Introduction to Venture Capital - edXRWTHx+VC101x+1T2017+type@asset... · School of Business and...
Transcript of Introduction to Venture Capital - edXRWTHx+VC101x+1T2017+type@asset... · School of Business and...
School of Business and Economics TIME Research Area | Innovation & Entrepreneurship Group (WIN)
Introduction to Venture Capital Week 2 Understanding the pre-investment phase
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First, of course you will have to contact a Venture Capitalist
Contactphase
Roughanalysis
phase
Detailed analysis
phase Negotiation
phase
1 month 2 weeks - 2 months 1 - 3 months 1 - 3 months
Letter of intent
Term sheet(investment proposal)
Contract Non-
disclosureagreement
• Contacting a Venture Capitalist directly or via a mediator regarding an investment
• Contact is best
made using a short paper describing the venture
Source: Boersch (1998)
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Upon your contact, the VC will evaluate whether they will further investigate your proposal
Contactphase
Roughanalysis
phase
Detailed analysis
phase Negotiation
phase
1 month 2 weeks - 2 months 1 - 3 months 1 - 3 months
Letter of intent
Term sheet(investment proposal)
Contract Non-
disclosureagreement
• Contacting a Venture Capitalist directly or via a mediator regarding an investment
• Contact is best made using a short paper describing the venture
• Venture Capitalist makes a preliminary decision on whether to follow up on the contact or not
• Up to 90% of
investment proposals fail at this stage
Source: Boersch (1998)
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If you make the cut, the VC will get in contact with you and enter a detailed analysis
Contactphase
Roughanalysis
phase
Detailed analysis
phase Negotiation
phase
1 month 2 weeks - 2 months 1 - 3 months 1 - 3 months
Letter of intent
Term sheet(investment proposal)
Contract Non-
disclosureagreement
• Contacting a Venture Capitalist directly or via a mediator regarding an investment
• Contact is best made using a short paper describing the venture
• Venture Capitalist makes a preliminary decision on whether to follow up on the contact or not
• Up to 90% of investment proposals fail at this stage
• Business plan is checked in detail (due diligence)
• Several meetings
between the Venture Capitalist and the entrepreneurs usually take place in this phase
Source: Boersch (1998)
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If all goes well, you might enter the last stage and negotiate a deal with the Venture Capitalist
Contactphase
Roughanalysis
phase
Detailed analysis
phase Negotiation
phase
1 month 2 weeks - 2 months 1 - 3 months 1 - 3 months
Letter of intent
Term sheet(investment proposal)
Contract Non-
disclosureagreement
• Contacting a Venture Capitalist directly or via a mediator regarding an investment
• Contact is best made using a short paper describing the venture
• Venture Capitalist makes a preliminary decision on whether to follow up on the contact or not
• Up to 90% of investment proposals fail at this stage
• Business plan is checked in detail (due diligence)
• Several meetings
between the Venture Capitalist and the entrepreneurs usually take place in this phase
• Final negotiations about all details of the contract
• Negotiations may
take place over a period of several months
Source: Boersch (1998)
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In total, you should expect the process to take at least 6 Months until deal closure
Contactphase
Roughanalysis
phase
Detailed analysis
phase Negotiation
phase
1 month 2 weeks - 2 months 1 - 3 months 1 - 3 months
Letter of intent
Term sheet(investment proposal)
Contract Non-
disclosureagreement
• Contacting a Venture Capitalist directly or via a mediator regarding an investment
• Contact is best
made using a short paper describing the venture
• Venture Capitalist makes a preliminary decision on whether to follow up on the contact or not
• Up to 90% of
investment proposals fail at this stage
• Business plan is checked in detail (due diligence)
• Several meetings
between the Venture Capitalist and the entrepreneurs usually take place in this phase
• Final negotiations about all details of the contract
• Negotiations may
take place over a period of several months
Source: Boersch (1998)
TIME Research Area | Innovation & Entrepreneurship Group (WIN)
7 © Innovation & Entrepreneurship Group
Contactphase
Roughanalysis
phase
Detailed analysis
phase Negotiation
phase
1 month 2 weeks - 2 months 1 - 3 months 1 - 3 months
Letter of intent
Term sheet(investment proposal)
Contract Non-
disclosureagreement
This week we will focus on:
Selection of a VC and Tips on getting chosen
by the VC
Source: Boersch (1998), Icons designed by Freepik
• Contacting a Venture Capitalist directly or via a mediator regarding an investment
• Contact is best
made using a short paper describing the venture
• Venture Capitalist makes a preliminary decision on whether to follow up on the contact or not
• Up to 90% of
investment proposals fail at this stage
School of Business and Economics TIME Research Area | Innovation & Entrepreneurship Group (WIN)
Introduction to Venture Capital Week 2 Choosing the (right) VC
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First of all, is an institutional Venture Capitalist really the right financing partner for your venture?
Family & Friends
Strategic Investor (e.g. CVC)
Venture Capitalist
Business Angel
Crowdfunding
Who is right for me?
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The selection of a potential Venture Capital partner highly depends on the investment phase
Seed Startup Expansion
• Many seed financings are too small and require too much hands-on support from the venture capital firm to make them economically viable as investments
• Contact is best made using a short paper describing the venture
• Venture capitalists makes a preliminary decision on whether to follow up on the contact or not
• Up to 90% of investment
proposals fail at this stage
• Business plan is checked in detail (due diligence)
• Several meetings between
the venture capitalists and the entrepreneurs usually take place in this phase
VC?
Source: IVCA
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If your venture is in the right situation to seek institutional VC funding, make up your mind about the following selection criteria
Name and reputation of the Venture Capitalists 1
Development phase of the company 2
Industry sector of firm and Venture Capitalists 3
Required financing volume 4
Location of the Venture Capitalists 5
Venture Capitalists have a different reputation, which reflects on the young company or influences future financing rounds
Different Venture Capitalists finance different development phases of young companies
Venture Capitalists sometimes have a specialization on a certain industry sector
Different Venture Capitalists invest different amounts
Rule of thumb: if the company cannot be reached within two hours, the probability of an investment is not so high
Criterion Relevance
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It’s no bad idea to keep these general guidelines in mind when selecting a potential VC
Source: Stanford Business School
Listen to your instinct
Negotiate from a position of strength
Find shared beliefs Pay more attention to the partnership
than the terms
School of Business and Economics TIME Research Area | Innovation & Entrepreneurship Group (WIN)
Introduction to Venture Capital Week 2 Get chosen by the right VC – increase your chances!
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Approaching the right Venture Capitalist
Identification and selection of a potential Venture Capital partner depend not only on your current investment phase…
Name and reputation of the venture capitalists
Development phase of the company
Industry sector of firm and venture capitalists
Required financing volume
Location of the venture capitalists
Long-list of potential Venture Capitalist
Sorting of relevant Venture Capitalists
• 3i • Accel Partners • Andreessen Horowitz • Atlas ventures • Greylock Partners • OCA Ventures • Holzbrinck Ventures • Venrock • …
Executive summary of your business idea
1
2
3
4
5
Icons by Freepik
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Step 1: Take a proper approach – these guidelines might increase your chances!
Source: Stanford Business School; Feld & Mendelson (2013); Icons by Freepik
Look for “warm” intros:
leverage your network and try identify the VC’s “preferred”
channel
Be aware of who your primary contact at a
VC is: Analyst vs. Partner?
Think parallel: Don‘t just approach one
at a time
One team member driving the process:
Have the proper go-to-guy
Timing is crucial!
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Step 2: Make it to the next meeting, be precise, be memorable, don‘t forget to ask for money!
Source: Stanford Business School; Feld & Mendelson (2013); Icons by Freepik
• What does your company do? • What problem do you solve? • How big is the market? • How much traction do you
already have?
30 SECOND PITCH
3 MINUTE PITCH
Do you have a „toothbrush“ product?
• Provide unique insights (i.e., solution/ product, customer, market)
• Explain how you (plan to) make money
• Sell your team • Be specific about desired funding
(and what you will use it for) • Additional details go to the appendix
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Step 3: Avoid mistakes and pay attention to detail – more handy advice coming right up:
Source: Stanford Business School; Feld & Mendelson (2013); Icons by Freepik
INTRODUCTION PROGRESS
MARKET SIZE
Make sure the listener understands what you’re doing
Show it and know your numbers!
Ideally build bottom up analysis (drivers)
INSIGHTS The investor should learn something that is counter-intuitive
TEAM Your team should be uniquely suited for this business
ASKING FOR MONEY Drive the conversation towards a conclusion – but don’t make the claim that you won’t need future funding after this round
INTRODUCTIONS TO OTHER FOUNDERS THEY HAVE BACKED Maybe the best source of information on how the VC will act once they are invested