11. Flat Model Capital Call Model Early Returns
1 Jan 2020 -100 -20 -10
1 Jan 2021 -20 -20
1 Jan 2022 -20 -20
1 Jan 2023 -20 -20
1 Jan 2024 -20 -20
1 Jan 2025 -10
1 Jan 2026 30
1 Jan 2027 120
1 Jan 2028
1 Jan 2029
1 Jan 2030 300 300 150
Total Return 300 300 300
IRR 11.60% 14.45% 20.59%
3x with 20% IRR
18. https://techcrunch.com/2017/06/01/the-meeting-that-showed-me-the-truth-about-vcs/
Half do average like before, and half do better
Five sold at $50 million, so $12.5 million
return on each.
The other five did much better and pulled off
$100 million exits.
Return: (5 * $12.5 million) + (5 * $25
million) =
$187.5 million return
Scenario 2
https://techcrunch.com/2017/06/01/the-meeting-that-showed-me-the-truth-about-vcs/
19. https://techcrunch.com/2017/06/01/the-meeting-that-showed-me-the-truth-about-vcs/
Majority do “average;” we’ll throw in
an overachiever
The 10th company, instead of selling for $100M
as before, now does $500M.
So our original five still sell at $50M, four sell at
$100 million and our new one at $500M.
Returns:
(5 * $12.5M) + (4 * $25M) + (1 * $125M) =
$287.5 million
Scenario 3
https://techcrunch.com/2017/06/01/the-meeting-that-showed-me-the-truth-about-vcs/
20. https://techcrunch.com/2017/06/01/the-meeting-that-showed-me-the-truth-about-vcs/
We need one big fat unicorn exit!
We would need one large exit to see good
profits.
Something like this would work: nine startups
sell for $50 million each and one goes for $1
billion:
(9 * $12.5 million) + (1 * $250 million) =
$362.5 million
Scenario 4
https://techcrunch.com/2017/06/01/the-meeting-that-showed-me-the-truth-about-vcs/
26. Few Deals make the Returns!
https://www.ben-evans.com/benedictevans/2016/4/28/winning-and-losing
For funds with an overall return of 3-5x, which is what VC funds aim for, the overall return was 4.6x but the return of
he deals that did better than 10x was actually 26.7x. For >5x funds, it was 64.3x.
https://www.ben-evans.com/benedictevans/2016/4/28/winning-and-losing
28. Power Power Law rules the VC industry!
https://visible.vc/blog/understanding-the-power-law-curve-of-vc/
https://blog.ourcrowd.com/a-moonshot-bet-on-moonshots/
29. Return Persistence
Top Quartile funds tend to remain there
https://blogs.cfainstitute.org/investor/2020/02/17/venture-capital-worth-venturing-into/
32.
“Long Term” reasons to become a VC
True passion for being part of creating the future
Working with the best of the entrepreneurs
True passion of understanding trends / behaviours / needs
Constant learning and unlearning - every single day!
“If you can’t invent the future, the next best thing is to fund it.”
John Doerr, Kleiner Perkins
36. Typical Time Lines
Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10Y0
Fund Raising
Fund Raising
Commitment
Period
Follow Ons
3-5 Years
2 years post Commitment Period
Next Fund Raise
First Close
Final Close
No More Fresh Investments post
Commitment Period
37. VC Treadmill
Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10Y0
Fund Raising
Fund Raising
Commitment
Period
Follow Ons
4 Years
2 years post Commitment Period
Next Fund Raise
First Close
Final Close
No More Fresh Investments post
Commitment Period
Raise
Deploy
Raise
Deploy
Return
38. Investment Team in a “Startup” Fund
Analyst / Associates / VPs Principal Managing Director Partner General Partner
Deal Sourcing
Analysis
Developing Thesis
Leading Deals
Deal Negotiations
Managing Boards
Brand Presence
Fund Raising
Building Teams
Independence/ Depth /
Quality
Decision Making
Leadership
Demonstrated
Track Record
44. Stage Choice
0 1 2 3 4 5 6 7 8 9
Valuation
Seed
Round
Angel
Round
Series A
Series B
Series C
Product Market Fit Business Model Fit
Bridge
Round*
45. Stage Choice
0 1 2 3 4 5 6 7 8 9
Valuation
Seed
Round
Angel
Round
Series A
Series B
Series C
Product Market Fit Business Model Fit
Bridge
Round*
Early Stage
Founder Focussed
Product Market fit risk
Team Risk
Good ownerships
Requires more hands-on
work
46. Stage Choice
0 1 2 3 4 5 6 7 8 9
Valuation
Seed
Round
Angel
Round
Series A
Series B
Series C
Product Market Fit Business Model Fit
Bridge
Round*
Mid Stage
Team Focussed
Growth Risk
Needs bigger corpus funds (>
100M USD)
Hands-off governance
47. Stage Choice
0 1 2 3 4 5 6 7 8 9
Valuation
Seed
Round
Angel
Round
Series A
Series B
Series C
Product Market Fit Business Model Fit
Bridge
Round*
Late Stage
Market Share focussed
Market Capture/ Exit Risk
Needs much larger corpus
funds (> 250M USD)
Private Equity like governance
56. Napkin Method to understand ownership needed for
3x return
Investment
30M USD
Total Exit Value
1B USD
57. Napkin Method to understand ownership needed for
3x return
Investment
30M USD
Total Exit Value
1B USD
Exit Needed - 100M
Ownership here:10%
58. Napkin Method to understand ownership needed for
3x return
Investment
30M USD
Total Exit Value
1B USD
Exit Needed - 100M
Ownership here:?
Assuming 50% dilution along the way
Ownership at the time of investment: 20%
59. Entry Ownership for a typical Early Stage Fund
0 1 2 3 4 5 6 7 8 9
Valuation
Seed
Round
Angel
Round
Series A
Series B
Series C
Product Market Fit Business Model Fit
Bridge
Round*
20-25% 15-20% 10-15%
60. Path to Ownership
Stage Round Size
Post Money
Valuation
Pro-Rata
Amount
Fund
Participation Ownership
Seed 1 4 1 25%
Series A 5 20 1.25 1.25 25%
Series B 15 60 3.75 0.75 20%
Case A
Stage Round Size
Post Money
Valuation
Pro-Rata
Amount
Fund
Participation Ownership
Seed 1 4 0.5 12.5%
Series A 5 20 0.625 1 14%
Series B 15 60 1.875 1.5 13%
CaseB
Ownership @
Exit Value Multiple
Case A 13% 12.5 4.2
Case B 7% 6.6 2.2
Exit Value Comparison for a 100M exit assuming 50% dilution
61. Path to Ownership
Go big early Go cautious early
Good ownership
Rights are easier to get
with bigger investment
early-on
Risks of write offs is
bigger
Ownership is hard to
catch up for seed funds
May have a compromise
on rights
Hedge the Risks
65. Building a Team & Culture
Funds typically have a small teams
Structure
Roles
Independent thinking yet have common goals
Individual as well as a team sport
Disagree but commit