VENTURE CAPITAL

Amanda ThurnMariem Myers

CONTENTS• What is venture capital?• History of venture capital• Why do you need venture capital?

– Why not get a bank loan?– Angel investors

• What do you give up?– Why do you care?

• Where do you get venture capital?– Who do you contact?– How do you convince them?

• The Elevator Pitch

WHAT IS VENTURE CAPITALISM? In short, it is a way to obtain money and

experience for a business via private equity

Otherwise, money is gained throughPersonal Savings Bootlegging

Use of company’s profits early-on to growBank Loans

Venture Capitalists (VCs) Individuals willing to invest in the business

WHAT IS VENTURE CAPITALISM? Venture Capital from a Company’s Viewpoint

Company starts up and seeks investors to growA business plan is created for the VCs to look at If VCs interested, the first round of money (seed money) is given out Typically will receive 3 to 4 rounds of funding

VCs get stock and some control in the company for invested money VCs on the board of directors Amount of stock given to VCs happens during the pre-money

valuation Post-money valuation happens after VCs invest money

Original shareholders values diluted from 100% to whatever is decided upon during the pre and post-money valuation

HISTORY OF VENTURE CAPITAL Some of the first Venture Capitalist were

the Vanderbilts, Whitneys, Rockefellers and Warburgs in the first half of the 20th century. VC was then the domain of wealthy individuals and families.

The Small Business Investment Act of 1958 was the first step toward a professionally-managed venture capital industry. The Act officially allowed for the licensing of private "Small Business Investment Companies" the first Venture capital firms.

HISTORY OF VENTURE CAPITAL The late 1990s were a boom time for VC,

they benefited from a huge surge of interest in the Internet and other computer technologies. Initial public offerings of stock for technology and other growth companies were in abundance and venture firms were reaping large returns.

NASDAQ Composite Index

HISTORY OF VENTURE CAPITAL

VC funding has since spread widely through the medical field.

Examples: The Vertical Group is one of many VC firms

Many start-ups have begun in recent years after sequencing the human genome, centered around early disease detection and prevention.

$ IN MILLIONS

OtherHealthcare Services

Electronic/InstrumentationConsumer Products and Service

Networking and EquipmentSemiconductors

IT services Software

Biotechnology

11.337.945.393.8133141.4152.4171.1175.2205.7245.8

321.3413.9

755.41034.6

1282.21296.1

Investments in industry 2010

Berkeley Entrepreneurs ForumShaking the MoneyTree presentation: http://entrepreneurship.berkeley.edu/main/index.html

WHY DO YOU NEED VENTURE CAPITAL?

Many businesses and start up companies are too small and/or inexperienced to raise enough money for expenses on their own Expenses include R&D,

employee salaries and benefits, and manufacturing and production costs.

Venture Capitalists are expected to bring not only managerial and technical expertise but also capital to their investments

WHY VC OVER A BANK LOAN? Venture capital funds are generally a pooled

investment vehicle that invests financial capital of third party investors in enterprises that are too risky for the standard capital markets or bank loans

If a bank did loan you money, you would have no say in how the money is spent

Sometimes getting a loan can be a shot in the dark!

ADVANTAGES OF VENTURE CAPITAL Increase in start up capital will allow for access to

new technology and amenities available Increase company’s net worth in short time period Provide resources

Mentor - with strategic, operational and financial advice.

Alliances - Venture capitalists can introduce the company to an extensive network of strategic partners both domestically and internationally.

Facilitate exit - Assist in preparing initial public offering (IPO) of its shares stock exchange such as, NASDAQ and also facilitate a trade sale.

DISADVANTAGES OF VENTURE CAPITAL In-direct Investment: Most Venture capitalists

are firms that have investors or limited partners who provide fundsOwnership rightsExpenses and Profits highly regulatedMay influence management infrastructureEquity on a company will last for an infinite

time period• Selection process is very strict and there are

many strict requirements that venture capitalists place on the companies they invest in.

ALTERNATIVES TO VENTURE CAPITAL

Angel Investors Many start up companies seek out angel investors because of

the strict requirements venture capitalists have for potential investments

Angel investors typically invest their own money More willing to invest in highly speculative opportunities May have had a prior relationship with the entrepreneur. Known to invest between $250,000 to $1M, whereas family and

friend investments are typically from $0 to $250,000 and VC’s are from $1M to $2M

They “fill the gap” between “family and friend” investments and Venture Capital

Angel investors and Angel networks invest annually just as much as venture capitalists into start up companies, but invest in 10X as many companies

Recently groups have emerged aside from VC and Angel Investors which allow groups of small investors or entrepreneurs to compete in a privatized business plan competition where the group itself serves as the investor through a democratic process

SUPER ANGELS : Super Angels are

those were angel investors and have subsequently raised small funds with which to invest in emerging, young companies.

Super Angels Investors

WHERE DO YOU GET VENTURE CAPITAL? Can make contact with prospective investors

through attorneys, consultants or business brokers.

Start with local VC firms (in-state) Provides networking for out of state expansion California has the highest concentration of VC

investment compared to any other state in the country

YOUR ZIP CODE MATTERS !

Berkley Entrepreuneurs ForumData based on report from Thomson Reuters

ADVICE TO GET STARTED: Advice for entrepreneurs looking for Venture

capitalists : Be a people person Know your capital investor as much as they

know you . Be active about your managerial decisions.Tips on raising money

http://www.youtube.com/watch?v=151xSrGdEqo&NR=1&feature=fvwp

WHO should you target to invest in your company/idea ? –Ensure the firm you are targeting is actively investing in your specific market area –When looking at a firm, Research which partner at the firm you should target

Introduction–Sending in a “cold” email is very unlikely to get a response–Have someone introduce you if at all possible. •People in companies they invested in, people they know, other investors–Meet them where they are•Conferences, events, where they hang out

You need to have all of your material prepared.

HOW DO YOU CONVINCE A VC TO INVEST IN YOUR IDEA/COMPANY? The first step to getting a VC interested in your

business is to explain to them what their potential rewards could be. You need to have a quick, powerful, to the point speech that will hook them; make them want to hear more. This speech is called an “Elevator Pitch”

(Explained More in Later Slides) Once you get a meeting with a VC or a VC firm you

need to convince them to invest money into your idea or firm.

Business Plan Shows the VC’s you have done your homework

How much money do you plan to make? How big is the market? Where do you plan on manufacturing the

product and what are your cost of production? All of the above are just some of the questions

VC’s want answered before they give you money

WHAT NOT TO DO WHILE PITCHING TO A VC !!!

www.youtube.com/watch?v=azRzqI3BJ2A

THE ELEVATOR PITCH The elevator pitch is a brief but meaningful overview of

your idea. The reason it is called an elevator pitch is because it

should be delivered in the amount of time you would spend in the elevator with someone (30 seconds)

What makes a good elevator pitch? Hard numbers, no “I think” analysis Know who you are talking to

Try to avoid words that are uncommon to many people

Tailor presentation to the audience Make sure the person understands the “why” of what

you are doing What need are you fulfilling? Why is it better than what is already on the

market? Explain how investor will obtain a return on his

investment, and how much funding you need

THE ELEVATOR PITCH Useful websites for developing an elevator pitch:

Tech Crunch Elevator Pitches (http://pitches.techcrunch.com) Submit videos of elevator pitches, which are voted

and commented on by viewers Start-Up Nation

Elevator Pitch Competition http://www.statupnation.com/elevator-pitch-2009

Twitpitch (www.stoweboyd.com/message/2008/04/twitpitch-is-th.html) New idea that elevator pitch should be further

shortened to a 10-second “escalator” pitch, consisting of 140 characters (the length of a Twitter post)

HELPFUL LINKS : University of Berkley :Lester center for innovation

and entrepreneurship:http://entrepreneurship.berkeley.edu/main/index.html

Most famous Super angels companies: http://www.chubbybrain.com/blog/a-guide-to-super-

angel-investors-who-are-they-what-do-they-invest-in/

Questions?