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Published on October 1, 2007

Author: aksu

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Venture Capital When and how to raise VC finance:  Venture Capital When and how to raise VC finance April 17 2007 Ben Holmes Index Ventures Who we are:  Who we are €1.3bn under management Active investor in web / internet Pan European Venture Fund Based London & Geneva Index Ventures Agenda:  Agenda Overview of Venture Capital When to raise VC finance? Strategies for VC fundraising How to choose the right VC partner? Venture Capital – How the VC makes money:  Venture Capital – How the VC makes money Raise fund every 2-4 years Pension funds, financial institutions and specialist “fund of fund” investors Invest money over 3-5 years ~ 1/2 of investments lose money ~ 1/3 of investments break even ~ 1/6 of investments make (lots) of money Very small management fee on funds managed ~ 1-2.5% pa Carry ~ 20-25%x (Total Return – Total Amount Invested) Venture Capital – Stages of Investment:  Venture Capital – Stages of Investment Seed Early Stage Series A, (B) Later Stage (B),C,D… Pre-IPO / Buy-out Private Equity Investment Size Potential Sources of Funds 0 - €1m Grant-funding University seed funds Friends and family Angel Investors (Venture Capital) €2m-€20m Venture Capital (Wealthy) Angel investors €5m-€20m Venture Capital €30m+ Specialist Late stage tech investment funds Hedge Funds Venture Capital – What a good VC will add:  Venture Capital – What a good VC will add Advice and Strategy Hiring Developers Country Managers Sales CEO / CFO / COO Advisory Board Partnerships Profile and PR Internationalisation Trusted service provider relationships Search / recruiting Branding / PR Finance, etc Exit optimisation Knowledge / contacts with relevant buyers Experience with process Venture Capital – Typical Deal Terms:  Venture Capital – Typical Deal Terms Target 20-35% ownership Board Representation Liquidation Preference Participation rights Element of reverse vesting Certain control and veto rights Option Pool Period of exclusivity to close legals but that’s so unfair… Photo Source: Philip Greenspun, MIT Agenda:  Agenda Overview of Venture Capital When to raise VC finance? Strategies for VC fundraising How to choose the right VC partner? Good reasons to raise VC:  Good reasons to raise VC When NOT to raise VC:  When NOT to raise VC Application is a feature not a product Market size is too small Motivation is not financial Risk is not that you waste time unsuccessfully trying to raise finance … … real danger is that you do succeed in raising VC funds Lose opportunity for small exit which could be personally lucrative Lose opportunity to run lifestyle business Get bound in to 3+ yrs work you may not enjoy Agenda:  Agenda Overview of Venture Capital When to raise VC finance? Strategies for VC fundraising How to choose the right VC partner? What does a VC look for? :  What does a VC look for? Can evaluate each as Exceptional Good / credible Mediocre / incomplete Misconception that being good / credible across the board is what VCs look for Can always add credible attributes to the mix later We focus on finding opportunities which rate as exceptional in one attribute Identifying relevant VC partners:  Identifying relevant VC partners Has funds to invest Match of Size/Stage/ Geography Relevant Portfolio No directly competitive investments Excellent track record Shortlist Do create a shortlist Rifle is a better weapon than a shotgun Good free sources on VC funding http://www.thealarmclock.com/euro/ http://www.vecosys.com Getting on radar screens:  Getting on radar screens Out of the blue email is a longshot Try to build context Analyse portfolio companies – are there any links there Analyse contact network and advisors Analyse press coverage Participate in blog conversations Attend events and conferences Relevant PR around product also helps VCs spend their time looking for businesses with momentum Sharing relevant information:  Sharing relevant information 100 page business plan not required 20 page ppt which clearly answers main questions is best bet Product Market Business Model Team Competition Product Roadmap Technology Overview Business Development Financial Status Pre - first meeting Pre - termsheet Post - termsheet Dialogue rather than documentation – expect lots of meetings Calls with current / prospective customers or partners Meeting broader team Brainstorming around strategy Identifying key hires post closing Formal presentation to VC partnership Some additional reference calls with partners / customers Personal reference calls Legal / accounting audit (if relevant) Drafting legal documentation 2-4 weeks 1-2 Months Agenda:  Agenda Overview of Venture Capital When to raise VC finance? Strategies for VC fundraising How to choose the right VC partner? Valuation should not be the decisive factor:  Valuation should not be the decisive factor Value at exit Probability of getting there % share of business at exit Entrepreneur’s Equation Revenues / Profitability Growth rate Team quality Strategic fit with buyer community Well managed exit process Fewest strategic errors made Hiring (quality & speed) Partnerships Product development Valuation at initial round Valuation and dilution at subsequent rounds Option grants Key things to consider:  Key things to consider Relationship With key individual(s); and broader team References Speak to other founders Portfolio Relevant experience Non competitive Community you want to be part of Valuation and associated deal terms Right partner at a fair price vs. Any partner at best price Thank you:  Thank you Ben Holmes Email: benh@indexventures.com Skype: ben_holmes

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