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Ben Holmes @ FOWA Feb 07
- 1. Everything you need to know about Venture Capital Ben Holmes Index Ventures 20 February 2007
- 2. Who we are Index Ventures Pan European Venture Fund €1.3bn under management Based London & Geneva Active investor in web / internet Selected Investments
- 3. Agenda Overview of Venture Capital When to raise VC finance? Strategies for VC fundraising How to choose the right VC partner?
- 4. Venture Capital – Size of market US - 2006 $25.7bn – 1446 transactions – $10.5m average investment – Europe - 2006 – €4.1bn – 867 transactions – €14m average investment 55% of transactions within broad IT sector However rapid increase in Web application investments – UK 2005 - £24m invested – UK 2006 - £79m invested Sources: Dow Jones VentureOne, Paul Fisher at FirstCapital
- 5. 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)
- 6. Venture Capital – Stages of Investment Early Stage Later Stage Pre-IPO / Private Seed Series A, (B) (B),C,D… Buy-out Equity Investment 0 - €1m €2m-€20m €5m-€20m €30m+ Size Potential Grant-funding Venture Capital Venture Capital Specialist Late Sources of stage tech University seed Funds (Wealthy) investment funds Angel investors funds Friends and family Hedge Funds Angel Investors (Venture Capital)
- 7. Venture Capital – What a good VC will add Advice and Strategy Internationalisation Hiring Trusted service provider relationships – Developers – Search / recruiting – Country Managers – Branding / PR – Sales – Finance, etc – CEO / CFO / COO – Advisory Board Exit optimisation – Knowledge / contacts Partnerships with relevant buyers – Experience with Profile and PR process
- 8. VC Case Study Company Creation – Index acting as Interim Mgmt Team Recruitment – Mattias Miksche as CEO Relocated to Stockholm Board Hiring – Fred Davis Additional Finance – Sequoia Capital Celebrity Partnerships Fashion Industry Partnerships
- 9. VC Case Study Company establishes HQ in London – Few hundred meters from Index Day to day contact with founders Team Recruitment – Mike Volpi, Cisco as Chairman – Saul Klein, Head of Marketing – Etc. Exit strategy – Index plays key role in navigating multiple buyer discussions – Successful exit to eBay €2.5bn+
- 10. Venture Capital – Typical Deal Terms but that’s so Target 20-35% ownership unfair… Board Representation Liquidation Preference Participation rights Element of reverse vesting Certain control and veto rights Option Pool Period of exclusivity to close legals Photo Source: Philip Greenspun, MIT
- 11. Agenda Overview of Venture Capital When to raise VC finance? Strategies for VC fundraising How to choose the right VC partner?
- 12. Good reasons to raise VC Pre-requisites Excellent Unique Product Large Potential Development Or Concept Market Opportunity Capability Implications… Intense Need to move competition rapidly likely VC funding supports Rapid Product Hiring Partnerships Development Infrastructure Internationalisation Commercialisation
- 13. When NOT to raise VC Application Market size is Motivation is is a feature too small not financial not a product 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
- 14. Agenda Overview of Venture Capital When to raise VC finance? Strategies for VC fundraising How to choose the right VC partner?
- 15. The top tips… Have a great product Focus predominantly on the business not fundraising Evidence of executional ability is more exciting to VC than a 100 page business plan
- 16. Identifying relevant VC partners Has funds to invest Do create a shortlist Match of Excellent Size/Stage/ Rifle is a better weapon track record Geography than a shotgun Shortlist No directly Relevant competitive Portfolio investments Good free sources on VC funding http://www.thealarmclock.com/euro/ http://www.vecosys.com
- 17. 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
- 18. Sharing relevant information Pre - first meeting Pre - termsheet Post - termsheet 100 page business plan not Dialogue rather than Some additional reference required documentation – expect calls with partners / lots of meetings customers 20 page ppt which clearly answers main questions is Calls with current / Personal reference calls best bet prospective customers or partners Legal / accounting audit (if – Product relevant) – Market Meeting broader team – Business Model Drafting legal – Team Brainstorming around documentation – Competition strategy – Product Roadmap Identifying key hires post – Technology Overview closing – Business Development – Financial Status Formal presentation to VC partnership 2-4 weeks 1-2 Months
- 19. Agenda Overview of Venture Capital When to raise VC finance? Strategies for VC fundraising How to choose the right VC partner?
- 20. Valuation should not be the decisive factor Entrepreneur’s Equation Revenues / Profitability Growth rate Team quality Value at exit Strategic fit with buyer community Well managed exit process Fewest strategic errors made Hiring (quality & speed) Probability of getting there Partnerships Product development Valuation at initial round Valuation and dilution at % share of business at exit subsequent rounds Option grants
- 21. Key things to consider Relationship 1. With key individual(s); and broader team References 2. Right partner at a fair price Speak to other founders vs. Portfolio 3. Any partner at best price Relevant experience Non competitive Community you want to be part of Valuation and associated 4. deal terms
- 22. Thank you Ben Holmes Email: benh@indexventures.com Skype: ben_holmes Stardoll: binky2128