An Opinionated Introduction To Venture Capital in Europe

Document Sample
An Opinionated Introduction To Venture Capital in Europe Powered By Docstoc
					An Opinionated Introduction To
   Venture Capital in Europe

          Andrea Capitanio
           Alice Ventures
   E:mail andrea@aliceventures.it


          An Introduction To Venture Capital
          Andrea Capitanio - Alice Ventures    Viewgraph No. 1
  Private Equity & Venture Capital

<<The “Private Equity” capitals market provides
   capital to enterprises not quoted on a stock
   market in exchange for an equity participation.>>

<<Venture Capital (VC) is a sub-class of Private Equity
   and is characterized by investments made for the
   purpose of developing, launching, and expanding
   the commercialization of new products or
   services.>>



                  An Introduction To Venture Capital
                  Andrea Capitanio - Alice Ventures    Viewgraph No. 2
                     Early Investments Lifecycle
                                             Start-up
                                                                                            V1.1

           concept          Eng. Specs      Prototype     Alfa          Beta          V1
Res. &
Develop.
                                                                                   CUSTOMERS
Marketing
& Sales         M&S                      Plan V1         Plan V2
                Plan V0.1
Prod.
& Ops                   P&O Plan V0.1      Plan V1            Plan V2




                     Seed (< € 1 mil)      Early Stages (€ 1 - 10 mil)              Expansion/ (€ 10+ mil)
                                                                                    development



           Angels        Incubators      Accelerators            Venture Capital            Private Equity &
                                          An Introduction To Venture Capital                Merchant Banks
                                          Andrea Capitanio - Alice Ventures                Viewgraph No. 3
• Advisor to MB Venture Capital
• MB Venture Capital Fund I
   – € 150 mil under management
   – Focus on
       • Early stages investments (start-up to first round) in the EU and Israel
       • Bio-tech, Media and Info-tech
       • Financing from € 1 to 10 mil (€ 3 - 5 mil operations on average)
   – 12 investments in SE, BE, UK, IT, …
• The Team
   – Edoardo Lecaldano (Media and Infotech), John Gonzales (Biotech),
     Sergio Saibene (Infotech and Telecom), Andrea Capitanio
     (Infotech and Telecom)
   – the Polytechnic of Milan and the Bocconi Business School of Milan
• MB VC Fund I investors: FIAT, Pirelli, Mediobanca, Generali,
                     Montedison, Informatica, ...

                          An Introduction To Venture Capital
                          Andrea Capitanio - Alice Ventures        Viewgraph No. 4
     What Venture Capitalists do ...
•   Sift through thousands of (good and bad) investment propositions
•   Identify a few valid initiatives and finance them
     – in exchange for private equity (usually a minority stake)
     – structure the deal
•   Support the entrepreneurs in succeeding. E.g.:
     –   providing financial advice
     –   in headhunting and setting up advisory boards
     –   in contacting customers, channels, …
     –   in steering and positioning the company
     –   in managing PRs activities
     –   in managing IP and legal issues
•   Look after value creation
     – further round of financing
     – merger and acquisition, IPO, …

                           An Introduction To Venture Capital
                           Andrea Capitanio - Alice Ventures       Viewgraph No. 5
      Venture Capital in the EU
             (FY2000)
• Funds raised in the EU: € 48 bil
  – UK 37%, Fr 16%, DE 13%, ...




                                                                   Private Equity & Venture Capital Activity”,
                                                                   European Private Equity & VC Association
                                                                   Source: “Annual Survey of Pan European
  – High Tech early-stage: € 8.6 bil
  – High Tech expansion/development: € 6.6 bil




                An Introduction To Venture Capital
                Andrea Capitanio - Alice Ventures    Viewgraph No. 6
      Venture Capital in the EU
             (FY2000)
• Investments made: € 34.9 bil (over 13000)
  – UK 38%, FR 15%, DE 14%, …




                                                                      Private Equity & Venture Capital Activity”,
                                                                      European Private Equity & VC Association
                                                                      Source: “Annual Survey of Pan European
  – €11bil (31.5%) in 5448 High Tech deals

                 Amount Invested                Ratio
   Seed          € 0.8bil                       2.3%
   Start-up      € 5.8bil                       16.7%
   Expansion     € 12.9bil                      37.1%
   Replacement   € 0.9bil                       2.7%
   Buy-Out       € 14.3bil                      41.2%

                 An Introduction To Venture Capital
                 Andrea Capitanio - Alice Ventures      Viewgraph No. 7
       Venture Capital in the EU
              (FY2000)
• Average deal size € 2.7m (€ 2.2m in 1999)
  – € 3.4 mil per financing (€ 18.5 in the US*)




                                                                           Private Equity & Venture Capital Activity”,
                                                                           European Private Equity & VC Association
                                                                           Source: “Annual Survey of Pan European
                   2000                           1999
   Seed            € 731K                         € 775K
   Start-up        € 1.2mil                       € 770K
   Expansion       € 2.4mil                       € 1.6mil
   Replacement     € 2.1mil
   Buy-Out         € 13.5mil



  * Source: Financial Times, July 16th 2001
                     An Introduction To Venture Capital
                     Andrea Capitanio - Alice Ventures       Viewgraph No. 8
       Venture Capital in the EU
              (FY2000)
• Divestments made: € 9.1 bil
   – € 3bil in 1308 trade sale operations




                                                                      Private Equity & Venture Capital Activity”,
                                                                      European Private Equity & VC Association
                                                                      Source: “Annual Survey of Pan European
   – € 1.3bil in 1001 public offerings
      • 249 IPO & 682 sales of quoted equity
   – €689mil in 896 write-offs
   – €1.4bil in 316 sales to other VCs or financial
     institutions
• 37 Tech. IPOs up to June 1st., 2001
   – Raised € 1253 mil + € 6255 mil of Orange IPO


                   An Introduction To Venture Capital
                   Andrea Capitanio - Alice Ventures    Viewgraph No. 9
         Venture Capital in the EU
                (FY2000)
• What does a VC asks for
  – VC investors’ stake
     •   2% have 1 - 9%




                                                                      Source: “The Economic Impact of
                                                                      (EVCA and Coopers & Lybrand)
     •   38% have 10 - 33%




                                                                      Venture Capital in Europe”
     •   21% have 34 -49%
     •   39% have 50+ %




                   An Introduction To Venture Capital
                   Andrea Capitanio - Alice Ventures    Viewgraph No. 10
         Most Appreciated VCs
            Contributions
•   Financial Advice 44%
•   Corporate Strategy & Direction 43%




                                                                   Source: “The Economic Impact of
•   Sounding board for ideas 41%




                                                                   (EVCA and Coopers & Lybrand)
                                                                   Venture Capital in Europe”
•   Challenging status quo 32%
•   Contacts or market information 26%
•   Management recruitment 10%
•   Marketing strategy 7%
•   Money only 12%

                An Introduction To Venture Capital
                Andrea Capitanio - Alice Ventures    Viewgraph No. 11
         The Financing Lifecycle
• Approach
   – Elevator’s Pitch and Info Memo
• Presentation
   – Placement Memo
      • Business plan
   – Meetings
• Negotiation
   – Term Sheet (or Letter of Intent)
• Verification and Validation
   – Due diligence
• Closing & Financing
• Value Creation
• Exit
                     An Introduction To Venture Capital
                     Andrea Capitanio - Alice Ventures    Viewgraph No. 12
     How to approach a venture
             capitalist
    Quick Check: Do You Need a VC ?
• The Business Plan
• A Team
• A Presentation and an “Elevator’s Pitch”
  – be ready !!
• References
• An NDA (if required)

                  An Introduction To Venture Capital
                  Andrea Capitanio - Alice Ventures    Viewgraph No. 13
               The Business Plan
• A Product/Service description
   – Pros and cons of the solution
   – Market needs it satisfies
   – Barriers to Competition
• Business Model
   – Market Analysis (strategic and tactical)
      • Competitors
   – Execution Plan
      • Marketing and Sales Plan
      • Research and Development Plan
      • Operations Plan
• Team
• Financials
   – Valuation Model & Placement Terms
   – Income Statement, Balance Sheet & Cash Flow
      • 3 years minimum, quarterly breakdown
      • 1st year in monthly breakdown
                      An Introduction To Venture Capital
                      Andrea Capitanio - Alice Ventures    Viewgraph No. 14
   The Business Plan: Suggestions
• Be sure you sell a “need to have” not a “nice
  to have” solution.
• Be Focused.
• Assess your competition
           (present and future)
• Be concise and speak the truth
• Be complete and clear in your analysis
  – state ALL your assumptions
  – do not hide cons
• Have details ready if requested
• Validate, validate, validate …
               An Introduction To Venture Capital
               Andrea Capitanio - Alice Ventures    Viewgraph No. 15
                  The Term Sheet
•   The parties
•   Securities to be issued
•   Amount of financing & disbursement schedule
•   Pre-financing valuation
•   Option plan & earn-out
•   Use of proceeds
•   Liquidation Preference
•   Protective Provisions, Voting Rights and BoD participation
•   Anti-dilution
•   Lock-ups
•   Tag along and drag along
•   Exclusivity
•   Reporting
•   ...
                      An Introduction To Venture Capital
                      Andrea Capitanio - Alice Ventures    Viewgraph No. 16
            How does a VC think
• IRR (Internal Rate of Return)
   – Company’s Current and Future Valuation
      • Comparables (P/E,P/S,…), “Number of”, DCF, …
   – What’s The Best Strategy To Create Value
      • Which are the achievable milestones and what’s the
        financing needed ?
      • When is the break-even expected ? With which margins and
        revenues.
   – Exit Strategy
      • Trade sale, IPO, Nth+1 round of financing, ..
• Minimizing Risks
   – Diluting the investment
   – Liquidation Preference rights


                     An Introduction To Venture Capital
                     Andrea Capitanio - Alice Ventures    Viewgraph No. 17
A possible valuation scenario
• Company X. Quoted on Stock Exchange Z.
   Valuation € 100mil, Sales € 50 mil, Earnings € 5 mil.
   P/E = 100/5 = 20, P/S = 100/50 = 2.
• Company Y. Acquired for € 20 mil with sales of € 10 mil. P/S = 20/10 = 2.
• Your “UnwiredCo” plan forecasts € 30 mil in sales and € 5 mil in earnings in
   2006. Its buss. model is “similar” to X and Y.
     – Lower Valuation of UnwiredCo in 2006 using P/S of 2 is 30*2 = € 60mil
     – Higher Valuation in 2006 using P/E of 20 is 5*20 = € 100 mil
•   Present Post-Money1 valuation (discount-rate2 of 50%) is between
    60/(150%)5years = € 8mil and
    100/(150%)5years = € 13.3mil
•   The “UnwiredCo” requires a € 4 mil financing round.
•   The Pre-Money valuation is between € 8-4=4mil and € 13.3-4= 9.3mil.
•   An agreement is reached at a pre-money valuation of € 6mil.
•   hence the Investor will obtain a 4 / (6 + 4) = 40% stake in the company.

          of the company after the investment.
1 Valuation

2Target Annualized Return of Investment



                                 An Introduction To Venture Capital
                                 Andrea Capitanio - Alice Ventures    Viewgraph No. 18
               European Private Equity Funds
                    Formed 1980-1998
                  Net IRRs to Investors
        Investment Horizon Return as of 31-Dec-2000


Stage                                  1 YR 3 YR                 5 YR 10 YR




                                                                                                     Private Equity & Venture Capital Activity”,
                                                                                                     European Private Equity & VC Association
                                                                                                     Source: “Annual Survey of Pan European
Early Stage                            26,0 14,5                 24,0  14,3
Development                            31,5 21,4                 19,4  11,8
Balanced                               40,4 56,4                 45,4  20,7
All Venture                            35,6 36,3                 33,6  17,2
Buyouts                                10,9 30,6                 26,2  18,0
Generalist                               1,9 12,6                17,8  12,3
All Private Equity                     15,6 29,2                 25,8  16,3
IRR: Internal Rate of Return. “Rate of discount which equates the present value of the cash
outflows associated with an investment with the sum of the present value of the cash inflows
accruing from it and the present value of the valuation of the unrealized portfolio”.

                               An Introduction To Venture Capital
                               Andrea Capitanio - Alice Ventures                       Viewgraph No. 19
       What to look for in a VC

• People you LIKE !
  – Trustworthy & Collaborative
• Can bring value, not money only !
  – Do not have to be experts in the sector but
    have to understand the business.
  – Good network of contacts.
• Ask for references



                An Introduction To Venture Capital
                Andrea Capitanio - Alice Ventures    Viewgraph No. 20
              The Wireless Market
•   UMTS
     – July 2000. WestLB Panmure UMTS Report estimates German
       UMTS users to pass the 2mils threshold (3% of total) in 2002
       and reach 51.6mil (60%) in 2011.
     – Oct 2000. UMTS Forum Report 9 estimates 32 mils Mobile
       Multimedia Users in West Europe in 2005 and 90 mils in 2010
     – Recent (May 01 ?). Durlacher UMTS Report - 0.3 mils in the EU
       in 2003 and 32 mils in 2005.
•   Layoffs
     – Ericsson announced 3300 layoffs and ceasing production in two
       EU plants.
     – Nokia has announced 3/400 layoffs.
     – Motorola has announced another 4K layoffs (adding to the 18K
       already announced)
•   Handsets
     – Projections for handset sales in 2001 in the EU have came down
       from 600 to 450 mil.


                       An Introduction To Venture Capital
                       Andrea Capitanio - Alice Ventures    Viewgraph No. 21
    The Wireless Market Sectors
• Content
   – Producers and Providers
• Services
   – (Virtual) Mobile Network Operators
   – Application providers (WASP) & Portals
• Applications
   – End-user applications
   – Platforms and frameworks
• Optimization Tools and Techniques
• Enabling Technologies
   – Access, Core & Home Networks
   – Mobile Terminals


                   An Introduction To Venture Capital
                   Andrea Capitanio - Alice Ventures    Viewgraph No. 22
Application    M-commerce                                                  M-commerce
                                                                             Smart Messaging,
                                                                              m-advertising
                                                                            m-CRM, m-SFM, ...
                 Data Compression       Streaming & MultiMedia
Optimization     and Optimization



                  Smart Antennas & Radios, …
Enabling                xG Stacks, ICs, ..
Technologies                                  Location Based Services
               MExEs
                          Hybrid Networks & Multi Access Network

               Mobile               Radio              Core             Home            Enterprise
               Terminal             Network            Network          Network         Network


                               An Introduction To Venture Capital
                               Andrea Capitanio - Alice Ventures                  Viewgraph No. 23
                       Conclusions
• Always engage your brain before doing anything
   – your BP deserve more care than your best publication
• Do your homework
   – assess your competition and the market
• Push the envelope but …
            Be aware of your limits
   – partner with others to define the BP
   – do not be too greedy
• Do frequent reality checks
   – talk to other experts, prospective buyers & channels, VCs
   – compare to other similar initiatives
• Be committed
   – the start-up must be your only thought until the IPO

                       An Introduction To Venture Capital
                       Andrea Capitanio - Alice Ventures    Viewgraph No. 24
          Good Luck and …
I hope to be hearing from you soon !
           Andrea Capitanio - Alice Ventures
             E-mail: andrea@aliceventures.it
                Phone: +39 02 4998 1730
     S-mail: Piazzale Baracca 1, Milano, 20123, Italy




                  An Introduction To Venture Capital
                  Andrea Capitanio - Alice Ventures    Viewgraph No. 25
                                        Abstract

Mobile communications are rapidly becoming the preferred mean of personal remote interaction in today's
    society and besides the hype surrounding the quantum leaps in the cellular networks genealogy - 2G,
    2.5G, 3G, 4G, .. - the continuously improving wireless infrastructure is likely to generate a ground
    fertile for significant business opportunities but also clouded with aggressive competitors.
The “Private Equity” capitals market provides capital to enterprises not quoted on a stock market in
    exchange for an equity participation. Venture Capital (VC) is, strictly speaking, a sub-class of Private
    Equity and is characterized by investments made for the purpose of developing, launching, and
    expanding the commercialization of new products or services.
Venture Capital has long been a necessary lubricant in the success stories of high-tech business initiatives
    and a key ally for technologists turned entrepreneurs. The presentation will provide an introduction
    to the world of Venture Capital, and will address issues related to how VC can positively impact the
    lifecycle of high-tech startups and support a business initiative in its early days.
Markets statistics will be used to extrapolate what to expect from a VC and an opinionated speaker will
    provide some practical suggestions on how a technologist turned entrepreneur should prepare,
    present his/her plan, select the right VC and pursue his/her goals.
Some specific considerations will be made addressing the peculiarities of the capital market for business
    initiatives insisting in the wireless mobile communications world.




                                    An Introduction To Venture Capital
                                    Andrea Capitanio - Alice Ventures                       Viewgraph No. 26

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:33
posted:11/21/2008
language:English
pages:26
gregoria gregoria
About