worldwide, Inc. (Greenwich, CT)
• GP Bullhound, Ltd. (London, UK)

3
Topics

• An overview of the Venture Capital market
• How to write a powerful Executive Summary

4
But before we begin

• How many of you are?
• Students
• Engineers
• Business Folks
• Entrepreneurs
• Investors
• Other?

5
Why raise Venture Capital?

• To develop technology or start a company?
• Ultimately, Its about making money which
  ultimately means selling things AND making a
  profit
• For VCs too, its about them making money (i.e.
  a return on their investment)
• If you understand them they can be your best
  friends

6
Know your Investors

• This is a relationship business first. And a
  business relationship in the end
• Venture Investors invest by size (amount), stage,
  geography, sector and trend
• Look at the Bios of the Investors
• Look at deals theyve done
• Look at the successful exits of the fund
• Compare with their competitors
• See who they know

7
Types of money

• Friends Fools and Family (FFF)
• Government and University Initiatives
• Venture Angels (100-500k)
• Seed Funds (up to 1m)
• Early Stage (Series A) Venture Funds (up to 5m)
• Series B Venture Funds (5m-50m)
• Series C and beyond Venture Funds (5 and above)

8
Market conditions

• Currently a lot of capital sitting on the
  side-lines
• Deal processes can take as much as 2x longer
  (6-12 months) to complete
• But lower and more realistic valuations will be
  seen as an opportunity for some investors
• It is also a good time in the economic cycle to
  start a business to catch the growth cycle as
  it occurs

9
What do VCs want?

• Big market
• The new hot thing
• Chance of investing in the next Google
• Scalable product
• A global strategy
• Fast growing profitable companies

10
What do VCs need?

• Return 3-5x their investment in 3-5 years
• Some downside protection
• A sustainable business model
• Defensible business strategy
• An Exit

11
What do VCs like?

• A company they believe they can add value to
  (with money or otherwise)
• Something they understand and believe in
• Something that fits their investment profile
• A strong management team
• People they could and want to work with
• Something they havent already got

12
A note on Strategics

• Many small companies view large corporations
  (Strategics) as their worst enemy and biggest
  threat
• However, most successful venture backed
  technology companies are bought by global leaders
  in their segment
• And, most Strategics only end up buying companies
  that they have existing long standing commercial
  relationships with

13
I suggest asking yourselves

• What is our vision?
• What is our go-to-market strategy?
• How are we going to execute upon it?
• Do I have a clear path to break-even?

14
What kind of company are you?

• Widgets
• Services
• Products
• Algorithms
• Frameworks

15
Additional suggestions

• Focus on Volume (e.g. users, traffic or units),
  Revenue AND Profits
• Work with not against the world
• Build a strong management team
• And establish a strong Board

16
When to raise Venture Capital?

• Should raise money as late as possible
• But well before you run out
• When there is a clear and present opportunity
• While it is available

17
How many stages?

• Google had 13 before IPO
• Some companies have only 2-3
• Avoid the down-round pit-falls
• Learn about Preference Shares, Employee Stock
  Options, Common Stock and other sorts of finance
• Be careful with Venture Debt, use it as a last
  resort

18
How much should I raise?

• As much as you can get at the right price
• The amount which enables you to maximize your
  rate of growth
• Enough to last at least 2-3 years

19
What about pricing?

• Market sets the pricing look at other deals
• Most deals involve selling 33 of the post-money
  company
• Therefore the amount theyre willing to invest
  suggests a price
• Dont be greedy Googles founders sold 50 of
  the company to start

20
The approach

• Use the salesperson in your team
• Contact many 20 at once
• Run a process time-line
• Stay in regular and frequent communication during
  their evaluation
• Get a Term-sheet in front of you before
  negotiating too hard

21
Key documents

• Executive Summary
• Business Plan
• Management Presentation
• Financial Summary
• Financial Model (NDA first please)

22
Process

• Start with sending the Executive Summary and
  three bullet intro email
• Contact the VC to follow up
• Schedule a time to meet to go through the
  Management Presentation
• Invite them to a site visit at your office
• Set a time-line for completion
• Ask them for a term-sheet (with valuation,
  amount, structure and pricing)
• Enter into diligence
• Close the transaction

23
Types of Exit

• Sale to a LargeStrategic
• IPO/Aim Listing
• Mergers
• Secondary investors

24
What is an Executive Summary?

• Summary information about your business and
  business plan
• A marketing tool to open doors and get meetings

25
Start with a business plan

• SWOT Analysis
• Executive Summary
• Market Opportunity
• Products Services
• Business Model
• Financial Projections

• Technology IP
• Competitive Landscape
• Company Description
• Management Bios
• Transactions Valuations

26
Style and presentation

• Two styles of writing a business plan
• Section Headings and Talking Headings
• Also two approaches to presenting your business
• The usual presentation and the independent
  research presentation
• Dont be too salesy
• VCs like to Buy they dont like being Sold to

27
Write the Executive Summary last

• And write the first paragraph of the Executive
  Summary Last
• Keep it short
• Keep it simple
• Deliver a clear message

28
The Executive Summary

• Top of Page
• Name (Grant Warrell), Sector (Digital Media
  Venture Capital) and Location of Company (London,
  UK New York, NY)
• Revenue and EBITDA figures
• Capital Requirements
• Time to Break-Even (i.e. Q4, 2008)
• Key contact persons (number, grantwarrell_at_msn.com)
  

29
The Executive Summary

• Description of the Vision/Opportunity of the Firm
• This is the Elevator Pitch
• Size of the Market
• How big is it?
• Show charts
• Quote and reference research sources

30
The Executive Summary

• Customers and go-to-market strategy
• How are you going to do it
• Track-record other demonstration of ability to
  Execute
• Prove you can do it
• Description of unique/disruptive business model
  and/or offering
• Why are you different/special/better

31
The Executive Summary

• Description/Pictures of the Product and/or
  Technology
• Show off the goods! Sell them on your wares
• Positioning in the market
• Tell them where you fit
• 5 Year Financial Forecast in Chart-form (Revenue
  and EBITDA)
• Show them what doing it will achieve

32
Thank You Very Much