venture capital

VENTURE CAPITAL

VENTURE CAPITAL

HTW – University of Applied SciencesInternational Business LawProf. Dr. S. DietrichNavi K. J. Phifer, Janin Viere, Lucia Soskova, Lisa Petzold

Table of Contents

1. Introduction• Definitions

2. Venture Capital• Historical Background• What, Why, Who ?• How to find Investors• The role of VC investors• VC financing cycle• Direct/indirect VC

10.04.23 2Venture Capital

3. Exit Strategies• IPO‘s• Trade Sales• Secondary Sale• Buy Backs• Liquidation

4. Advantages/Disadvantages

5. Discussion Points6. Conclusion

Definitions

• Venture Capital

• Corporate Venture Capital

• Private Equity

• Business Angels

• Direct/indirect VC

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Definitions

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Historical Background

• 1946 – 1977: started out in USA• 1960s: Germany• 1970 – 1971: Financial support offered• 2000 – 2001: “.Com-Bubble Burst“ total investment 2000: $ 16.8bn total investment 2002: $ 2 bn• 2008: 6.400 German firms involved in

VC• 2009: €8bn in German VC funding10.04.23 Venture Capital 5

VC - What, Why, Who ?

• Helps to foster growth

• “Innovation capital“

• Technology

• Financial backing for new, innovative

ideas

• Firms which require much capital

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How to find VC investors?

• Internet searches

• Personal contacts / recommendations

• Banks

• Large existing corporations

• Previous financers

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The Role of VC-Investors

• Finance

• Advice

• Consultation

• Management

• Partial business ownership

• Eventually exit

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Types of VC - Financing

• Expansion Financing

• Bridge Financing

• Turnaround Financing

• Replacement Capital

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VC Financing - Cycle

1. Screening

2. Seed Financing

3. Early Stages

4. Growth Finance

5. Exit Strategies (Janin)

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Phase 1: Screening

• Business plan creation

• Select and contact investors

• Screening

• Pre-contract negotiations

• Due diligence test

• Contract closure

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Questions to ask before considering VC financing

Do we have high growth prospects and

a team ambitous enough, to grow

rapidly?

Do we have a competitive edge or a

unique selling product?

Intellectual Property Rights?10.04.23 Venture Capital 12

Questions to ask before considering VC financing

Are we willing to sell company shares

to a private equity investor?

Do we have a realistic exit opportunity

for all shareholders to realise desired

investment?

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Phase 2: Seed Financing

• D & R (Development & Research)

• Very high risk

• Difficult to judge commercial success

• Buy-in at low price

• Contract negotiations

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Phase 3: Early Stages

• Tests

(esp. in pharmaceutical and bio-tech.

fields)

• Marketing activities

• Building up production capacity

Less risky than seed finance, but the

commercial success is still hard to judge10.04.23 Venture Capital 15

Phase 4: Growth Finance

• Company hits market

• Needs to stay afloat and grow to

compete

• Further advice

• Last finance payments

• Hit Break-Even-Point

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Phase 5: Exit Strategies

• IPOs

• Trade Sales

• Secondary Sales

• Buy Backs

• Liquidations

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Phase 5: Exit Strategies

• IPOs

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Phase 5: Exit Strategies

• Trade Sales

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Phase 5: Exit Strategies

• Secondary Sales

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Phase 5: Exit Strategies

• Buy Backs

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Phase 5: Exit Strategies

• Liquidations

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Phase 5 Exit Strategies - Statistics

• 2008, in exit volume terms:• trade sales dominated at 35%• sales to other private equity firms came to 30%• divestments by IPO/sale of quoted equity were 9%• trade sales dropped from 89 to 74• sales to private equity firms increased from 10 to

29• Total losses were down from € 139 million and 151

companies to € 118 million and 136 companies• As a result of declining share prices both declined

the number of exits by IPO (from 7 to 3) and through the sale of shares (from 34 to 10).

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Advantages/Disadvantages

• The VC Investor

• Investment

• Experience, advice, mentoring

• Objectivity

• Networking

• Recruitment

• Credibility

• Shared risk10.04.23 Venture Capital 24

• Mandatory exit

• Loss of independence

• Right to lay off the workforce

• Onerous conditions

Advantages/Disadvantages

• Capital

• Solely for our business

• Start-up financing

• Liable equity within the company

• Improved rating

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Advantages/Disadvantages

• Due Diligence

Advantages Disadvantages

• Company realises:

Where it stands in the market

What/where to improve

Possible future developments

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•Time

•Money

•Power

Advantages/Disadvantages

• The Company

Advantages

• Growth

• Value

• Security

• Equity ratio

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Advantages/Disadvantages

• DilutionDisadvantages

• Dilution-decrease of sth

• Anti-dilution protection

Milestone financing

Pay-to-play

Liquidation preferences

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Advantages/Disadvantages

• Contractual protection for the VC investor

• Information rights

• Control rights

• Representation and warranties

• Anti-dilution protection

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Advantages/Disadvantages

• Restrictions on the Transfer of

Shares by Shareholders

• The articles and shareholders‘ agreement

• Exceptions

Investors‘ shares

Founders‘ shares

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Advantages/Disadvantages

• Investor‘s Protection-Exit

• Drag-alone rights

• Tag-along rights

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Advantages/Disadvantages

• Taxation

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Discussion Points

• Obstacles

• Alternatives

• Our best options

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Conclusion

• Augumus Pecumian GmbH

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