Inside the mind of a venture capital

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Inside the mind of a venture capital Powered By Docstoc
					Inside the mind of a VC

An insider look of a venture capital fund What it takes to successfully raise funds Knowledge learned over years of working for one of the top tier VC funds

www.investmentslides.com

What’s it like to be a VC
+ + + + + + Forefront of innovation Learn about new technologies Meet interesting people You get a lot of attention Job security No accountability

However, It’s not so easy…
- Constant desire to find the next homerun… - Over networking - Being a generalist - Need to make some difficult decisions

How does it really work
 It’s all about referrals  Good deals are hard to find…  Funds partner and compete among themselves  Investment climate is influenced by the Fear Vs. Greed cycle:
 Type I error (invest in a company and it fails)  Type II error (don’t invest and the company succeeded

 Nose & gut feeling

time

The Art of In-Decision
 Flawed Investment process  No hurry mentality: – The fund sets the pace (buyers market) – Less than 10% of deals are competitive – Aggressive terms

Exits

What characterizes a good fund

 Ability to raise money  Get the best deal-flow  and being proactive about it  Partner focus and fit as a group  Open minded group / nonconformity  Invest, commit, and build companies  Managing conflicts of interests  Creating incentives – generosity  Avoiding the herd mentality

Very Rare… Ability to break away of the pack…

Opportunities in wireless networks

Investment Checklist
 Management team – industry and operational experience  Well defined market potential and budgeted  Must have vs. nice to have – customer feedback  Competition: several players  New paradigm / innovation  Cash to general availability product  Sales to positive cash flow – $15M in software, $30M in hardware  Capital to positive cash flow: $20-30M  Strong co-investors

Working with portfolio companies
 #1 priority getting the right people on board – VCs don’t want to babysit…  #2 value add is opening doors  Savvy investors would let the company operate independently without too much intervention  However, a good VC with strong strategic acumen can add value on the board

When things don’t go so well
 The dark side of a VC: – #1 Responsibility is to the funds’ limited partners  Conflict of interests as VCs play both roles of investors and company board representatives  Protection measures – Liquidation – Anti-dilution – Voting rights

The entrepreneurs’ Point Of View
 Seek VC Branding – A top tier fund validation  Help attract and recruit team, customers, partners  Want deep pocket investors… – Most want “dumb” money

VC mindset
 It’s all about building relationships – Most people still like to date before they get married  The earlier the company the more emphasis on the founders  VCs like to get in early to take credit for success  Valuation vs. terms  Clean cap table  Sometimes VCs money is not right for you – Capital needs (if you don’t need a lot of capital) – Bootstrap (to reach some milestones)

How to increase chances of getting funded
 Have the right message – Confidence is critical – Need to be able to sing (strong advocacy) – Written deliverables are less important – Many people will come across – need targeting  Get key people evolved…  Play the game …

False prophecies
    Raise less money to avoid being diluted It is a zero sum game Valuation is most important in negotiations If Sequoia / KP funded me I must be very talented and on my way to striking it rich.  A good fund can open the door to anyone  “Dumb money” makes the entrepreneur much smarter

Thank You!


				
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Description: An analysis of a venture capital investment process posted by http://www.investmentslides.com