2. 2
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Douglas Abrams
About the facilitator
Wharton MBA
JP Morgan – Vice President
IB Technology, GM Internet Marketing
Parallax Capital Mgmt – Co-founder and MD
Private Equity
Extream Ventures – Co-founder and MD
S$20 million seed fund
Expara – Founder and MD
IDM Ventures Incubator, advisory, training
NUS – Adjunct Associate Professor, Business
School, Entrepreneurship, Sasin – Visiting
Professor, Venture Capital
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Douglas Abrams
VC mindset
Risk and return are highly correlated
You cannot increase return without taking more risk
Return
Risk
Potential outcomes
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Douglas Abrams
Key elements for success
• Solving a painful problem for customers – Value proposition
• Developing an innovative product – Innovation
• Customers and competitors – Market identification and analysis
• Reaching customers – Marketing, sales and distribution strategy
• Competing when others enter - Sustainable competitive advantage
• Make money – Business model and financial plan
• Team – A team or B team
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Douglas Abrams
Key venture finance terms
Business model
Financial projections
Valuation
Funding required and equity offered
Use of Proceeds
Exit Strategy and ROI
Cap table
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Douglas Abrams
Company valuation methods
Price to earnings (p/e)
Dividend yield
Multiple of book value
Comparables
Discounted Cash Flow (DCF)
VC method
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Douglas Abrams
How much equity does the investor receive?
Pre-money valuation
– Amount invested by VC ÷ (Agreed pre-money value of business
+ Amount invested by VC)
– $3MM pre + 1 MM VC = 25% VC equity
Post-money valuation
– Amount invested by VC ÷ post-money valuation
– $4MM post = 25% VC equity
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Douglas Abrams
How do VCs make money?
Trade sale – sell to
another company
IPO – sell to the
public through listing
on an exchange
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Douglas Abrams
Stages and sources of funds
Founder’s
Capital
Seed/
Angel
Series
A, B, C
Mezzanine Pre-IPO IPO
VC hurdle rates 60-100% 40-60% 20% Why are these rates so high?
OM
F,F&F
Incubators
corporations
government
Customers, suppliers,
strategic partners
VCs, Banks for VC loans