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Venture Capital for Technopreneurship Prasanna V. Krishnan. Today’s Talk. Overview of Venture Capital Raising Venture Capital Macro Trends in VC Today Exciting Areas in IT VC in India. What is VC?. Private Equity Venture, Mezzanine ( Venture Debt ), Buyout

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today s talk
Today’s Talk
  • Overview of Venture Capital
  • Raising Venture Capital
  • Macro Trends in VC Today
  • Exciting Areas in IT
  • VC in India
what is vc
What is VC?
  • Private Equity
    • Venture, Mezzanine (Venture Debt), Buyout
    • Venture – Seed, Early, Growth (Series A, B…)
      • Median Investments: A $4.75M, B $10M
    • Buyout – LBOs, Distressed
  • VC businesses vs. ‘Lifestyle’ business
    • Exit through IPO or M&A
structure of vc fund

General Partners

  • 10 year funds
Structure of VC Fund

Committed Capital

Management fee, carry

today s talk1
Today’s Talk
  • Overview of Venture Capital
  • Raising Venture Capital
  • Macro Trends in VC Today
  • Exciting Areas in IT
  • VC in India
funding process reality
Funding Process - Reality
  • Only 0.1% of business plans get funded
  • Process in General
    • Reaching out to investors
    • Initial call or meeting
    • Due Diligence process
    • Term-sheet
    • Closing of the transaction
    • Post transaction interactions
  • DFJ Process
    • Have a champion (partner/associate)
    • First meeting, subsequent DD
    • 5 partners see, Champion convinces, Vote on 1-5 scale
reaching out to investors
Reaching Out To Investors
  • Get referred
    • Personal contacts
    • Law firms/banks etc.
    • Pitch events, Conferences
  • Choose the right firm and target the right contact
  • Don’t waste time developing a 40 page business plan document
    • Executive summary and deck are all you need
  • Executive Summary
    • Provide information which will grab attention
      • Team backgrounds
      • Customer wins/Revenue traction
      • Metrics around the product/service
the day of the meeting
The Day Of The Meeting
  • Have 2-3 people attend the meeting
  • Come 5-10 minutes in advance in order to setup and make yourself comfortable (45 min – 1 hour meeting)
  • Ask the admin in advance who will be on the meeting
    • Research the backgrounds of the people
    • May be people outside the firm – domain experts/friends of the firm etc.
  • Come prepared with contingencies
    • Network connectivity/Cellphone reception issues
    • Projector not working
  • Helpful to know firm’s prior investments, investment criteria
tone of the meeting
Tone Of The Meeting
  • Be organized, clear and concise
    • OK to cover details of tech in subsequent diligence
  • Don’t make up things
    • Say you don’t know and you will get back with details
  • Be polite but confident
    • Acknowledge what VCs are saying and politely convey your point
    • Feel free to ask questions
  • Non-verbal communication
    • Have a positive body language
    • Team dynamics are very important
    • Other team members should show interest in the presenter
  • Important to get the positioning of the company
    • Similar companies
    • Target
    • Differentiation
    • Analogies help
dd what vcs look for
DD – What VCs Look For

Most Important

  • Market – “How big is the market”
    • Multi $B
    • Growth rate
  • Product - “How much of the market can you capture”
    • What problem does it solve
    • Competition – Tech differentiation, barriers to entry
    • How does it make money
  • Management Team - “Can you capture that”
    • Passion & Drive!
    • Experience
    • Worked together before

Next level - execution

  • Go-to-market: Channels, distribution
  • Current product status

E.g. Consumer Internet Series A: product, B: growth, C: revenues

  • Financials
    • Margins, CapEx
  • Technical Diligence
  • Deal Terms – not the deciding factor in early stage
what dfj looks for
What DFJ Looks For
  • Goal: Can this be a Billion Dollar Company
    • Can this get to $100M revenue in 4 years
    • Not just 10X return
  • Market
    • Multi $B, growing
    • Disrupt lazy, bureaucratic incumbents (Skype, Wigix…)
  • Product
    • Business models that transcend financial statements
    • Change the World
    • Like crazy ideas
  • Entrepreneurs
    • Passion and Energy
    • Leaders
    • Like young entrepreneurs
    • Like thriftiness
  • Great entrepreneurs are everywhere (not just the valley)
    • Skype, Baidu
    • DFJ Global Network
valuations
Valuations
  • The VC Method
    • Exit valuation – multiples, comparables
      • Enterprise company P/S 5
      • Consumer company – comparables for $ paid/user
    • Discount at desired IRR, accounting for dilution
    • Set aside option pool
    • Get pre-money valuation now
    • At the end of the day, it’s a market
  • The Business of Risk
    • Higher risk, higher reward
    • What matters is the magnitude of the winners
    • 1/3rd lose – 1/3rd breakeven – 1/3rd home runs
      • Baidu: invested $3 a share, IPO price $27, Rose 350% on day-1 to $120 (40X)
what s a good presentation
What’s A Good Presentation?
  • Problem that you are addressing
  • Management team
  • Addressable market
    • Top-down/Bottom-up market sizing, growth
  • Description of the technology/product
  • Competitive landscape
  • Business model
    • Have clear ones, not suggest every revenue model possible
  • Current product status and roadmap
  • Go-To-Market strategy
  • Financial projections
  • Financing needs and usage
do s and don ts i
Do’s And Don’ts - I
  • Keep your demos simple
    • Pick the highest priority scenarios
    • Ask outsider to see it
  • Make sure you keep a time check
    • Ask how long you have if start late
    • Make sure you are able to convey the core points of your agenda within the allotted time.
  • Keep it focused

“Before giving a 10000ft view, the founder jumped into the nitty-gritty of the technology, leaving us wondering who the product is targeted for and how it will be sold”

do s and don ts ii
Do’s And Don’ts – II

Our Company

  • Don’t try to solve every problem in the world
  • Don’t assume large market means a large market share
    • “The market is $60B for this product, so even if we get 2% of this market, we have a large company”
  • Have pictures and interactivity in the presentation
    • “Only text slides can quickly get boring.”  Partners looking at the clock!
do s and don ts iii
Do’s And Don’ts - III
  • Be forthright about shortcomings in the team. That’s where the investors can help
  • Don’t try to hide the competitive landscape
    • “We have no competitors” – If there is a market, there will be competitors
    • Competitive matrix – Don’t have all boxes checked for your company
  • Make comparisons – VCs understand better in analogies
  • Patents are important but not huge barriers to entry
do s and don ts iv
Do’s And Don’ts - IV
  • Have optimistic but realistic projections
    • VCs will still give it a haircut
  • Scenarios for cash use & revenues
    • Optimistic, conservative
  • Remember to ask for the next steps
  • Feel free to politely nudge along
now that it s a yes
Now that it’s a ‘Yes’…..
  • Termsheet
    • Participating
    • Liquidation
    • Option pool
    • Series A ownership – 25-40% most common range
    • Board seats
    • Vesting of common stock
    • Right of First Refusal
  • Legal docs & closing process
  • After funding
    • Board meetings monthly/6 weeks
    • VCs help with contacts (customers, partners, independent board members, hires), business strategy
today s talk2
Today’s Talk
  • Overview of Venture Capital
  • Raising Venture Capital
  • Macro Trends in VC Today
  • Exciting Areas in IT
  • VC in India
slide26

VC not hit as much as buyout – coz of debt markets

  • Exits – IPOs lower – no IPOs in Q2 08 – not surprising
  • DFJ – we are optimistic, this is a good time
today s talk3
Today’s Talk
  • Overview of Venture Capital
  • Raising Venture Capital
  • Macro Trends in VC Today
  • Exciting Areas in IT
  • VC in India
what s exciting not in it
What’s Exciting/Not in IT
  • What’s Hot
    • Cloud Computing
      • Apps: SaaS, SMBs
      • Platform – AWS, Virtualization (VMWare IPO)
    • Mobile coming back with iPhone
      • KPCB – iPhone fund
    • New wave of search – nothing revolutionary
    • Baby boomer demographic
  • What’s Not
    • Consumer internet – pure ad supported models
      • Video content & video ads – lots companies, no $ yet
  • Other areas
    • Cleantech
      • Solar (Solarcity), Biofuels algae-based, Water
    • Alternative transportation
today s talk4
Today’s Talk
  • Overview of Venture Capital
  • Raising Venture Capital
  • Macro Trends in VC Today
  • Exciting Areas in IT
  • VC in India
slide30

India: 2nd Fastest Growing Among the Ten Largest Economies

4th Highest GDP (Purchasing Power Parity)

2nd Highest GDP Growth

  • Fastest growing among the ten largest economies

Sources: The World Factbook

Sources: The World Factbook

Comments

  • GDP: $1.1 Trillion in fiscal year ending 3/31/07
  • World’s 2nd most populous country: 1.13B people. Will overtake China by 2020.
  • Median Age: 25; 32% are younger than 15. Life expectancy is 69.
  • PE Investments in India crossed $14B in 2007.
  • Mobile subscriber base at 240M. Projected to be at 490M by 2012.
  • Internet: 35-40M users; 3M Broadband enabled homes (214M homes)
    • Need online + offline/mobile

Sources: Times of India, eValueserve

slide31

DFJ India: Executive Summary

Executive Summary

  • DFJ established core presence on the ground in India in October, 2007
    • Local team located in Bangalore and Hyderabad
    • Invested $47.7 million in 17 portfolio companies over the last 24 months.
    • Invested $21.5M in 7 companies over roughly seven months.
    • Largest #deals among VCs in Q2 2008
  • DFJ India focuses on early to mid stage venture investments across sectors
    • Investing $1-10 million with an allocation of $75 million from DFJ IX
    • Most VC firms not just IT, plus more growth stage
    • Sectors include Consumer media (Desihits), Telecom (mCHQ), Internet (70mm), Cleantech/Energy (Atero), IT, ITES, Healthcare, Education (Catura), Retail
    • Look for disruptive plays in large existing or emerging sectors; Many are low tech
slide32

Growth of PE/VC investments in India

Private Equity and Venture Capital Investment in India

  • Late stage investments are witnessing the biggest growth
  • VC/PE Investments projected to be $20B in 2010
  • 300 funds active in the last 3 years (Government, Overseas, Corporate, Domestic)

Source: TSJ Venture Intelligence

slide33

Naseeb,

Livemedia, Dlight, Deeya,

Catura, Attero,

Komli, Cleartrip

Vegayan

Mchek, mginger, canvera,

Reva, 70mm,