VC 101: Tame the Mythical Creatures
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Thanks to some popular TV shows, everyone and their dog seems to have an idea of what the business of venture capital is. But can you really discern the zombies, unicorns and black swans from the lions, tigers and bears? Or are they all just a motley crew of mythological creatures and wild animals to you? VC 101: Taming the Mythical Creatures is here to take you down the yellow brick road to meet Dawn Umlah, Innovacorp’s wizard of venture capital. In VC 101, you’ll learn: · The different sources of capital for your start-up · What venture capital (“VC”) is · What the role of the venture capitalist is · What’s in it for the VC · How VC funds work · The best way to approach VCs · What to expect from the investment process · What it all means to you
Transcript of VC 101: Tame the Mythical Creatures
TAME THEMYTHICAL CREATURES
KNOW YOUR INVESTORS
@DawnUmlah
vc 101:
@DawnUmlah
DAWNUMLAH
Entrepreneurial finance + corp dev junkee turned early-stage tech VC @Innovacorp
I love tea, hiking, kayaking and everything tech & start-up
Wife and mother of 2
@DawnUmlah
WHAT ARE WETALKING ABOUT?
What is venture capital?1
Investment Process3
2
The Game is changing4
Tame the mythical creatures5
Get to know the VCFollow the money
Stalk Lightly
@DawnUmlah
01
WHAT ISVENTURE CAPITAL?
@DawnUmlah
SOURCES OFFINANCING
Pro
fita
bili
ty
Idea
Prototype
Early Growth
Expansion
Maturity
Time
IPO
Debt Instruments
Debt Instruments
Strategics / Corporate VC
High growth potentialLifestyle
Private Equity
Mezzanine Financing
Venture Capital
@DawnUmlah
3F’s, Angels
CUSTOMERS
Source: Adapted from Venture-Financing, 2005
We get invested.
@Dawnumlah
VENTURE CAPITAL IS FINANCIAL CAPITAL
FOR MINORITY OWNERSHIP IN HIGH
POTENTIAL, HIGH GROWTH STARTUP
COMPANIES WHERE THERE IS HIGH RISK
AND OPPORTUNITY FOR A HIGH REWARD.
@DawnUmlah
We get invested.
@Dawnumlah
Venture Capital vs. Private EquityVenture Capital vs. Private Equity
”
“ IN PRIVATE EQUITY, YOU START WITH THE
NUMBERS, AND THEN TRY TO FIT EVERYTHING
INTO THE NUMBERS. IN VENTURE CAPITAL, YOU
START WITH THE PEOPLE, AND THEN YOU TRY TO
FIGURE OUT WHAT NUMBERS YOU CAN MAKE.
--Mark Kachur - former CEO of CUNO
@DawnUmlah
@DawnUmlah
Late stage VC or Private Equity
We get invested.
@DawnUmlah@DawnUmlah
Early stage VC and Angels
@DawnUmlah
Follow the money & Stalk lightly
02GET TO KNOW
THE VC
@DawnUmlah
@DawnUmlah
We get invested.
@Dawnumlah
role of venture Capitalist
MANAGE A POOL OF OTHER PEOPLE’S CAPITAL BY PROVIDING HIGH RISK FINANCING TO EARLY-STAGE, HIGH POTENTIAL, GROWTH STARTUPS IN EXCHANGE
FOR EQUITY, WITH THE HOPES OF MAKING AN OVERALL FUND RETURN OF 20% OR 3-4X
@DawnUmlah
Follow the money
02
@DawnUmlah
@DawnUmlah
VC returns are not normally distributed
VCs will not invest in something that doesn’t start out with the potential for 10x ROI
Most likely return is 3-4x
RETURN EXPECTATIONS
@DawnUmlah
VCs Try to Capture Unicorns
@DawnUmlah
VCs Open Themselves To Black Swans
@DawnUmlah
General Partners (GPs)
Limited Partners (LPs) > $$
high net worth individuals, family offices, fund-of-funds, large corporations, endowments, foundations, pension funds, insurance companies, sovereign wealth
funds
Venture Capital Fund
Fund/Investment Management
Investment in a startup
Investment in a startup
Investment in a startup
99%1%Capital Calls
WHERE THE CAPITAL COMES FROM
HOW THEY EARN MONEY
@DawnUmlah
General Partners (GPs)
Limited Partners (LPs) > $$
high net worth individuals, family offices, fund-of-funds, large corporations, endowments, foundations, pension funds, insurance companies, sovereign wealth
funds
Venture Capital Fund
~2% Annual Management Fee
Investment in a startup
Investment in a startup
Investment in a startup
80%20%
Carried Interest
@DawnUmlah
First 3-4 years> Seed NewCos
Next 6-7 years> Follow ons & Harvest
Fund 1 ($100M)
Fund 11 ($120M)
Fund 111 ($150M)
FUND LIFECYCLE
@DawnUmlah
VCs Turn Into Pumpkins
@DawnUmlah
VCs Turn Into Zombies
@DawnUmlah
First 3-4 years> Seed NewCos
Next 6-7 years> Follow ons & Harvest
Fund 1 ($100M)
Fund 11 ($120M)
Fund 111 ($150M)
FUND LIFECYCLE
We get invested.
@DawnUmlah
VC Economics >10x possible return
Return is relative
No safety with first cheque - you must execute
GPs answer to LPs
GPs’ upside is a large exit
GPs need to raise more than one fund - watch out for pumpkins and zombies
KEY ITEMS TOUNDERSTAND
STALK LIGHTLY
02
@DawnUmlah
We get invested.
PERMISSION TO STALK LIGHTLY
butSTALKING COMES WITH RULES:
1. STALK LIGHTLY, DON’T BE CREEPY2. TACTFUL PERSISTENCE, DON’T
BE ANNOYING
@DawnUmlah
@DawnUmlah
STALKLIGHTLY
@DawnUmlah
STALKLIGHTLY
marriage without the romance
03
INVESTMENT PROCESS
@DawnUmlah
INVESTMENT PROCESS =MARRIAGE WITHOUT THE ROMANCE
@DawnUmlah
First date - Deal sourcing
Courtship - Light Evaluation
Going steady - Pitch
The proposal - Term sheet
Engagement period - Deeper Evaluation
Private investigator - Due diligence
Prenup - Closing
Wedding day - Cash in hand
Honeymoon - Capital to execute plan
Married life - Board meetings, updates, relationships, management
@DawnUmlah
DATING ADVICE
➔ Don’t be creepy➔ Fools rush in – take your time, get to know us➔ The best intro to a VC is through:
◆ successful exit◆ existing portfolio company◆ investor they have a relationship with
➔ Use tactful persistence➔ It’s not going to happen quickly
@DawnUmlah
DATING ADVICE
➔ If it’s not a yes, it’s a no➔ Work to increase your say:do ratio➔ Be prepared and confident, but don’t be an ass➔ Be open and honest - it’s all about relationships➔ Marry for fit, not money - you can’t break up with your VC➔ Due diligence sucks for everyone
TRENDS YOU SHOULD KNOW
04
THE GAME IS CHANGING
@DawnUmlah
We get invested.
Dawn Umlah@Dawnumlah
BY ITS NATURE, THE INTERNET UNDERMINED ANYONE WHOSE
STATUS DEPENDED ON PRIVILEGED ACCESS TO INFORMATION--Michael Lewis - Author Moneyball: The Art of Winning an Unfair Game
@DawnUmlah
“
”
We get invested.
Dawn Umlah@Dawnumlah
VENTURE CAPITAL IS A BUSINESS &
IS OPEN TO ATTACK BY STARTUPS WITH
DISRUPTED NEW BUSINESS MODELS
& TECHNOLOGY
--Naval Ravikant - CEO & Co-founder, AngelList (@naval) Recommended viewing: http://www.youtube.com/watch?v=tjzDY9Z3HF0
@DawnUmlah
“
”
THE GAME IS CHANGINGTRENDS YOU SHOULD KNOW ABOUT
@DawnUmlah
AngelList - set up your profile
Transparency - access to more info
Unbundling of advice, control & money
More noise - increase in incubators & accelerators
Angel groups - inc in size and $$
Unicorns, Black Swans and Zombies
05TAME THE
MYTHICAL CREATURES
@DawnUmlah
Think like a unicorn
@DawnUmlah
Chase Black Swans
@DawnUmlah
@DawnUmlah
Think like a unicornKnow When the Magic Wears Off
@DawnUmlah
Chase Black SwansRun From Zombies
