1 / 66

VCIC ®

VCIC ®. Team Prep Session VC 101 This PPT was created for organizers of internal events to help prepare student teams to compete. . What is a VC’s Job?. Return 20-25% to LPs. What is a VC?. Professional money manager Private vs. public equity High risk/return

briar
Download Presentation

VCIC ®

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. VCIC® Team Prep Session VC 101 This PPT was created for organizers of internal events to help prepare student teams to compete.

  2. What is a VC’s Job? • Return 20-25% to LPs

  3. What is a VC? • Professional money manager • Private vs. public equity • High risk/return • Works with portfolio of investments

  4. What is Venture Capital? • Asset class • Subset of private equity • High risk, high return • Hit driven

  5. VC’s Job Duties • Fundraising • Sourcing deals • Investing • Growing ventures • Exiting

  6. VC’s Job Cycle Fundraise • Close Fund Source Deals • Invest Grow Ventures • Exit Fundraise…

  7. VC’s Job Cycle Fundraise • Close Fund Source Deals • Invest Grow Ventures • Exit Fundraise…

  8. Raising a Fund • VC fund is a partnership • GPs (general partners) are the VCs who actively invest the fund in startups • LPs (limited partners): • Financial investors with no active role • “Institutional”: pension funds, university endowments, insurance companies, etc.

  9. Raising a Fund LP1 Pledge $$ LP2 Pledge $$ VC Firm (GPs) LP3 Fund 1 $$$$ Pledge $$ LP4 Pledge $$ Commitments only. No actual cash changes hands. Pledge $$ LPn

  10. Raising a Fund UNC Endowment Pledge $$ NC Pension Fund Example Pledge $$ VC Firm (GPs) CalPERS Fund 1 $$$$ Pledge $$ Parish Capital Pledge $$ Pledge $$ AIG

  11. Sources of Funds

  12. Example Portfolio Diversity of LP VC is a subset of private equity.

  13. VC Firm vs. VC Fund • One firm manages multiple funds • Firms are LLCs with no end date • Funds are LLPs with 10-year lifespans Roizen: small and large firms.

  14. Fund Size • Large: • New Enterprise XIV, $2.6B • Kleiner Perkins XIII, $650M, XIV $525 • Local RTP, for example: • Intersouth IV, $275M • Southern Capitol II, $15M

  15. Fund Life: 10 Years Harvest Follow-On Rounds Invest and Reserve “Raise” Fund Year 0 5 10

  16. Example Successful Investment EXIT Series B Series A Find Deal Due Diligence Hit Milestones Hit Milestones Series A ROI is calculated on 6 yearsSeries B ROI is calculated on 3 years Harvest Follow-On Rounds Invest and Reserve 0 2 3 5 8 10

  17. A Pattern That Repeats Exit B A 0 2 3 5 8 10

  18. One of Many Exit B A 0 2 3 5 8 10

  19. Portfolio of 10-25 Investments C D B A B A A B Big Exit A Bust Bust A C Bust B A Exit Exit B B A A Exit B A B A B A Bust 0 2 3 5 8 10

  20. Portfolio of 10-25 Investments 3 C D B A 9 B A 5 10 A B Big Exit A Bust Bust 2 6 A C Bust B A 7 4 Exit Exit B B A A 11 Exit B A 1 8 B A B A Bust 0 2 3 5 8 10

  21. Exit Scenario Exit ? Bust C ? D B A B A ? A B Big Exit A Bust Bust A C Bust B A Exit Exit B B A A Exit B ? A B A B A Bust 0 2 3 5 8 10

  22. First Fund Harvest Follow-On Rounds Invest and Reserve “Raise” Fund Year 0 5 10

  23. First Fund Fund 1 Raise $$ Invest Follow-On Harvest Year 0 5 10

  24. Multiple Funds Fund 3 Raise $$$$ Invest Follow-On Harvest 0 5 10 Fund 2 Raise $$$ Invest Follow-On Harvest 0 5 10 Fund 1 Raise $$ Invest Follow-On Harvest Always fundraising Always investing Always growing 0 5 10

  25. Now Fund 2 Fund 1 Fund 3 Always fundraising Always investing Always growing

  26. Multiple Deals in Multiple Funds 25 Deals Fund 3 Raise $$$$ Invest Follow-On Harvest Fund 2 16 Deals Raise $$$ Invest Follow-On Harvest Fund 1 Imagine you are this entrepreneur Raise $ Invest Follow-On Harvest 11 Deals

  27. VC’s Job Cycle Fundraise • Close Fund Source Deals • Invest Grow Ventures • Exit Fundraise…

  28. Source Deals: Focus • Sector • Life Sciences • IT • Cleantech • Stage • Seed/early • Later stage • Geography • Active participation requires proximity

  29. Source Deals: Network • Lawyers, CPAs, CFOs, bankers • Other VCs (syndication) • Serial entrepreneurs • Conferences • Universities • Technology transfer • Teach, coach, mentor, judge

  30. The Wall Street Organization, Inc.

  31. Stages of Equity Funding $500,000 - $50M $50,000 - $500,000 $25,000-$250,000 $1,000-$50,000 Friends/Family Seed or Pre-Seed Angel or Early Stage VC Rounds 1, 2, 3… or A, B, C…(Institutional) IPO

  32. Typical Growth of Bootstrap Venture Normal bootstrap business Grows steadily (if you’re lucky)

  33. Rounds • An investment / stock issuance occurs in something called a “round” • VCs purchase preferred shares, which means they have rights over “common” • Most ventures need multiple rounds (Series A, Series B, etc.) • Each round dilutes previous shareholders • Valuation occurs at the moment of a round (other times difficult to value illiquid asset)

  34. How Does a Round Work? Pre-Money Valuation + Investment = Post-money Valuation $ + $ = $$

  35. Example: $3M Post Preferred Shares Common Shares

  36. Negotiating Points • Pre-money valuation • Investment size • Option pool • Board seats • Liquidation preferences • Dividends • Anti-dilution • Closing conditions Determine % ownership Some of the “rights” of preferred shares

  37. VC’s Job Cycle Fundraise • Close Fund Source Deals • Invest Grow Ventures • Exit Fundraise…

  38. Growing Ventures • On the Team • “Active” participation = board seat(s) • Advisors (connections, strategy, etc.) • Future rounds • Valuation • Milestones • Syndication

  39. Board Seats • Board of directors controls the venture (unlike board of advisors) • Small ventures have small boards that meet often (quarterly), 3-7 members • Odd number to prevent ties • % ownership of stock should be (approximately) reflected in % of board seats • E.g. own 60% of stock, control 3 of 5 seats

  40. Advisors • Even if not on board, VCs will have strategic input • VC network benefits • Management team additions • Customers • Partners • Competitors

  41. Future Rounds • Future rounds are the norm, not the exception (most entrepreneurs do not realize this) • VCs help find “syndicate” investors • Later rounds can be much larger • New network benefits • Up round: valuation is higher and investment is (usually) higher • Down round: valuation is lower

  42. Future Rounds • VCs in Series A almost always join Series B • “Pro rata” means they invest to keep same % ownership • aka, “maintain position” • In a hits-driven business, not maintaining a position is as bad as no hit • “Last money in” dictates the terms

  43. Series A and B Conflict • Series A investor, like the entrepreneur, wants a high pre-money valuation for Series B • Series B wants lower pre-money valuation • A VC who is in both rounds is trying to find middle ground • VCs are generally trying to find a “fair market price” to avoid a future conflicts

  44. Example Up Round • Series A: “1 on 1” • $1M Pre-money valuation • $1M Investment → $2M post-money valuation • Series B: “2 on 3” • $3M Pre-money • $2M Investment → $5M post-money valuation

  45. Up Round: 1on1, 2on3 Post = $5M 3.33M shares Ownership Series A VC Shares1M/2M = 50%Diluted to 1M/3.33M = 30% Series B VC Shares 1.33M/3.33M = 40% FoundersSame as Series A VC shares Inv = $2M 1.33M Series B shares Things go wellHit milestonesIncreased valuation Post = $2M Pre = $3M 2M total shares Inv = $1M 1M VC shares 2M Series A shares Pre = $1M 1M Founder shares Series A Series B Shares at $1 Shares now $1.5

  46. Dilution New Share Pool Added Shares Original Shares Original Shares Same quantity of blue. Lower percentage.

  47. Why Dilution is Bad Every 1% you lose of a 20X Exit is going to hurt 20 times more Original Pool

  48. Up Round: 2 on 412 on 12 Post = $24M 12M shares Inv = $12M 6M Series B shares Ownership Series A VC Shares2M/6M = 33%Diluted to 2M/12M = 16.7% Series B VC Shares 6M/12M = 50% Founders4M/6M = 67%Diluted to 4M/12M=33.3% Pre = $12M Post = $6M 6M total shares 6M Series A shares Inv = $2M 2M VC shares Pre = $4M 4M founders shares Series A Series B Shares at $1 Shares at $2

  49. Down Round 1 on 11 on 1.5 VC ownership after Series B (50% x 1.5/2.5) + 1/2.5 =1.75/2.5 = 70% OR 2.33M shares ÷ 3.33M total = 70% Post = $2.5M 3.33M shares Inv = $1M Post = $2M 2M shares 1.33 shares Inv = $1M 1M shares Remember, these are negotiated(so you start here, then do the math) Pre = $1.5M Pre = $1M 1M shares 2M shares Series A Series B Shares at $1 Shares at $0.75 The rest is math

More Related