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Venture Clinic Venture Capital Series   Roydean Osman, Vice President SEED Investment – CRADLE Fund Sdn. Bhd 29-30 th  April 2008 MSC Incubation Center, Multimedia University, Cyberjaya
Agenda  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Where we are ? – Funding ECO System (1)  Growth  & Profit Funding Needs Point Zero Other Grants,  SME Loans &  Incubators, Government Incentives, Angels & Corp Investors Project Financiers, Commercial Banks, Venture Capitals,  Private Equity, Credit Guarantee Corporation, Leasing & Factoring Providers, Govt. Agencies Cradle Investment Programme Institutional & Foreign Investors, Public Funds, Merger & Acquisitions, Merchant Banks MDeC Maturity Expansion Production & Commercialisation Market Entry Production Enhancement New Markets Scaling & Expansion Commercial Success Pre IPO Listing & Go Global Design & Conceptualisation Idea Birth Product Prototype & Proof of Concept Seed Pre Seed Growth
Where we are ? – Funding ECO System (2)
What VCs look for in a company ? (1)  VC Check Points Market Attractiveness : •  Size of Market  •  Market Need  •  Market Growth Potential  •  Access To Market Product Differentiation :   •  Uniqueness of Product  •  Technical Skills  •  Profit Margins  •  Patentability of Product Managerial Capabilities : •  Management Skills  •  Marketing Skills  •  Financial Skills  •  References of Entrepreneurs Resistance to Environmental Threat: • Protection from Competition  •  Protection of Obsolescence  •  Protection against Downside Risk  •  Resistance to Economic Cycles EXPECTED RETURN PERCIEVED RISK ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
What VCs look for in a company ? (2)  List the most important points about your company.  Strong management team.  Patents and unique technology or model.  Use of Proceeds  Attractiveness of the venture for investment.  Market trends, market growth rates.  Size of the target market.
What VCs look for in a company ? (3)  1. What is the market potential for your company's product or service offering(s)?  What is the revenue potential for the industry, and what is its growth rate? 2. How did you calculate market potential?  How do you determine industry sales and growth rate? 3. What makes your business different or unique? 4. Why would someone be "compelled" to purchase your product or service?  What specific needs does it address? 5. How do you know that your business has high growth potential? 6. What is it about your management team that makes them uniquely capable of executing on this business plan?   7. What are the primary risks facing this opportunity? 8. Who are your competitors? 9. What gives your company a competitive advantage? 10. Does the company have proprietary intellectual property in the form of patents, trademarks, copyrights, etc.?
What VCs look for in a company ? (4)  11. When will your company break even in terms of profitability and cash flow? 12. How do you plan to acquire customers? 13. How do you plan to keep customers? 14.  What drives customer satisfaction for this industry and for the product?  And, how do you know? 15.  Who is the end user of the product or service offering? 16. What alliances or partnerships have you entered (e.g.  joint ventures, marketing alliances, licensing arrangements, selling/distribution agreements, channel partnerships, software agreements, etc.)? 17. What is the anticipated lifecycle of your product or service offering?  What are your current and future plans for R&D investments? 18. How do you plan to expand your labor force? 19. What are the probable exit scenarios? 20. What is the planned "Use of Proceeds"?
Arts & Craft of Valuation (1)   ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Arts & Craft of Valuation (2)   ,[object Object],[object Object],[object Object],[object Object],[object Object]
Arts & Craft of Valuation (3)   ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Venture Capital Method
Valuation Methodologies  used by VCs (1)   Understanding the Venture Capital investment process Biz Plans  Kicks-In Products /Services Concepts/Ideas Analysis Entrepreneur  Analysis Business/  Venture Analysis Conditional Termsheet Approval Deal Sources Due Diligence Deal Terms Investment Decision Go/No-Go Screening Evaluation  Continues
Valuation Methodologies  used by VCs (2)   VC Cash Leadership (CEO) Implementation (CMO, CTO,  CFO) Idea Idea has limited value Ability to implement project  is most important What are you worth ?
Valuation Methodologies  used by VCs (3)   Cash Investment  :  $3 million Proposed Investor Share:  22.5 % Post-Money Valuation  :  $ 10.7 million Pre-Money Valuation  :    $ 7.7 million Exit Valuation (Yr 5):  $10 million (PAT) Return to Investor (IRR): 46% Cash-on-Cash Return Investor 3.3x First hand valuation by VCs – expected Return on Investment
Valuation Methodologies  used by VCs (4)   Negotiation with VCs   $ Company Value VC Maximum Value Entrepreneur Minimum Value Negotiating Space
Valuation Methodologies  used by VCs (5)   Venture Capital Method (1)   ,[object Object],[object Object],[object Object],[object Object],If the terminal value of a company seeking seed/start-up capital is estimated to be $60 million and we assume the stage of the company is appropriate for investors to expect 30x ROI in year of harvest, then the post-money valuation of this company can be estimated at $2 million. If the required investment is $0.5 million, then the pre-money valuation would be $1.5 million.
Valuation Methodologies  used by VCs (5)   Venture Capital Method (2)   ,[object Object],[object Object],[object Object],[object Object],Required Investment Ownership (%)  =  Required  Total Terminal Value Ownership Required (%) New Shares  = 1 – Ownership Required x old shares
Valuation Methodologies  used by VCs (6)   Financial Engineering ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Analyzing an actual start-up  VCs Valuation Interactive – (1) ,[object Object],[object Object],[object Object],[object Object]
Analyzing an actual start-up  VCs Valuation Interactive – (2) ,[object Object]
Analyzing an actual start-up  VCs Valuation Interactive – (3) ,[object Object]
Closing ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Thank You ! [email_address]   [email_address]

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Venture Clinic 29 30 Apr2008 Roydean

  • 1. Venture Clinic Venture Capital Series Roydean Osman, Vice President SEED Investment – CRADLE Fund Sdn. Bhd 29-30 th April 2008 MSC Incubation Center, Multimedia University, Cyberjaya
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  • 3. Where we are ? – Funding ECO System (1) Growth & Profit Funding Needs Point Zero Other Grants, SME Loans & Incubators, Government Incentives, Angels & Corp Investors Project Financiers, Commercial Banks, Venture Capitals, Private Equity, Credit Guarantee Corporation, Leasing & Factoring Providers, Govt. Agencies Cradle Investment Programme Institutional & Foreign Investors, Public Funds, Merger & Acquisitions, Merchant Banks MDeC Maturity Expansion Production & Commercialisation Market Entry Production Enhancement New Markets Scaling & Expansion Commercial Success Pre IPO Listing & Go Global Design & Conceptualisation Idea Birth Product Prototype & Proof of Concept Seed Pre Seed Growth
  • 4. Where we are ? – Funding ECO System (2)
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  • 6. What VCs look for in a company ? (2) List the most important points about your company.  Strong management team.  Patents and unique technology or model.  Use of Proceeds  Attractiveness of the venture for investment.  Market trends, market growth rates.  Size of the target market.
  • 7. What VCs look for in a company ? (3) 1. What is the market potential for your company's product or service offering(s)? What is the revenue potential for the industry, and what is its growth rate? 2. How did you calculate market potential? How do you determine industry sales and growth rate? 3. What makes your business different or unique? 4. Why would someone be "compelled" to purchase your product or service? What specific needs does it address? 5. How do you know that your business has high growth potential? 6. What is it about your management team that makes them uniquely capable of executing on this business plan?   7. What are the primary risks facing this opportunity? 8. Who are your competitors? 9. What gives your company a competitive advantage? 10. Does the company have proprietary intellectual property in the form of patents, trademarks, copyrights, etc.?
  • 8. What VCs look for in a company ? (4) 11. When will your company break even in terms of profitability and cash flow? 12. How do you plan to acquire customers? 13. How do you plan to keep customers? 14. What drives customer satisfaction for this industry and for the product? And, how do you know? 15. Who is the end user of the product or service offering? 16. What alliances or partnerships have you entered (e.g. joint ventures, marketing alliances, licensing arrangements, selling/distribution agreements, channel partnerships, software agreements, etc.)? 17. What is the anticipated lifecycle of your product or service offering? What are your current and future plans for R&D investments? 18. How do you plan to expand your labor force? 19. What are the probable exit scenarios? 20. What is the planned "Use of Proceeds"?
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  • 12. Valuation Methodologies used by VCs (1) Understanding the Venture Capital investment process Biz Plans Kicks-In Products /Services Concepts/Ideas Analysis Entrepreneur Analysis Business/ Venture Analysis Conditional Termsheet Approval Deal Sources Due Diligence Deal Terms Investment Decision Go/No-Go Screening Evaluation Continues
  • 13. Valuation Methodologies used by VCs (2) VC Cash Leadership (CEO) Implementation (CMO, CTO, CFO) Idea Idea has limited value Ability to implement project is most important What are you worth ?
  • 14. Valuation Methodologies used by VCs (3) Cash Investment : $3 million Proposed Investor Share: 22.5 % Post-Money Valuation : $ 10.7 million Pre-Money Valuation : $ 7.7 million Exit Valuation (Yr 5): $10 million (PAT) Return to Investor (IRR): 46% Cash-on-Cash Return Investor 3.3x First hand valuation by VCs – expected Return on Investment
  • 15. Valuation Methodologies used by VCs (4) Negotiation with VCs $ Company Value VC Maximum Value Entrepreneur Minimum Value Negotiating Space
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  • 23. Thank You ! [email_address] [email_address]