10 things you should know about vc

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10 THINGS YOU SHOULD KNOW ABOUT « VC » ABE – BECI – BVA Event January 21rst, 2010

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Presentation made during an Event organized by ABE-BAO, BECI and BVA

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Page 1: 10 Things You Should Know About VC

10 THINGS YOU SHOULD KNOW ABOUT « VC »

ABE – BECI – BVA EventJanuary 21rst, 2010

Page 2: 10 Things You Should Know About VC

Selected messages from the firstBelgian Guide to VC

Sophie Manigart

Olivier Witmeur

An initiative supported by:

2Olivier Witmeur, 21/01/2010

Page 3: 10 Things You Should Know About VC

Venture Capital / VC

Capital-RisqueCapital-Développement

Risicokapitaal

Seed Capital

Start-up capital

Private Equity / PE

Durfkapitaal

3Olivier Witmeur, 21/01/2010

Page 4: 10 Things You Should Know About VC

Risk

leve

l

High

Low

Company maturity

FFFFFF

BUSINESS ANGELSBUSINESS ANGELS

VENTURE CAPITAL

STOCK MARKETSSTOCK MARKETS

BANKSBANKS

Low High

1. VC is typical inside entrepreneurial finance

4Olivier Witmeur, 21/01/2010

Page 5: 10 Things You Should Know About VC

2. High risks = High returns

• Typical expected yearly return:– Seed: 60-100%– Start-up: 50-60%– Early development: 40-50%– Growth: 30-40%

RISK

RETURN

5Olivier Witmeur, 21/01/2010

Page 6: 10 Things You Should Know About VC

3. VCs are professionals with their own business strategy

• Multiple types of VC firms: public, private, captive…

• They all have:– Investment strategy

• Industry, region, maturity stage…– Portfolio strategy (risk diversification)– Organizational structure

• Investment Manager• Investment Committee

6Olivier Witmeur, 21/01/2010

Page 7: 10 Things You Should Know About VC

4. Equity for growth … not lifestyle

BE AMBITIOUS.

7Olivier Witmeur, 21/01/2010

Page 8: 10 Things You Should Know About VC

5. A very selective filter

1

100

80

2

Contacts

Initial meetings

10 Start of Due Diligence

Investment Proposal (term sheet)

Investment

DON’T GIVE UP AFTER A FIRST REJECTION.

8Olivier Witmeur, 21/01/2010

Page 9: 10 Things You Should Know About VC

6. A systematic Due Diligence process

InitialContact In-depth analysis Negotiate

Go / No go Go / No go ShareholderagreementTerm sheet

Pitch Initialmeeting

Business Plan

More info items

Closing

From 6 to 9 months

BE PREPARED.

9Olivier Witmeur, 21/01/2010

Page 10: 10 Things You Should Know About VC

7. Define Exit route in advance

• Trade sales• IPO (Initial Public

Offering)• Buy-back / MBO

DEFINE EXIT ROUTE IN ADVANCE.

10Olivier Witmeur, 21/01/2010

Page 11: 10 Things You Should Know About VC

8. The value of a company is mainly based on its future

• Multiple valuation methods:– Discounted Cashflow /

Net Present Value– Multiple (from peer

group)– Book value– Exit based value

BE REALISTIC.

11Olivier Witmeur, 21/01/2010

Page 12: 10 Things You Should Know About VC

9. A partnership with written rules• Formalized in a term sheet and in a shareholder agreement

– Investment conditions and milestones– Corporate governance, incl. board composition, veto rights…– Reporting– Work agreement for the entrepreneurs, incl. good leaver/bad

leaver clauses– Buying and selling shares– SOP (Stock Option Plan)– Non competition and non disclosure– Dispute litigation

ETHICS MATTERS.

12Olivier Witmeur, 21/01/2010

Page 13: 10 Things You Should Know About VC

10. Smart money

• Best practices• Network

– Specialists– Industrial partners

• Access to more finance• Second opinion• Helicopter view• Exit preparation

BETTER A SMALLER PART OF A MUCH BIGGER CAKE.

13Olivier Witmeur, 21/01/2010

Page 14: 10 Things You Should Know About VC

Q&A on www.venture-capital.be

14Olivier Witmeur, 21/01/2010