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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

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









99% of total

1% of total








money coming out profit sharing
Money Coming Out: Profit Sharing









80% of total

20% of total








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

twitter: @firstround

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

know your audience
Know Your Audience
  • Read Our Blogs
  • Search Our Images
  • Follow Us on Twitter
  • Use Our Portfolio Cos. Products
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