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Is Venture Capital Dead ?

Is Venture Capital Dead ?. Victor V Vurpillat Ph.D. Global Software II. Thanks to Donald R. Dixon Managing Director Trident Capital. The US Venture Industry Has Grown. Source: 2000 NVCA Yearbook. VC Funds Raised. Corporate VCs in ¼ of All Deals. Return to Normal.

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Is Venture Capital Dead ?

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  1. Is Venture Capital Dead ? Victor V Vurpillat Ph.D. Global Software II

  2. Thanks to Donald R. DixonManaging DirectorTrident Capital

  3. The US Venture Industry Has Grown Source: 2000 NVCA Yearbook

  4. VC Funds Raised

  5. Corporate VCs in ¼ of All Deals

  6. Return to Normal

  7. After Setting Records In 1999 and 2000, IPO Markets Are Quiet Now

  8. Acquisitions Are An Increasingly Important Exit Strategy

  9. Is There Sufficient Capital For Follow-on Financing? • Investable dollars (“overhang”) estimated at $45B as of 9/30/2001

  10. Where Do U.S. VCs Invest? • Information Technology • Internet Specific • Communications and Media • Computer Software & Services • Semiconductors & Other Electronics • Computer Hardware • Life Sciences • Medical Devices/Healthcare Services • Biotechnology • Other • Consumer-related • Industrial/Energy • Other Products

  11. U.S. Venture Capital Investments into European Companies – By Stage

  12. U.S. Venture Capital Investments into European Companies – By Industry Group

  13. Venture Capital Investments into European Companies By U.S. Firms

  14. Venture Capital Investments into European Companies By U.S. Firms

  15. How VCs Make Decisions

  16. Company Life Cycle $ Markets Management Products/Services Customers Revenue Profits Liquidity (IPOs, Acqs)

  17. How Do U.S. Venture Capitalists Decide Which Deals To Fund? • How large is the company’s market? • Focus on large markets, but markets where there is the potential to dominate at least one segment. • What is the capital intensity of the proposed venture? • Venture capital funds usually invest multiple millions of dollars in each deal. • What is the quality of the company’s management team? • Probably single most important factor for long term success.

  18. How Do U.S. Venture Capitalists Decide Which Deals To Fund? • What is proprietary or unique about the company? How does it differ from competitors? • Proprietary content often effects valuation. • How large and profitable can the company get? • Generally looking for large opportunities…$100+ million profitable company in 5-7 years. Looking for a compelling idea not just marginal improvement over the status quo. • Other factors include deal structure and terms, co-investors, etc.

  19. What Are the Characteristics of a Typical U.S. Venture Capital Transaction? • An equity (convertible preferred stock) investment in a private earlier stage or emerging growth company typically seven figures • Long-term relationship (3 - 8 years) • Board seat • Staged financing • Syndication with other VC firms

  20. IPO 2nd Round Valuation Gap IPO 1st Round 2nd Round 1st Round Mezz IPO Seed Traditional Cycle Seed 1st Round Recent Cycle Seed Current Cycle Valuation Parameters Proven Consumer Acceptance Product Launch Profitability Valuation $50M@ 250M $10M@ 50M Declining Risk $5M@ 25M $1M@ 5M Source: Morgan Stanley, Trident

  21. What Type of Help and Guidance Do U.S. Venture Capitalists Typically Provide Their Portfolio Companies? • Initial and ongoing source of cash - as a direct provider and as a facilitator in raising funds from others • Give credibility to company - especially in establishing corporate partnerships and customer relationships. • Help recruit key executives, individual contributors, and board members

  22. Typical Issues To Resolve • Location of R&D Team • Location of Sales & Marketing Organization • Location of Headquarters • Founder to CEO transition

  23. Venture Capital is not Dead After AllBUT!

  24. Less than 3 out of 100 deals get funded

  25. The Golden Rule is alive and well

  26. Expect to be replaced

  27. You may not end up doing what you started out to do

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