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VCIC ® Team Prep Session VC 101 This PPT was created for organizers of internal events to help prepare student teams to compete.
What is a VC’s Job? ,[object Object]
VC’s Job Duties ,[object Object],[object Object],[object Object],[object Object],[object Object]
VC’s Job Cycle ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
VC’s Job Cycle ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Raising a Fund ,[object Object],[object Object],[object Object],[object Object],[object Object]
Raising a Fund LP 2 LP 3 LP 4 VC Firm (GPs) Fund 1 $$$$ LP 1 LP n Pledge $$  Commitments only.  No actual cash changes hands. Pledge $$  Pledge $$  Pledge $$  Pledge $$
Raising a Fund CalPERS Parish  Capital VC Firm (GPs) Fund 1 $$$$ UNC  Endowment AIG Pledge $$  Pledge $$  Pledge $$  Pledge $$  Pledge $$  Example NC Pension  Fund
Sources of Funds
Example Portfolio Diversity of LP VC is a subset of private equity.
VC Firm vs. VC Fund ,[object Object],[object Object],[object Object],Roizen: small and large firms.
Fund Size ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
New Enterprise Associates hauls in nearly $2.5B for new fund ,[object Object],Imagine you are a start-up that needs $1M in funding. Can this firm help you?
Fund Life: 10 Years Invest and Reserve Follow-On Rounds Harvest “ Raise” Fund Year 0 5 10
Example Successful Investment Invest and Reserve Follow-On Rounds Harvest Series A Due Diligence Hit Milestones Hit Milestones Series B EXIT Find Deal  Series A ROI is calculated on 6 years Series B ROI is calculated on 3 years 0 2 3 5 8 10
A Pattern That Repeats A B Exit 0 2 3 5 8 10
One of Many A B Exit 0 2 3 5 8 10
Portfolio of 10-25 Investments A B A B A B A B C A B A B Bust A Bust B A Bust A Bust A B C A D B Exit Exit Big Exit Exit 0 2 3 5 8 10
Portfolio of 10-25 Investments Big Exit A B A B A B A B C A B A B Bust A Bust B A Bust A Bust A B C A D B 3 2 5 6 8 9 11 10 Exit Exit Exit 4 1 7 0 2 3 5 8 10
Exit Scenario A B A B A B A B C A B A B Bust A Bust B A Bust A Bust A B C A D B Exit Exit Big Exit Exit ? ? ? Bust Exit ? 0 2 3 5 8 10
First Fund Invest and Reserve Follow-On Rounds Harvest “ Raise” Fund Year 0 5 10
First Fund Raise $$  Invest  Follow-On  Harvest  Fund 1 Year 0 5 10
Multiple Funds Raise $$  Invest  Follow-On  Harvest  Raise $$$$  Invest  Follow-On  Harvest  Raise $$$  Invest  Follow-On  Harvest  Always fundraising Always investing Always growing Fund 1 Fund 3 Fund 2 0 5 10 0 5 10 0 5 10
Multiple Deals in Multiple Funds Fund 1 Fund 3 Fund 2 Imagine you are this entrepreneur  Raise $  Invest  Follow-On  Harvest  Raise $$$  Invest  Follow-On  Harvest  Raise $$$$  Invest  Follow-On  Harvest  11 Deals 16 Deals 25 Deals
VC’s Job Cycle ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Source Deals: Focus
Source Deals: Network ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The Wall Street Organization, Inc.
 
Stages of Equity Funding Friends/Family $1,000-$50,000 Seed or  Pre-Seed $25,000-$250,000 Angel or  Early Stage $50,000 - $500,000 VC Rounds  1, 2, 3… or A, B, C… (Institutional) $500,000 - $50M IPO
Typical Growth of Bootstrap Venture Normal bootstrap business Grows steadily (if you’re lucky)
Rounds ,[object Object],[object Object],[object Object],[object Object],[object Object]
VC Investment Math ,[object Object],[object Object]
Example: $3M Post Preferred  Shares Common Shares
Negotiating Points ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Determine % ownership Some of the  “rights” of  preferred shares
VC’s Job Cycle ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Growing Ventures ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Board Seats ,[object Object],[object Object],[object Object],[object Object]
Advisors ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Future Rounds ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Future Rounds ,[object Object],[object Object],[object Object],[object Object],[object Object]
Series A and B Conflict ,[object Object],[object Object],[object Object],[object Object]
Example Up Round ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Up Round: 1 on 1, 2 on 3 Inv = $1M Series A Series B Post = $5M Pre = $1M Post = $2M Inv = $2M Pre = $3M Shares at $1 Shares now $1.5 1M VC shares 1M Founder shares 2M total shares 1.33M Series B shares 2M Series A shares 3.33M shares Ownership Series A VC Shares 1M/2M = 50% Diluted to 1M/3.33M = 30% Series B VC Shares  1.33M/3.33M = 40% Founders Same as Series A VC shares  Things go well Hit milestones Increased valuation
Dilution Original Shares Added Shares New  Share  Pool Original Shares Same quantity of blue.  Lower percentage.
Why  Dilution  is Bad Original Pool Every 1% you  lose of a  20X  Exit is going to hurt 20 times more
Up Round:  2  on  4 12  on  12 Inv = $2M Series A Series B Post = $24M Pre = $4M Post = $6M Inv = $12M Pre = $12M Shares at $1 Shares at $2 2M VC shares 4M founders shares 6M total shares 6M Series B shares 6M Series A shares 12M shares Ownership Series A VC Shares 2M/6M = 33% Diluted to 2M/12M = 16.7% Series B VC Shares  6M/12M = 50% Founders 4M/6M = 67% Diluted to 4M/12M=33.3%
Down Round Inv = $1M Series A Series B Post = $2.5M Pre = $1M Post = $2M Inv = $1M Pre = $1.5M 1M shares 1M shares 2M shares 1.33 shares 2M shares 3.33M shares Shares at $1 Shares at $0.75 Remember, these are negotiated (so you start here, then do the math) The rest is math VC ownership after Series B (50% x 1.5/2.5) + 1/2.5 =1.75/2.5 = 70% OR 2.33M shares ÷ 3.33M total  =  70% 1  on  1 1  on  1.5
Imagine a Scenario ,[object Object],[object Object],[object Object],[object Object],[object Object]
Capitalization Table ,[object Object],[object Object],[object Object],[object Object]
Option Pool ,[object Object],[object Object]
25% Option Pool Example Inv = $1M Series A Pre = $1M Post = $2M No Option Pool 1M VC shares 1M Founder shares 2M total shares Inv = $1M Series A Founders Post = $2M 25% Option Pool = 500K shares 1M VC shares 500K Founder shares 2M total shares 500K option shares Option Pool Pre = $1M
Future Rounds Impact on ROI ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
VC’s Job Cycle ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
VC Return ,[object Object],[object Object],[object Object]
Invest Startup Startup Startup Startup Startup Startup Startup Startup Startup Startup Startup Portfolio VC Firm (GPs) $$ $$ $$ $$ $$ $$ Fund 1 $$$$ Capital Call $$  Capital Call $$  Capital Call $$  Capital Call $$  Capital Call $$  LP 2 LP 3 LP 4 LP 1 LP n
Exits Single Home Run dud dud dud Triple VC Firm (GPs) Fund 1 $$$$ $$ $$ $$ dud dud dud dud Single Single Double dud $$$$$$$$$$ $$ $$ $$$ $ $ $ $$ $$ Single LP 2 LP 3 LP 4 LP 1 LP n
Examples ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Getting to 20% ROI ,[object Object],[object Object],[object Object],[object Object],[object Object]
How do GPs/VCs Make Money? ,[object Object],[object Object],[object Object],[object Object],[object Object]
Conclusion: VC’s Job Cycle ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Understand the “Ecosystem” Fund 1 Fund 3 Fund 2 The game is not “picking the right deal.” It is laying the groundwork for continued success. Raise $  Invest  Follow-On  Harvest  Raise $$$  Invest  Follow-On  Harvest  Raise $$$$  Invest  Follow-On  Harvest  11 Deals 16 Deals 25 Deals

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Vcic Prep Session Vc 101

  • 1. VCIC ® Team Prep Session VC 101 This PPT was created for organizers of internal events to help prepare student teams to compete.
  • 2.
  • 3.
  • 4.
  • 5.
  • 6.
  • 7. Raising a Fund LP 2 LP 3 LP 4 VC Firm (GPs) Fund 1 $$$$ LP 1 LP n Pledge $$ Commitments only. No actual cash changes hands. Pledge $$ Pledge $$ Pledge $$ Pledge $$
  • 8. Raising a Fund CalPERS Parish Capital VC Firm (GPs) Fund 1 $$$$ UNC Endowment AIG Pledge $$ Pledge $$ Pledge $$ Pledge $$ Pledge $$ Example NC Pension Fund
  • 10. Example Portfolio Diversity of LP VC is a subset of private equity.
  • 11.
  • 12.
  • 13.
  • 14. Fund Life: 10 Years Invest and Reserve Follow-On Rounds Harvest “ Raise” Fund Year 0 5 10
  • 15. Example Successful Investment Invest and Reserve Follow-On Rounds Harvest Series A Due Diligence Hit Milestones Hit Milestones Series B EXIT Find Deal Series A ROI is calculated on 6 years Series B ROI is calculated on 3 years 0 2 3 5 8 10
  • 16. A Pattern That Repeats A B Exit 0 2 3 5 8 10
  • 17. One of Many A B Exit 0 2 3 5 8 10
  • 18. Portfolio of 10-25 Investments A B A B A B A B C A B A B Bust A Bust B A Bust A Bust A B C A D B Exit Exit Big Exit Exit 0 2 3 5 8 10
  • 19. Portfolio of 10-25 Investments Big Exit A B A B A B A B C A B A B Bust A Bust B A Bust A Bust A B C A D B 3 2 5 6 8 9 11 10 Exit Exit Exit 4 1 7 0 2 3 5 8 10
  • 20. Exit Scenario A B A B A B A B C A B A B Bust A Bust B A Bust A Bust A B C A D B Exit Exit Big Exit Exit ? ? ? Bust Exit ? 0 2 3 5 8 10
  • 21. First Fund Invest and Reserve Follow-On Rounds Harvest “ Raise” Fund Year 0 5 10
  • 22. First Fund Raise $$ Invest Follow-On Harvest Fund 1 Year 0 5 10
  • 23. Multiple Funds Raise $$ Invest Follow-On Harvest Raise $$$$ Invest Follow-On Harvest Raise $$$ Invest Follow-On Harvest Always fundraising Always investing Always growing Fund 1 Fund 3 Fund 2 0 5 10 0 5 10 0 5 10
  • 24. Multiple Deals in Multiple Funds Fund 1 Fund 3 Fund 2 Imagine you are this entrepreneur Raise $ Invest Follow-On Harvest Raise $$$ Invest Follow-On Harvest Raise $$$$ Invest Follow-On Harvest 11 Deals 16 Deals 25 Deals
  • 25.
  • 27.
  • 28. The Wall Street Organization, Inc.
  • 29.  
  • 30. Stages of Equity Funding Friends/Family $1,000-$50,000 Seed or Pre-Seed $25,000-$250,000 Angel or Early Stage $50,000 - $500,000 VC Rounds 1, 2, 3… or A, B, C… (Institutional) $500,000 - $50M IPO
  • 31. Typical Growth of Bootstrap Venture Normal bootstrap business Grows steadily (if you’re lucky)
  • 32.
  • 33.
  • 34. Example: $3M Post Preferred Shares Common Shares
  • 35.
  • 36.
  • 37.
  • 38.
  • 39.
  • 40.
  • 41.
  • 42.
  • 43.
  • 44. Up Round: 1 on 1, 2 on 3 Inv = $1M Series A Series B Post = $5M Pre = $1M Post = $2M Inv = $2M Pre = $3M Shares at $1 Shares now $1.5 1M VC shares 1M Founder shares 2M total shares 1.33M Series B shares 2M Series A shares 3.33M shares Ownership Series A VC Shares 1M/2M = 50% Diluted to 1M/3.33M = 30% Series B VC Shares 1.33M/3.33M = 40% Founders Same as Series A VC shares Things go well Hit milestones Increased valuation
  • 45. Dilution Original Shares Added Shares New Share Pool Original Shares Same quantity of blue. Lower percentage.
  • 46. Why Dilution is Bad Original Pool Every 1% you lose of a 20X Exit is going to hurt 20 times more
  • 47. Up Round: 2 on 4 12 on 12 Inv = $2M Series A Series B Post = $24M Pre = $4M Post = $6M Inv = $12M Pre = $12M Shares at $1 Shares at $2 2M VC shares 4M founders shares 6M total shares 6M Series B shares 6M Series A shares 12M shares Ownership Series A VC Shares 2M/6M = 33% Diluted to 2M/12M = 16.7% Series B VC Shares 6M/12M = 50% Founders 4M/6M = 67% Diluted to 4M/12M=33.3%
  • 48. Down Round Inv = $1M Series A Series B Post = $2.5M Pre = $1M Post = $2M Inv = $1M Pre = $1.5M 1M shares 1M shares 2M shares 1.33 shares 2M shares 3.33M shares Shares at $1 Shares at $0.75 Remember, these are negotiated (so you start here, then do the math) The rest is math VC ownership after Series B (50% x 1.5/2.5) + 1/2.5 =1.75/2.5 = 70% OR 2.33M shares ÷ 3.33M total = 70% 1 on 1 1 on 1.5
  • 49.
  • 50.
  • 51.
  • 52. 25% Option Pool Example Inv = $1M Series A Pre = $1M Post = $2M No Option Pool 1M VC shares 1M Founder shares 2M total shares Inv = $1M Series A Founders Post = $2M 25% Option Pool = 500K shares 1M VC shares 500K Founder shares 2M total shares 500K option shares Option Pool Pre = $1M
  • 53.
  • 54.
  • 55.
  • 56. Invest Startup Startup Startup Startup Startup Startup Startup Startup Startup Startup Startup Portfolio VC Firm (GPs) $$ $$ $$ $$ $$ $$ Fund 1 $$$$ Capital Call $$ Capital Call $$ Capital Call $$ Capital Call $$ Capital Call $$ LP 2 LP 3 LP 4 LP 1 LP n
  • 57. Exits Single Home Run dud dud dud Triple VC Firm (GPs) Fund 1 $$$$ $$ $$ $$ dud dud dud dud Single Single Double dud $$$$$$$$$$ $$ $$ $$$ $ $ $ $$ $$ Single LP 2 LP 3 LP 4 LP 1 LP n
  • 58.
  • 59.
  • 60.
  • 61.
  • 62. Understand the “Ecosystem” Fund 1 Fund 3 Fund 2 The game is not “picking the right deal.” It is laying the groundwork for continued success. Raise $ Invest Follow-On Harvest Raise $$$ Invest Follow-On Harvest Raise $$$$ Invest Follow-On Harvest 11 Deals 16 Deals 25 Deals