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VIEWS: 114 PAGES: 17

									  Raising Venture
Capital for the Serious

   Book by Dermot Berkery

      GoogleBooks: XXX
Creating a set of "stepping stones:
                                                    Step 5        Milestone 12
                                                                  Milestone 13
                                                                  Milestone 14

                                      Step 4       Milestone 9
                                                   Milestone 10
                                                   Milestone 11

                         Step 3      Milestone 7
                                     Milestone 8

          Step 2       Milestone 4
                       Milestone 5
                       Milestone 6

Step 1   Milestone 1
         Milestone 2
         Milestone 3
Main Path and Alternatives:
                                                     Step 5.1

               Step 2.3                     Step 5

    Step 2.2
                               Step 4                Step 5.2

    Step 2.1                            Step 5.3
                      Step 3

         Step 2

Step 1
Worst Case Szenario:


               Step 2
 Step 1       reached
                          Abandon the project

                          Restructuring the

                          "bridging" to step 1
Large and Small Companies:

 innovation                                           incremental
 breakthrough                                         product and
                manufacturing     distribution
 products and                                         service
 services                                             improvement

     core        core competence of large companies
   of small
                                              start-up company
"J" Cash Curve of a Busniess:                 start-up biotech company (ultimately

   cumulative                                               start-
    generated                                               up company

                                                               time (years)
                 investment                                 start-up
                    required                                biotech company
                                                            (ultimately sold)

                       operating cash    cash flow
                       flow break even   break even
The seven-year marathon...

    It takes at least five to seven years to build
    a business.
    There are three to four common financing
    stages in the development of a business
    The really big hits in a venture capital
    portfolio tend to be the ones held onto for
    seven to ten years.
Activities in a new business that absorb capital...

         Capital Assets
         Product development costs
         Leadership and administration
         Working capital (Working Capital =
         Current Assets − Current Liabilities)
         Sales ramp-up financing
Evidence to include in a business plan:

   Evidence for opportunity...

       Potential for accelerated growth in a
       big, accessible market
       An achievable position of market
       power - a sustainable, differentiated
       product or service proposition
       Capable, ambitious, trustworthy
Evidence for opportunity...
 Tools and arguments

    "ROI-spreadsheet": Focus on the economic benefits of the
    company's product or service: What is the company's
    superlative values proposition to customers and why is the
    company better placed than the competition to deliver this
    Sustainable and defensible position (e.g. patents, know-how,
    first-to-market,...) to allow market power to be exploited
    Very high gross margins (greater than 70%)

    Balanced team with deep domain knowledge and prior
    experiences and records
Evidence to include in a business plan:

   Evidence for a good deal...

         Plausible, value-enhancing stepping
         Realistic valuation to allow the
         investor to earn a sizable multiple
         Promising exit possibilities
Evidence for a good deal...

    Tools and arguments:

       Outline of milestones / stepping stones and
       Alternative sets of milestones
       possibility of an initial public offering (IPO)
       exit strategy
Companies that have the potential to provide
very high returns on investment share three
simple factors:

          1. Fast growth
          2. High gross margins
          3. Low capital intensity
How venture capitalists value early-stage

    1. They look at the long-term and short-
       term future to identify possible value
    2. They discount the future values back
       using multiples
  Long-term and short-term future value

short-term future value
= value at the next financing round
   investors will see a higher company value in the next round (in
   12-18 months) to be compensated for the risks
   valuation method: find examples of similar companies in other

long-term future value
= maximum valuation of the company = "exit value"
   only possible if the company stays independent - i.e. an IPO is
   possible and plausible to explain
   valuation method: compare with similar company
Discounting the future values

             10 to 20        6 to 8         3 to 5
              times          times          times

       First Round      Second        Pre-IPO        final (max.)
                        Round                           value
Why big companies buy small companies

  Small companies are better at innovation than big

  Distribution Benefit

                                 small company   small company
                                 (stand alone)   (acquired by a big one)
  revenue                          10$ (100 %)       40$      (100 %)
  development costs                -4$ (-40 %)       -4$      (-10 %)
  administration costs             -2$ (-20 %)       -0,8$    (-2 %)

  sales and distribution costs     -6$ (-60%)         0$       (0 %)
  net profit                       -2$ (-20%)        -35,2$   (88%)

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