Inside the mind of a venture capital

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!