deal with investors_startupbus @google switzerland_nicolas berg_oct2013

How a startup should deal with investors

StartupBus

@Google Switzerland Zurich 28th Oct 2013

Redalpine Venture Partners Ltd, Pfingstweidstrasse 60, 8005 Zurich, Switzerland, +41 44 271 15 30, www.redalpine.com

early stage investments by entrepreneurs

NICOLAS BERG

Agenda

1. About me, Redalpine & Eco system of startups & venture investors

2. Know everything about your potential investors!

3. Why do you go for investors?

4. Why should an investor invest in YOUR startup?

5. What drives an investor & how does he select deals?

6. Which investor type fits for my startup?

7. How do I identify & approach investors?

8. How do I pitch for & negotiate with investors?

9. How do I treat investors after I got money?

Copyright Redalpine Venture Partners AG, Switzerland 2

Speaker: Nicolas Berg

Serial entrepreneur with 10 start-ups (1984-2011) - e.g. founder of Borsalino 1998, sold 2000 at 20x multiple to Ringier- iCEO Sharoo June-September 2013

Full time angel investor in 16 start-ups (2000-2006) - e.g. Investor & Country Manager XING 2004-2010

IPO at 30x multiple 2006 Partner at Redalpine Venture Partners (since 2007)

- Built a portfolio of 20 European high innovation start-ups with Redalpine Capital I & II

- 5 portfolio companies ranked among 13 Swiss top start-ups in 2011

Lecturer, journalist and jury member- Teaching students & entrepreneurs at venturelab.ch since 2006- Jury member of business plan & seed money contests (Venture kick,

SVC, Suvorov)


Redalpine in a nutshell

Manages Redalpine I CHF 20M micro VC fund (2007-2015) Manages Redalpine II CHF 30M* micro VC fund (2012-2020)

- Seed/early-stage in continental Europe (* aims at CHF 60M in 2nd closing)

Most innovative sectors in Europe- Technology/New Media and Life Science

Fund thesis- European seed/early stage offers potential for superior exit multiples- Best choice in Switzerland – leading accelerator in Berlin

Convincing track-record


Intro

A typical successful Top-10-Swiss-Startup 2013 2/3 from Zurich or Lausanne 20 out of 26 founders were not Swiss! 80% ICT, Life Science or Electronics 2/3 with links to ETH, UZH or EPFL

Typical Swiss seed & early stage investors: 200’000+ CHF millionaires 2000 angel investors + VC funds (shrinking since 2000) 20 successful investors (2+ double digit CHF million exits)

Source: Top 100 Swiss Startups


Conditions to become a high-tech cluster


① Successful startup founders role models 44

② Successful early-stage investors Venture Capital 4

③ International Top-10-university innovation, spin-offs 44

④ Qualified immigrants recruiting, risk takers 44

⑤ Vital support ecosystem entropy thru networking, training 444

⑥ Non bureaucratic research grants transfer 44

⑦ Mature companies of same sector cooperation, M&A, recruiting 44

⑧ General economic conditions & infrastructure image, recruiting 444

⑨ Attractive home market faster & safer Proof of Market 4

Great job creation impact of startups


Jobs

4m

3m

2m

1m

0

- 1m

- 2m

- 3m

- 4m

- 5m

Net job change startups <5 yrsNet job change companies >5 yrs

US start-ups create 3 million jobs per year, existing firms slash 1 million jobs (Kauffman Foundation

Source: Kaufmann Foundation, Business Dynamics Statistics, Tim Kane

US start-ups create 3 million jobs per year

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Spin-offs by international top-10-university


① Most Swiss university spin-offs by ETH, EPFL, UZH

② Number of spin-offs independent from economic sentiment (e.g. 2008/09)

Top exits of Swiss ICT startups


1998 – 2008 (10 years)

① Scout24/Human Line Ringier

② Auktion24 Ricardo

③ Comparis Investors

④ Borsalino Cash Ringier

⑤ Kelkoo Yahoo

⑥ Oanda Index Ventures

⑦ Search.ch Post Tamedia

⑧ LeShop Bon appétit

⑨ Mediastreams Microsoft

⑩ LeShop Migros

⑪ Endoxon Google

⑫ Jobs.ch Tiger Fund

⑬ Green TIC

2009 – 2012 (4 years)① Wuala LaCie② Svox Nuance③ DeinDeal Ringier④ Doodle Tamedia⑤ Liberovision Vizrt⑥ Procedural Esri⑦ Trigami eBuzzing⑧ Fashionfriends Tamedia⑨ Borsalino/Cash Bankzwei⑩ Umantis Haufe⑪ Jobs.ch Ringier/Tamedia⑫ Spontacts Scout⑬ Digitec Migros⑭ Housetrip Index⑮ NetBreeze Microsoft

Top exits of Swiss life science startups


1999-2004 (5 years)

① Actelion IPO

② Prionics 30x pay-back

③ Axovan Actelion

④ Jomed IPO

2005 – 2008 (4 years)

⑤ Arpida IPO

⑥ Glycart Roche ($200m)

⑦ Serono Merck (€10.2b)

⑧ Speedel Novartis ($880m)

2009 – 2013 (4 years)

① Esbatech Alcon ($589m)

② Neurimmune Biogen

③ Levitronix Thoratec

④ Okairos GSK

⑤ Glycovaxyn Investors

⑥ Endosense St. Jude Medical

⑦ Neocutis Merz Pharma

About 2000 Swiss early-stage investors


ICT: Early-stage VCs, angels & founders with recent top exit

① Index Ventures

② VI Partners

③ Brains-to-ventures

④ Redalpine

⑤ Creathor

⑥ Beat Schillig

⑦ Peter Schüpbach

⑧ Klaus Hommels

⑨ Oliver Jung

⑩ Roland Zeller (…)

Live Science: Early-stage VCs, angels& founders with recent top exit

① Index Ventures

② VI Partners

③ Redalpine

④ Nexgen

⑤ NVF

⑥ BioBAC Basel

⑦ Bruno Oesch

⑧ Peter Pfister

⑨ Jürg Geigy

⑩ George Haas (…)

Challenges for early-stage investors


①Early-stage smaller transactions small fund lower fees

②Active investment managers higher returns 5 startups per manager

③Diversified portfolio 15+ better risk return 3+ investment managers

④Entrepreneurial skills needed to select winning early-stage deals

Opportunities & risks


①Early-stage angel investments deliver 27% IRR

- 8 studies in US/UK on historical return in business angel markets, RSCM 2010

②But <10% of virtual portfolio (>6000) delivered >70% of returns

③«Average» investor got 27% IRR, but median investor looses money

Wanted investor types for Switzerland


①Serial entrepreneurs with at least one top exit

②Micro VC funds - managed by serial entrepreneurs (age 25-45) and successful angels - Very active investment approach in seed and early-stage - Diversified portfolio of 15+- Entrepreneurial LPs (serial entrepreneurs 50+, family offices)

③Co-investment & side-car funds - Less active or passive investment manager approach- Government and corporate funded (e.g. HTGF)- Driven by economic impact, not returns only

Why do you go for investors?

Secure innovation lead/USP Unlock maximum market potential Gain experience & network Probably better exit Share risk (upside & downside)

Best startups are sourced by best investors Best startups approach best investors

Alternatives Grow slower loose lead Self financed independent Work capital financed by customers, bank credit or leasing


Why investors go for startups

Adrenalin

Being useful providing network & know-how

High profits possible

High-innovation startups as an asset class provide 25% IRR

But majority of investors (median) looses money

Alternatives

Consume (Villa, yacht, golf, hotels, private jet)

Classic assets (Listed equity, funds, bonds, money market)

Alternative assets (real estate, commodities, gold, hedge fund)


What drives the investor (motivation)

Profit opportunity

- High-innovation startups as an asset class provide 27% IRR,but majority of investors (median) looses money!

Adrenaline

Being active & useful

- Network- Knowledge

Alternatives Consume (Villa, yacht, golf, hotels, private jet) Classic assets (Listed equity, funds, bonds, money market) Alternative assets (real estate, commodities, gold, hedge fund)


What investors are looking for (criteria)

Team, team, team- At least 2 extraordinary personalities that can

IMPLEMENT milestones of next 2 years Disruptive idea, technology or business model Attractive market 10% probability for 30x exit multiple


Founder types

Which founder types investors like or don’t like …


Close to reality distortion, psycho


Selectively focused, autistic


Stubborn and autistic

Resistant to advice – or asking mom, dad and grandma till she gets the answer she wants

Says “smart investor” but thinks “just give me the money for MY company, sugar daddy!”


Naïve model pupil

Reacts and obeys to any advice naïve, model pupil or weather vane Definitely not an entrepreneur!


Selectively honest, dishonest

Communicates only good news instantly Not honest Secret agenda


Con artist, scammer, manic

Communicates only good news instantly Not honest Dubious genius


Egotist, no team player

Poor alpha animal, can’t delegate Never recruits strong team member Non empathic, poor motivator


Money driven, not by results

Exit, salary, participation and bonus in focus

Vision, cause and results only second priority

Self marketer


What many investors like or dislike

I follow the lead wolf (brand name) in my investor network, and I avoid startups in fundraising mode since >9 months

I go for the hockey stick ORI don’t want to loose any investment

As soon as there is a gap to the plan I quit ORas soon as there is good news I invest more

If there are no news for several months I expect bad news ORIf I get good & bad news instantly my confidence rises

Founders that follow each of my advises have no clew ORfounders that never listen are autistic

Good people help the weak and poor OR professional investors focus on fittest & strongest portfolio companiesCopyright Redalpine Venture Partners AG, Switzerland 29

Investor types

Business Angels (>90%)- Virgin angels- Super angels (successful, xx millions, portfolio)- Smart co-investing angels- Operational/consulting/passive angels- Angel networks: b-to-v, mountain-clug.ag, BAS, StartAngels, BioBAC…

Micro Venture Capital / Superangel Funds (<10%)- Seed & early, small & bigger transactions, entrepreneurial- VC approach or co-investments/sidecar

Corporate Venture Other Seed Money Sources

- Seed money & Business plan contests: Venture Kick, de Vigier, Heuberger, Venture, Technopark

- Research grants: CTI, Nationalfonds, EU Rahmenprogramme- “Government” aided funds: ZKB, HGF, EVA-Basel, SZKB Innovationsstiftung, LUKB… - Foundations- Family, Friends & Fools (3F)


Identify best investors for your startup

Best exits in your sector last 5 years? Identify investors and founders of those startups!

Which top investors are close to me (1-2h by car/plane) and have an affinity to my market and idea?

Which investors have resources just now? (time, money; stage ofinvestment portfolio, last closing or exit)

Check references on investors contacting portfolio companies

Only best investors are good enough for ambitious startups

Ambition level of founder and investor must match (1b, 100m, 10m exit goal?)

Always pitch for & negotiate with 2-4 alternative investors Copyright Redalpine Venture Partners AG, Switzerland 31

Examples for good early stage VCs

Switzerland Index Ventures, Geneva Brains-to-ventures, St. Gallen Redalpine Venture Partners, Zürich VI Partners, Zug/Morges Creathor, Zürich/Germany Innovationsstiftung SZKB, Schwyz

European early-stage VCs Atomico, HTGF, Earlybird, Sofinnova, Eden, Partec,

Wellington …

Superangels & Fresh Angels (entrepreneurs with a good exit)


How do I approach investors

Tailor made approach, do research first (portfolio CEO’s) Identify door openers in your network to target

- Portfolio companies- Co-Investors- Lawyer, Banker, Incubator, University tech transfer etc.

Phone, Email, Youtube, Powerpoint, Word, Excel… Find out best timing for first contact Never look desperate

- If it hurries it’s often not interesting (except if top investors already arelined up with subscriptions)

Good investors want to discover startups «Didn’t answer my mail» doesn’t mean noCopyright Redalpine Venture Partners AG, Switzerland 34

How do I pitch for investors

Be extremely well prepared (exercise 30x, get feedback!) Enthusiastic, relaxed, competent Simple, simple, simple – reduced to the MAX Only target is to achieve a next meeting

Switzerland: Benefit of Venturelab, CTI coaching, Startup Weekend, actor school, CTI-invest, Venturekick …

Pitch: 10-12 Slides 5-10 Min not smaller than Font 24


How do I negotiate with investors

Agile, not stubborn and not soft

Learn venture terms before you negotiate- Tag along, ABV, pre money, liquidation preference, anti dilution,

options…

- Choose experienced M&A lawyer with startup experience in your sector

Always tell the truth, but don’t tell everything if not necessary

Show self-confidence, always organize more than one option

Investor must see that founder is hurt hardest if there is no success

Investor must feel that founders will fight 100% to succeedCopyright Redalpine Venture Partners AG, Switzerland 36

How do I treat my investors?

Honestly

Pro-actively information information information!

- Communicate good news instantly

- Bad news as well!

Ask actively & regulary for advice & network

Always remember who is the owner of the company:All shareholders, not only you!


Thank you

Questions?

Remarks?

Read!

Guy Kawasaki: The Art of Start

Amis: Winning Angels

Slides:

Slideshare.net/nicoberg (Nicolas Berg)


Bonus slides for investors


①Scouting talents delivers better multiples than acquiring stars

②Pro-active investors know where the puck is going to be

③PE best asset class 10 out of 20 years (and worst 4 out of 20)

④ PE best in class if combined with commodities and healthy bonds* (* = bonds from governments & corporations with little debt)

Grow big stars by scouting many talents


Analogue to a football team you have 2 options:

invest $100m to buy a star (Bale, Messi or Ronaldo) try to earn $110m extra with him (1.1x) or

invest $5m to scout & train 20 young talents sell best one (Doumbia, Shaquiri) for $20m (4x)

good Micro VCs prefer a movie rather than a photo (= 3 pitches)

Invest pro-active – don’t follow the crowd

An ice hockey player can either: skate to the place where the puck is now – as most

players – or to the place where the puck is going to be (Wayne Gretzky)

Source: http://www.brainyquote.com/quotes/authors/w/wayne_gretzky.html


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Private equity best in class – sometimes

Source: UBS QIS

Equally weighted Portfolio

Liquidity USD

Bonds USD

Corporate Bonds USD

Equitiy Developed Countries

Hedge Funds

Real Estate USA

Commodities

Private Equity USA

Returns year by year1990 1992 1993 1994 1999 2000 2001 2002 2004 2005 2006 2007 2008 2010

29.1% 48.3% 14.2% 31.5% 5.3% 60.6% 36.8% 54.0% 48.5% 40.9% 49.7% 13.4% 32.1% 45.5% 32.2% 25.6% 36.4% 32.7% 6.6% 41.9% 28.3%

17.5% 41.0% 12.3% 26.3% 5.1% 22.2% 34.4% 18.6% 24.3% 34.6% 27.3% 10.3% 11.6% 36.4% 17.3% 12.9% 22.8% 9.0% 4.1% 30.0% 23.0%

9.0% 19.4% 9.7% 22.5% 4.4% 20.7% 33.9% 16.2% 8.7% 26.5% 11.3% 9.3% 10.1% 33.1% 15.6% 9.5% 20.1% 8.3% -4.9% 26.1% 11.9%

8.8% 18.5% 8.7% 14.0% 3.1% 20.6% 17.8% 15.8% 8.6% 24.9% 9.1% 4.9% 3.5% 20.7% 14.7% 8.5% 10.4% 7.4% -23.3% 19.7% 11.8%

7.1% 18.3% 8.2% 13.0% 1.7% 20.3% 14.4% 13.7% 5.8% 14.9% 8.7% 2.8% 2.0% 19.8% 11.8% 7.8% 9.3% 6.6% -25.4% 18.7% 9.0%

1.5% 16.7% 7.1% 12.2% 1.4% 16.6% 13.5% 10.2% 2.9% 5.6% 6.8% -3.9% 1.0% 12.0% 5.4% 3.4% 5.2% 5.7% -38.4% 13.5% 9.0%

-4.7% 14.5% 4.4% 10.3% -2.4% 12.1% 5.8% 8.2% -5.1% -0.7% 4.1% -16.8% 0.2% 8.2% 3.1% 2.7% 4.3% 4.6% -40.7% 13.4% 5.2%

-17.0% 7.1% 4.2% 3.5% -3.5% 11.1% 4.0% 6.0% -17.8% -2.0% -13.2% -18.0% -19.9% 3.2% 2.7% 2.0% 4.3% 4.2% -46.5% 3.3% 5.1%

-34.2% -6.1% -5.2% -12.3% -3.9% 6.5% 3.3% -14.1% -35.7% -6.0% -18.6% -31.9% -32.5% 1.3% 1.5% 1.7% -15.1% -17.1% -50.7% 1.4% 0.5%

BEST ASSET CLASSHighest return that year

WORST ASSET CLASS Lowest return that year

Nur zur Veranschaulichung. Die Marktbedingungen können sich ändern und die Renditen schwanken. Bitte lesen Sie die Erklärungen unter «Simulierte historische Performance» am Ende dieses Dokuments. Bitte beachten Sie, dass diese Seite immer in Verbindung mit den Risikoinformationen und Begriffserklärungen im Anhang zu dieser Präsentation zu lesen ist.

1991 1995 1996 1997 1998 2003 2009

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PE always best in class – if combinedGo for a mix with low correlation and high returns: Combine PE with commodities, corporate bonds or real estate

Source: UBS WMR; generated by QIS

Private Equity

Real Estate (REITS)

Hedge Funds

Commodities

Equity MSCI World

Bonds (USD)

Bon

ds (

US

D)

Com

mod

ities

Hed

ge F

unds

Re

al E

sta

te R

EIT

S

Pri

vate

Eq

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y

Eq

uity

MS

CI

Wo

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0.12 0.18

0.18

0.12

0.27

0.27

0.72 1.00

1.00

1.00

1.00

1.00

1.00

0.72

0.42

0.42

0.160.18-0.07 0.04

0.480.09 0.16 0.16

0.160.040.28

0.18

0.08

0.08

0.09-0.07 0.28

0.48 0.30

0.30

«You miss 100% of the shots you don't take.»

Wayne Gretzky, Hockey legend

«To evaluate the potential of a new idea requires a clear understanding of the market dynamics. We trust in the team of Redalpine to master this challenge successfully.»

Jürg Staub, Reichmuth & Co

www.redalpine.com

www.facebook.com/redalpine

www.twitter.com/redalpine

Redalpine Venture Partners AGPfingstweidstrasse 60CH-8005 ZürichSwitzerland

phone +41 44 271 15 30

deal with investors_startupbus @google switzerland_nicolas berg_oct2013

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