venture capital

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Venture Capital

An Introduction to

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Agenda for the next 2 hours• Introductions • What is Venture Capital• Why VC?• Types of Funding• Process• What VC’s Look for• Exit strategy• Discussions

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Edventures1

• A Learning and

Development organisation

• Experimentors

• Over 100 years of

combined experience

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Facilitator – Pradeep Yuvaraj

• Goal for the session

• Rules for the session

• About

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Where do I get money from?

• To start new business

• Grow a business

• Put a new factory

• Revive a dying company?

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Possible sources: Non-equity• Personal funds• Personal debt• Grants and awards• Customer pre-sales• Venture leasing• Receivables financing• Business loans• In-kind contributions• Joint ventures

or

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Sources: Equity

• Angels• The “4Fs” – Friends,

Family Father in law and Fools

• Corporate direct investment

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

orHero of the day: Venture Capital

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

What is Venture Capital

• Type of Equity investment

• Above average or High returns

• Story of the man with the idea

and the man with the money

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

In other words

… It is the business of employing capital

‘patiently’ to ‘maximize returns’ while

managing risks in a relatively high-risk venture

Versus

Simply ‘minimising risks’ for a surer fixed return

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Why take risk?

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Why is it better than all other sources

• Spirit of partnership• Risk - Reward sharing• Active participation and value addition• Long term perspective• Investment and not assistance• Returns linked to performance• Expects high returns

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Who become VC’s?

• Individuals

• Corporations

• Private firms

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

How a VC company runs?

• General partners (GPs) manage the fund• Capital comes from institutional “limited

partners” (LPs)• Singularly focused: ROI• GPs get an annual fee• Once LPs get investment back, GPs get a

portion of the profits• LPs get the remaining profits

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Venture Capital Economics

VC Fund IX, L.P.

LP 1 GPLP 2

LP 3

PortfolioCompany 1

PortfolioCompany 2

PortfolioCompany 3

PortfolioCompany 4

PortfolioCompany 5

LP 4

$100 Management

$10 PortfolioCompany 10

PortfolioCompany 9

PortfolioCompany 8

PortfolioCompany 7

PortfolioCompany 6

$10

$10$10

$10 $10$10

$10

$10

$10

2%

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Venture Capital Economics

VC Fund IX, L.P.

LP 1 GPLP 2

LP 3

PortfolioCompany 1

PortfolioCompany 2

PortfolioCompany 3

PortfolioCompany 4

PortfolioCompany 5

LP 4

$180

PortfolioCompany 10

PortfolioCompany 9

PortfolioCompany 8

PortfolioCompany 7

PortfolioCompany 6

$100

$25$40

$35

$20

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

When will VC’s Fund?

• Seed Capital –Only ideas–No product– Small amounts–Capital used • Market research• Sample Product• Set-up costs

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Startup Capital

• Product development completed

• Sample is already available

• Initial marketing has been done

• <2 years

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Early stage

• 2-3 years in business• Management in place• Sales on rise• VC could increase sales• Improve productivity• Improve efficiency

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Expansion capital

• Company is established

• Next level of growth

• Enter new markets

• Specialized VC’s

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Late stage/Mezzanine

• Impressive sales and revenues

• Broken even/profitable• Second level of

management • Capacity increase• Ramp up marketing

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Other types

• Restructuring

• Bridge capital

• Turnaround

• Acquisition

• Merger

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

The process

1 •Business Plan •Unsolicited Vs referred

2 •Initial evaluation by Associate•Follow up evaluation by partner

3 •First meeting/assessment of team•Preliminary due diligence

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

The process….

4 •Second, third… meetings •Decisional commitment

5 •Term sheet issued•Detailed Due diligence

6 •Negotiations•Documentation – Closing/funding

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Fundraising time line

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Business Plan

Submissions

Investor Presentations

Term Sheet Negotiations

Final Documentation

Funding

Budget 4-5 months, or more

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

After funding

• Monitoring – Board seat– Financial Performance

• After 3-7 years: Exit– IPO– Sale back– M&A– Sale to strategic investors

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Fundraising Lessons

• Network to gains access to VCs• Don’t get hung-up on confidentiality• Be persistent• Be humble yet confident, and always

courteous and professional• Embrace and learn from rejection• Be greedy in the long-run (any % of something

> 100% of nothing!)

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Believe In Your Idea!

“The wireless music box has no imaginable commercial value.”

– David Sarnoff Associates, in rejecting a proposal for investment in the radio in the 1920s

“We don't like their sound, and guitar music is on the way out.”– Decca Recording Co., rejecting the Beatles in 1962

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Believe In Your Idea!

“Many of our stockholders have asked me about this new invention by Alexander Graham Bell called the

telephone. While we think it’s an interesting curiosity, there’s never going to be a market for that technology,

and therefore we have declined the offer to take a license.”

– Chairman of Western Union, in its annual report from the late 1800s

“Who the hell wants to copy a document on plain paper?”

– National Inventors Council, as told in 1940 to Chester Carlson, founder of XEROX

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Attributes of a Successful Entrepreneur

• Problem solver• Decisive• Leader & motivator• Humble• Passionate• Persistent• Optimistic• Professional

• High integrity• Critical path doer• Impatient / bias toward

action (with analysis)• Rejoices in others’

victories• Focused on the long-

term goal

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Closing thoughts…• Focus on the long-run–What goes around comes around– Friendships last longer than jobs–Don’t let greed blind the objective

• Make the most of the experience– Listen & learn– Failure or rejection is what you make of it

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Entrepreneurship…

• Entrepreneurship is a lifestyle choice– Balance your risk & return– Seize opportunities– Life’s short, have fun

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

Discussions…

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44

• +91-97-87- 55- 55- 44

• training@edventures1.com

• www.edventures1.com

Thank You!