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					Venture Capitalists




    venture capital and private equity


                  by Mr Ties van der Laan
                   Ties Corporate Finance
     10, rue des Alouettes, L-1121 Luxembourg-Cents
                        Luxembourg
          m +352 691 427 566, t/f +352 427 566
                e ties@ties.lu, i www.ties.lu
Who am I?



 After nearly ten years in Dutch venture capital
      companies (ING Group) I am coaching
   since 1999 entrepreneurs and management
     teams to raise finance, first through LIFT
      and from mid 2002 as an independent
                  business coach
                            Where to look? - depends on where you are
                                                                                                                                                     BUY OUT / M&A
             = COMPANY'S LIFE CYCLE
             = FINANCE                                                                                                                                Growth, profit
             = FINANCIERS                                                                                                  EXPANSION
             = EXIT
                                                                                                                              Growth              MBO, MBI, IBO, LBO
M&A = Mergers & Acquisitions                                                                      EARLY STAGE                                      Merger, Acquisition
IPO = Initial Public Offering                                                                                                                        and Turnaround
MBO = Management Buy Out                                                                       Accelerated growth       Third, Fourth, …..         Loans, Mezzanine,
MBI = Management Buy In                                                     START-UP                                    Equity (expansion      Equity (later stage capital),
IBO = Investor Buy Out                                                                                                    capital), Loans                 Grants
LBO = Leveraged Buy Out                                                     Marketing             Second round
                       RESEARCH & DEVELOPMENT                                                         Equity
                                                                                               (early stage capital)
  Concept      Research      Project plan      Design      Prototype        First Round
                                             specification                     Equity                                   Management team,           Management team,
                                                                         (start-up capital)                            Corporate investors,       Venture capitalists,
                             Seed round                                                                                 Venture capitalists,      Mezzanine providers,
     Grants, Gifts, Goods, Services, Loans, Equity (seed capital)                               Management team,              Banks,                      Banks,
                                                                        Management team,       Corporate investors,            IPO.              Institutional investors,
                                                                         Business angels,       Venture capitalists.                                  Public sector.
        Public sector, Sponsors, Founder & friends & family,           Corporate investors,
                               Banks,                                   Venture capitalists.
      Business angels, Corporate investors, Venture capitalists.


                           License or sale                                 (Trade) sale            (Trade) sale         (Trade) sale, IPO,         (Trade) sale, IPO,
                                                                                                                        secondary buy out          secondary buy out
Venture capitalists


 History of venture capital
 Characteristics
 Who are they?
 What do they seek?
 How do they operate?
 Some figures
 VC’s vs. hedgefunds
History of venture capital


 Started in USA in early 1900
 Rich families (e.g. Rockefellers) invested
  outside own conglomerate as business
  angels
 1st time distinction: ownership/management
 After WOII: professional VCs
 Early 60s: UK
 Early 80s: continental Europe (banks in NL)
VC: characteristics


  Professional buyers of share in private companies
  Invest money of institutional investors (II)
  II = LP, fund manager = GP
  Funds: € 10m – € 15bn (!)
  Deals: € 1m – several € 100m
  Investment managers between 25–55 years old
  Dealmakers with financial background
  Objective is generating cash
  Driven by building profitable/sellable companies
Who are the VCs?

 1. Private equity vs. venture capital
 2. Evergreens (mostly captives) vs. revolving funds
 3a. Large VCs (<10 in EU)
   Funds: several € 1bn, deals: € 1m-250m
   Sector and/or region specific sections/subsidiaries
   Fund of funds
 3b. Medium sized generalists (100-200)
   Funds: € 50-300m, deals: € 1m several € 10m
   Private equity, venture capital and fund of funds
 3c. Niche VCs (< 100)
     Funds: € 10-300m, deals: € 250k-5m
     Focused on technology markets or niches
     Combine investors with industry knowledge
     Mostly venture capital
What do VCs seek? (II)


Venture capital
 Young companies: seed, start-up, early
  stage
 Large, global empty markets
 Experienced entrepreneurs
 Return > 50%: € 1m in, 4 years later € 5m
  out
    Growth
    Sale (trade or IPO)
What do VCs seek? (I)


Private equity
 90% (!) of money yearly raised
 Mature companies with turnover > € 50m
 Buy-outs mostly (MBO, MBI, IBO, BIMBO etc.)
 No market specialisation
 Return > 20%: € 10 in, 4 years later € 20m out
    Financial engineering
    Buy and build
    Sale
What do VCs seek? (III)




Investing is trust in people
    PE = balanced management teams
    VC = entrepreneurs
How do VCs operate? (I)

Intake
    Receive more plans than read
    Introduction via network
    Selective: invest in 1% of business plans read
    Extensive due diligence: 2 to 6 months
       Market(ing), technology, management, legal, financial
       PE: mostly external specialists
    Syndicates (so no competition between VCs)
       Deal-sourcing in other regions
       Follow-on investments
       Prevent entrapment
       Control with minority share
    Cross-border only with local lead
How do VCs operate? (II)

The deal
    Sometimes complex deals
    Management option scheme
    Veto-rights, minority protection, anti-dilution
    Board representation
    Monthly or quarterly reporting
    Control over exit
    Investment committee decides
    Typically 2 months
How do VCs operate? (III)

After the deal
    Real work starts
    Frequent contact in beginning
    Support: knowledge, experience and network
    Focus on:
      Growth
      Reporting
      Exit
    Hands-off unless going badly
      No good money for bad money
      Sell healthy part of company via network
 Figures (1): capital raised

           100,000

           90,000

           80,000

           70,000
                                                                                                           Other
           60,000                                                                                          Private individuals
In € mln




                                                                                                           Corporate investors
           50,000                                                                                          Fund of funds
                                                                                                           Insurance companies
           40,000                                                                                          Pension funds
                                                                                                           Banks
           30,000

           20,000

            10,000

                 -
                     1993   1994   1995   1996   1997   1998   1999 2000   2001 2002 2003 2004 2005 2006

                                                               Years
 Figures (2): capital invested

           60,000



           50,000



           40,000
In € mln




                                                                                                Buy out
           30,000                                                                               Expansion & replacement
                                                                                                Seed & start-up


           20,000



           10,000



                -
                    1993   1994 1995 1996   1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

                                                      Years
  Figures (3): raised/invested

           100,000

            90,000

            80,000

            70,000

            60,000
In € mln




                                 Capital raised
            50,000
                                 Capital invested

            40,000

            30,000

            20,000

            10,000

                 -
                  93

                  94

                  95

                  96

                  97

                  98

                  99

                  00

                  01

                  02

                  03

                  04

                  05

                  06
                19

                19

                19

                19

                19

                19

                19

                20

                20

                20

                20

                20

                20

                20
                     Years
Figures (4): return


                               3-year               5-year     10-year
 Early stage                     2.1%               -4.8%         -1.2
 Development                     7.2%                 1.2%         7.2
 Balanced                     15.9%                   5.1%       11.1
 Total VC                       8.7%                 0.5%       5.5%
 Buy Outs                     13.2%                   7.2%      13.6%
 Generalist                      4.5%               -0.8%        7.2%
 Total PE                    11.0%                   4.3%      10.3%
               (source: Thomson Financial on behalf of EVCA)
Conclusion Venture Capitalists


 money + experience + network, professionals
   in private mostly mature companies (PE),

 PE: financial engineering & buy/build & exit,
    VC: growth & exit, return only, prefer

         syndication with local party,
          due diligence: 4-8 months
                            Where to look? - depends on where you are
                                                                                                                                                     BUY OUT / M&A
             = COMPANY'S LIFE CYCLE
             = FINANCE                                                                                                                                Growth, profit
             = FINANCIERS                                                                                                  EXPANSION
             = EXIT
                                                                                                                              Growth              MBO, MBI, IBO, LBO
M&A = Mergers & Acquisitions                                                                      EARLY STAGE                                      Merger, Acquisition
IPO = Initial Public Offering                                                                                                                        and Turnaround
MBO = Management Buy Out                                                                       Accelerated growth       Third, Fourth, …..         Loans, Mezzanine,
MBI = Management Buy In                                                     START-UP                                    Equity (expansion      Equity (later stage capital),
IBO = Investor Buy Out                                                                                                    capital), Loans                 Grants
LBO = Leveraged Buy Out                                                     Marketing             Second round
                       RESEARCH & DEVELOPMENT                                                         Equity
                                                                                               (early stage capital)
  Concept      Research      Project plan      Design      Prototype        First Round
                                             specification                     Equity                                   Management team,           Management team,
                                                                         (start-up capital)                            Corporate investors,       Venture capitalists,
                             Seed round                                                                                 Venture capitalists,      Mezzanine providers,
     Grants, Gifts, Goods, Services, Loans, Equity (seed capital)                               Management team,              Banks,                      Banks,
                                                                        Management team,       Corporate investors,            IPO.              Institutional investors,
                                                                         Business angels,       Venture capitalists.                                  Public sector.
        Public sector, Sponsors, Founder & friends & family,           Corporate investors,
                               Banks,                                   Venture capitalists.
      Business angels, Corporate investors, Venture capitalists.


                           License or sale                                 (Trade) sale            (Trade) sale         (Trade) sale, IPO,         (Trade) sale, IPO,
                                                                                                                        secondary buy out          secondary buy out
VC’s vs. Hedgefunds

NB. Only active hedgefunds compare to VC’s/PE!

Differences:
 Quotes companies, small percentage (few %)
 No deal with management
 Shorter outlook (few months)
 Skill-based: invest in different assets

Similarities:
 Wake up sleepy managers
 High return
Ties Corporate Finance


                        Coach
                  in raising finance
          for the expansion of businesses


To create a winning business plan
To approach investors professionally
To negotiate with investors successfully
Contact details


           Ties Corporate Finance
              Ties van der Laan
            10, rue des Alouettes
         L-1121 Luxembourg-Cents
        Mobile: (+352) 691 427 566
            Fax: (+352) 427 566
             Email: ties@ties.lu
            Internet: www.ties.lu

				
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