Vc 101 inside the black box
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VC 101 : Inside the Black Box. Christine Herron First Round Capital November 2009. (AKA : Christine’s Quick & Dirty Guide to Venture Capital). What We’ll Cover. What VC is not VC partnerships revealed Follow the money The VC investment process Impact of VC trends on you

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Vc 101 inside the black box

VC 101 :Inside the Black Box

Christine HerronFirst Round Capital

November 2009


Aka christine s quick dirty guide to venture capital

(AKA : Christine’s Quick & Dirty Guide to Venture Capital)


What we ll cover

What We’ll Cover

  • What VC is not

  • VC partnerships revealed

  • Follow the money

  • The VC investment process

  • Impact of VC trends on you

    Feel free to ask questions during the discussion!


Quick context what vc is not

Quick Context: What VC is Not

  • Public Equity

  • Hedge Funds

  • Pension Funds

  • Mutual Funds

  • Public Stock Trading

  • …etc.

  • Private Equity

  • Buyouts

  • Mezzanine Investments

  • Venture Capital

  • …etc


Quick context what vc is not1

Quick Context: What VC is Not

  • Public Equity

  • Hedge Funds

  • Pension Funds

  • Mutual Funds

  • Public Stock Trading

  • …etc.

  • Private Equity

  • Buyouts

  • Mezzanine Investments

  • Venture Capital


Vc partnerships revealed

VC Partnerships Revealed

  • Limited Partners vs. General Partners

    • Who are they and what do they do?

  • Reporting

    • What responsibilities do GPs have, and what rights do LPs have?

  • Investment Profile

    • What promises has the VC made around investing and portfolio management?


How to follow the money

How to Follow the Money

  • Capital Calls

    • Where does the money come from?

  • Management Fees

    • How do the bills get paid? What does this imply for General Partner incentives?

  • Profit Distributions

    • What happens as investments mature?

  • Staying in Business with Future Funds

    • How does a partnership become sustainable and grow?


Money going in capital contributions

Money Going In: Capital Contributions

GP

GP

GP

GP

GP

GP

GP

GP

99% of total

1% of total

LP

LP

LP

LP

LP

LP

LP


Money coming out profit sharing

Money Coming Out: Profit Sharing

GP

GP

GP

GP

GP

GP

GP

GP

80% of total

20% of total

LP

LP

LP

LP

LP

LP

LP


Sample fund recap

Sample Fund Recap

  • 2.5% annual management fee

    • Pays for office space, salaries, other G&A

    • Incentive implications for small v. large funds

  • All capital is repaid to LP before any profit is shared

    • 80% of profit goes to LPs

    • 20% of profit goes to GPs

  • An individual VC’s share of the total GP profit share is called “carried interest”


Staying in business raising more funds

Staying in Business = Raising More Funds

Each Fund Life = 10 Years

3-4 Yrs = Seed NewCos

6-7 Yrs = Harvest & Do Followons

Fund I ($100M)

Year 1

Fund II ($125M)

Year 6-7

Year 3-4

Fund III ($150M)

Must raise new funds to keep investing in NewCos; once new fund is raised, NewCo funding will come from it

After 6-7 years in business, VC will have 3+ concurrent, active funds at any one time; only one, however, will be funding NewCos


The vc investment cycle

The VC Investment Cycle

  • Deal sourcing and qualification: how good opportunities are found

  • Evaluation: deciding if there’s a good fit with investment parameters; company history, business characteristics, finances, business plan analysis, comparables analysis, pro forma return model

  • Term sheets: a nonbinding letter of intent

  • Due diligence: ensuring that everything we believe to be true, is true; research, references, financials, transaction summary/approval, investment memo

  • Closing: final signature and LP announcement

  • Value offered: capital, relationships, management support


How vc trends affect you

How VC Trends Affect You

  • Growing Funding Market

  • Minimum $ amount per investment grows

  • Higher VC valuations

  • Lower returns % on a higher base

  • Gold rush mentality (lower funding bar = more risky or copycat ideas/ teams)

  • Shrinking Funding Market

  • Minimum $ amount per investment shrinks

  • Lower VC valuations

  • Higher returns % on a lower base

  • Champions mentality (higher funding bar = the strongest or most unique ideas/teams)

Whether the market is going up or going down,VC money still has to be invested


For seed stage conversations

For seed-stage conversations

http://firstround.com

twitter: @firstround

[email protected]

Josh Kopelman

Chris Fralic

Rob Hayes

Howard Morgan

Phin Barnes

Kent Goldman

Christine Herron


Vctips an inside look at the vc landscape and fundraising strategy

VCTips: An Inside Look at the VC Landscape and Fundraising Strategy

Oren Netzer

Founder and CEO

DoubleVerify Inc.


Doubleverify overview

DoubleVerify Overview

25 Employees

Offices in Tel Aviv and New York

Raised $3.5M Series A in May 2009

Pioneered Online Media Verification

Customers include agencies, marketers and ad networks


What we do

What We Do

Employ tracking pixels in ads and web crawlers to track actual delivery of online ad campaigns

Compare actual delivery to client’s media plan and buying guidelines

Confirm full compliance between plan and actuals

Real-time non-compliance remediation

Screenshots provided as evidence of every non-compliance incident


The importance of your first customers

The Importance of Your First Customers

Your Worst Mistakes – Your first customers will experience the earliest and “buggiest” version of your product

Reality Check - Your first customers will teach you what the market really wants

Market Demand - Your first customers will create your market demand

Best or Worst References – Your first customers can make or break your next sales or fundraising


6 step guide to managing first sales

6 Step Guide to Managing First Sales

Start early - Get first customer as early as possible in the development cycle

Choose carefully – this customer will experience your worst screw-ups

Fix problems – and release next version

Then choose next two customers

Go out of your way - Make these customers your biggest fans and supporters

Repeat from step 3


Doubleverify timeline at a glance

DoubleVerify Timeline at a Glance

First Beta version released March 2008 with client

Founded May 2008

Raised seed round June 2008

First major client September 2008

Second major client February 2009

Formal Product Launch May 2009

Currently servicing over 30 customers

November 2009 first profitable month


First sales lessons learned

First Sales - Lessons Learned

Choose your first customers carefully

You never know where the sale is going to come from

Be persistent but not pushy

Oversell, only if you can deliver

Listen to your customers

Customers are partners, not ATMs

Know how to ask them for money

Be Lucky


Thank you

Thank You

Oren Netzer

[email protected]


Vc meeting 1 0

VC Meeting 1.0


Spoiler alert

*Spoiler Alert


Its not about the money

Its Not About the Money


Many paths some more effective than others

Many Paths(some more effective than others)


Prototypical vcs

Prototypical VCs


Real people

Real People


Know your audience

Know Your Audience

  • Read Our Blogs

  • Search Our Images

  • Follow Us on Twitter

  • Use Our Portfolio Cos. Products


Make a personal connection

Make a Personal Connection


Blow us away

Blow Us Away


Qualifying questions

Qualifying Questions

  • When Did We Close Our Last Fund

  • What Was Our Last Investment

  • How Many Boards Are We On

  • How Does Our Process Work


Qualify whether we re in a position to invest

Qualify Whether We’re in a Position to Invest


Thanks bryce@oatv com www bryce vc @bryce

[email protected]@bryce


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