Venture capital

www.edventures1.com | training@edventures1.com | +91-9787-55-55-44
Venture Capital
An Introduction to

Agenda for the next 2 hours
• Introductions
• What is Venture Capital
• Why VC?
• Types of Funding
• Process
• What VC’s Look for
• Exit strategy
• Discussions

Edventures1
• A Learning and
Development organisation
• Experimentors
• Over 100 years of
combined experience

Facilitator – Pradeep Yuvaraj
• Goal for the session
• Rules for the session
• About

Where do I get money from?
• To start new business
• Grow a business
• Put a new factory
• Revive a dying company

Possible sources: Non-equity
• Personal funds
• Personal debt
• Grants and awards
• Customer pre-sales
• Venture leasing
• Receivables financing
• Business loans
• In-kind contributions
• Joint ventures
or

Sources: Equity
• Angels
• The “4Fs” – Friends,
Family Father in law
and Fools
• Corporate direct
investment

Hero of the day: Venture Capital

What is Venture Capital
• Type of Equity investment
• Above average or High returns
• Story of the man with the idea
and the man with the money

In other words
… It is the business of employing capital
‘patiently’ to ‘maximize returns’ while
managing risks in a relatively high-risk venture
Versus
Simply ‘minimising risks’ for a surer fixed return

Why take risk?

Why is it better than all other sources
• Spirit of partnership
• Risk - Reward sharing
• Active participation and value addition
• Long term perspective
• Investment and not assistance
• Returns linked to performance
• Expects high returns

Who become VC’s?
• Individuals
• Corporations
• Private firms

How a VC company runs?
• General partners (GPs) manage the fund
• Capital comes from institutional “limited
partners” (LPs)
• Singularly focused: ROI
• GPs get an annual fee
• Once LPs get investment back, GPs get a
portion of the profits
• LPs get the remaining profits

Venture Capital Economics
VC Fund IX, L.P.
LP 1 GP
LP 2
LP 3
Portfolio
Company 1
Portfolio
Company 2
Portfolio
Company 3
Portfolio
Company 4
Portfolio
Company 5
LP 4
$100
Management
$10 Portfolio
Company 10
Portfolio
Company 9
Portfolio
Company 8
Portfolio
Company 7
Portfolio
Company 6
$10
$10
$10
$10 $10
$10
$10
$10
$10
2%

Venture Capital Economics
VC Fund IX, L.P.
LP 1 GP
LP 2
LP 3
Portfolio
Company 1
Portfolio
Company 2
Portfolio
Company 3
Portfolio
Company 4
Portfolio
Company 5
LP 4
$180
Portfolio
Company 10
Portfolio
Company 9
Portfolio
Company 8
Portfolio
Company 7
Portfolio
Company 6
$100
$25
$40
$35
$20

When will VC’s Fund?
• Seed Capital
–Only ideas
–No product
–Small amounts
–Capital used
• Market research
• Sample Product
• Set-up costs

Startup Capital
• Product development
completed
• Sample is already
available
• Initial marketing has
been done
• <2 years

Early stage
• 2-3 years in business
• Management in place
• Sales on rise
• VC could increase sales
• Improve productivity
• Improve efficiency

Expansion capital
• Company is established
• Next level of growth
• Enter new markets
• Specialized VC’s

Late stage/Mezzanine
• Impressive sales and
revenues
• Broken even/profitable
• Second level of
management
• Capacity increase
• Ramp up marketing

Other types
• Restructuring
• Bridge capital
• Turnaround
• Acquisition
• Merger

The process
1
• Business Plan
• Unsolicited Vs referred
2
• Initial evaluation by Associate
• Follow up evaluation by partner
3
• First meeting/assessment of team
• Preliminary due diligence

The process….
4
• Second, third… meetings
• Decisional commitment
5
• Term sheet issued
• Detailed Due diligence
6
• Negotiations
• Documentation – Closing/funding

Fundraising time line
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Business
Plan
Submissions
Investor
Presentations
Term Sheet
Negotiations
Final
Documentation
Funding
Budget 4-5 months, or more

After funding
• Monitoring
– Board seat
– Financial Performance
• After 3-7 years: Exit
– IPO
– Sale back
– M&A
– Sale to strategic investors

Fundraising Lessons
• Network to gains access to VCs
• Don’t get hung-up on confidentiality
• Be persistent
• Be humble yet confident, and always
courteous and professional
• Embrace and learn from rejection
• Be greedy in the long-run (any % of something
> 100% of nothing!)

Believe In Your Idea!
“The wireless music box has no
imaginable commercial value.”
– David Sarnoff Associates, in rejecting a proposal for investment in the radio in the
1920s
“We don't like their sound, and guitar
music is on the way out.”
– Decca Recording Co., rejecting the Beatles in 1962

Believe In Your Idea!
“Many of our stockholders have asked me about this
new invention by Alexander Graham Bell called the
telephone. While we think it’s an interesting curiosity,
there’s never going to be a market for that technology,
and therefore we have declined the offer to take a
license.”
– Chairman of Western Union, in its annual report from the late 1800s
“Who the hell wants to copy a document
on plain paper?”
– National Inventors Council, as told in 1940 to Chester Carlson, founder of XEROX

Attributes of a Successful
Entrepreneur
• Problem solver
• Decisive
• Leader & motivator
• Humble
• Passionate
• Persistent
• Optimistic
• Professional
• High integrity
• Critical path doer
• Impatient / bias toward
action (with analysis)
• Rejoices in others’
victories
• Focused on the long-
term goal

Closing thoughts…
• Focus on the long-run
–What goes around comes around
–Friendships last longer than jobs
–Don’t let greed blind the objective
• Make the most of the experience
–Listen & learn
–Failure or rejection is what you make of it

Entrepreneurship…
• Entrepreneurship is a lifestyle choice
– Balance your risk & return
– Seize opportunities
– Life’s short, have fun

Discussions…

• +91-97-87- 55- 55- 44
• training@edventures1.com
• www.edventures1.com

Venture capital

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