venture capital

VC®: 

VC ® Venture Capital

What is a VC’s Job?: 

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

What is a VC?: 

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

What is Venture Capital?: 

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

VC’s Job Duties: 

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

VC’s Job Cycle: 

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

VC’s Job Cycle: 

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

Raising a Fund: 

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.

Raising a Fund: 

Raising a Fund LP 2 LP 3 LP 4 VC Firm (GPs) Fund 1 $$$$ LP 1 LP n Pledge $$ Commitments only. No actual cash changes hands. Pledge $$ Pledge $$ Pledge $$ Pledge $$

Raising a Fund: 

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

Sources of Funds: 

Sources of Funds

Example Portfolio Diversity of LP: 

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

Fund Life: 10 Years: 

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

Example Successful Investment: 

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

A Pattern That Repeats: 

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

One of Many: 

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

Portfolio of 10-25 Investments: 

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

Portfolio of 10-25 Investments: 

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

First Fund: 

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

Multiple Funds: 

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

PowerPoint Presentation: 

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

VC’s Job Cycle: 

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

INTRODUCTION: 

INTRODUCTION Venture Capital is a form of "risk capital". In other words, capital that is invested in a project where there is a substantial element of risk relating to the future creation of profits and cash flows. Risk capital is invested as shares (equity) rather than as a loan and the investor requires a higher "rate of return" to compensate him for his risk.

DEFINITION: 

DEFINITION Money provided by investors to startup firms and small businesses with perceived long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for above-average returns.

MEANING: 

MEANING A venture capital fund refers to a pooled investment vehicle (often an LP or LLC) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans. This form of raising capital is popular among new companies or ventures with limited operating history, which cannot raise funds by issuing debt. The downside for entrepreneurs is that venture capitalists usually get a say in company decisions, in addition to a portion of the equity.

MEANING…..: 

MEANING….. Venture capital can also include managerial and technical expertise. Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships.

History: 

History Before World War II, "development capital" were primarily the domain of wealthy individuals and families. E.M Warburg & Co. was founded in 1938 by Eric M. Warburg. In 1938, Laurence S. Rockefeller helped finance the creation of both Eastern Air Lines and Douglas Aircraft , and the Rockefeller family had vast holdings in a variety of companies.

American Research & Development Co.: 

American Research & Development Co . Founded by Georges Doriot " father of venture capitalism”. First institutional private equity investment firm that raised capital from sources other than wealthy families. First major venture capital success of ARDC in 1968 1957 investment of $70,000 in Digital Equipment Corporation (DEC) Valued at over $355 million after the company's initial public offering in 1968

Ardc cont…: 

Ardc cont… Former employees of ARDC went on and established several prominent venture capital firms In 1972, Doriot merged ARDC with Textron after having invested in over 150 companies.

Establishment of J.H. Whitney & co.: 

Establishment of J.H. Whitney & co. W as founded by John Hay Whitney and his partner Benno Schmidt. Whitney's most famous investment was in Florida Foods Corporation. The Co. developed an innovative method for delivering nutrition to American soldiers. This was established as the brand, ‘ Minute Maid ’ orange juice and was sold to The Coca-Cola Company in 1960

Types of Venture Capital Firms: 

Types of Venture Capital Firms Depending on your business type, the venture capital firm you approach will differ. Following are the few instances- Traditional partnerships Professionally managed pools Investment banking firms Insurance companies Manufacturing companies Small Business Investment Corporations (SBIC's)

Stages of Financing Offered in Venture Capital: 

Stages of Financing Offered in Venture Capital Seed Money : Low level financing needed to prove a new idea (Often provided by "angel investors" ). Start-up : Early stage firms that need funding for expenses associated with marketing and product development. First-Round : Early sales and manufacturing funds. Second-Round : Working capital for early stage companies that are selling product, but not yet turning a profit. Third-Round : Also called Mezzanine financing, this is expansion money for a newly profitable company. Fourth-Round : Also called bridge financing, 4th round is intended to finance the "going public" process.

Article’s scenario : 

Article’s scenario By Chan Tze Jayesh Parekh Harish Parameswar

Venture capital challenges: 

Venture capital challenges India and China aren’t just attracting entrepreneurs who are returning from overseas, but also venture capitalists. Chan Tze Hoe, a former investment manager in Singapore, said that as markets grow in both countries, people who were born there but then educated in the West are “coming back to join the scene.” Speaking about the regulatory framework and environment for venture capital, he said that while this is well developed in the US and Europe, it has only emerged in the past ten years in India and China.

Understand the culture: 

Understand the culture According to Chan, regarding China, it’s important to understand the culture and build up a network. “A VC fund, previously based in London, was trying to set up a China office. They’ve actually set up their presence there for two years but haven’t invested in a single deal … They told Chan that, they are taking a watch-and-see attitude. When any company want to start up a business in China, it really need to build up their contacts and find someone who is familiar with the environment to partner with you to achieve some sort of success.”

Taking a wait-and-see approach: 

Taking a wait-and-see approach Chan said that most foreign VCs are still adopting a wait-and-see attitude regarding China, although the advantage of having a local partner is that the initial deal sourcing process is generally accelerated “The question is whether these foreign VCs can use the same business principles (investment culture/methodology, corporate governance practices) in the Chinese context.”

Contd….: 

Contd … . Phil Anderson, Professor of Entrepreneurship, who hosted the `Quality of Management panel discussion, points out that many Western VCs are opening offices in China to help their portfolio companies – not to do deals as such – and these are taking time to learn about the region before raising funds to invest in mainland companies.

Geographical 'nuances': 

Geographical 'nuances' , Jayesh Parekh of Sony Entertainment Television and MobiApps, advises venture capitalists to spend a lot of time in India and China. He says he has VC friends who go to India twice a year but that’s “not sufficient to discover” that country. As for geographic location, “each place has a nuance.” The West and North of India, are more entrepreneurial, while in the South and East they refuse to bear more risk.

Contd……: 

Contd …… However, he adds that companies are finding it difficult to attract talent with capital share options in places like Bangalore , as most people want to work “for a stable or major corporation that pays good salary and perks, rather than take the risk with start-up ventures. Hence share options do not really help in attracting good talent. Given a choice between more money or upside with share options, most professionals will chose cash.”

Private equity is 'developing rapidly': 

Private equity is 'developing rapidly' Jayesh Parekh told every start-ups has the Knowledge that venture capital firms in India are mostly interested in retail, real estate, information technology/business process outsourcing/call centre and services, rather than high-tech or intellectual property-related businesses. he says, “ I think the private equity (rather than VC) scene is developing rapidly in India. Both locals and foreigners are getting involved, and in some cases foreign VCs are partnering with locals as well. I think the time is excellent for VCs to go into India,”

Contd……: 

Contd …… Harish Parameswar , Managing Director of financial advisory and asset management firm Lazard Asia, repeat Jayesh Parekh’s views about private equity in India: "I would say you've seen a lot of private equity and buy-out firms come up in India but venture capital is relatively tough if you're at an early stage, unless you have some Indian investors who are from (Silicon) Valley. It's relatively difficult to get early stage financing."

The Indian networking advantage: 

The Indian networking advantage Parameswar told Knowledge that Indian venture capitalists have an edge over their Chinese counterparts in terms of networking in the United States: “ If you look at the Silicon Valley Indians, they set up this organization called TiE (The Indus Entrepreneurs, also known as Talent Ideas and Enterprise). This is a very, very influential organization, which is primarily run by successful Indian entrepreneurs in Silicon Valley.” He says “ the Indians have had a bit of an advantage over Chinese companies on that front ”.

Contd…….: 

Contd ……. Silicon Valley companies have been looking at India as an outsourcing development centre, Parameswar says, with “almost every start-up in the Valley” having back-end offices in India. “So when it comes to technology development, because of language and skill sets, India seems to be the preferred option. But when it comes to manufacturing and production, China still has the edge on that front.”

Contd…….: 

Contd ……. “In China the market has been pretty much geared to the domestic market and that’s been a huge, huge plus, because a lot of these companies are able to get revenue traction without having to spend as much money.” Consequently, China has been able to attract a lot more venture capital than India, he says: “Because of the domestic market, (companies) have managed to scale much more rapidly and therefore venture capitalists exit much faster as well.”

Thanks': 

Thanks'