1 private equity. 2 topics for today topics for today what is venture capital? what do vcs look...
TRANSCRIPT
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Topics for todayTopics for today
What is venture capital?
What do VCs look for?
VC process
VC value added process
VC terms
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What is Venture Capital? What is Venture Capital?
Investments in early stage small or medium sized, unlisted companies,
Can also consider investing in big projects and sometimes listed companies, if strategic- termed Private equity
Aim to increase the value of its investment without taking control by active participation in the management process
Exit by way of redemption,selling shares back to the promoters, to a third party in a private transaction, a trade sale or an IPO within a fixed time
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Venture / Private Equity Funding Venture / Private Equity Funding StagesStages
Seed
Start-Up / Early Stage
Expansion Stage
Mezzanine Financing
Buyout / Leverage or Management
More risk
More money
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What Do VCs Look For?What Do VCs Look For?
Management team
Market
Competitive Advantage
Capital Requirements
Exit Strategy
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Management TeamManagement Team
(People) 3
Managing a business, especially a start-up is not easy
We look to the founders to have the vision, drive, tenacity, conviction, experience, flexibility etc
Proven track record…serial entrepreneur
Chemistry is also important
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Potential market size is very important
VCs look for winners
Difficulties: Identifying change
Some products / services create the market
Some change the industry
Others are yet to be tested but has great potential
Large Growth MarketLarge Growth Market
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What is the Business Model?What is the Business Model?
Blinding Idea / Technology
Product / Service
Can it be commercialized?
Is it a Strong Value Proposition
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Does the firm have a clear Competitive Does the firm have a clear Competitive Advantage?Advantage?
What is your unfair advantage? Is it sustainable?
Do they know market & competitors intimately
What do they have that others don’t?
What do they do better than any other company?
What if they’re up against copycats, reverse-engineers, 800lb gorillas?
Need to answer the question
What do they do differently from their competitors that their clients value?
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Reasonable Valuation are importantReasonable Valuation are important
What is too expensive?
What is too cheap?
P/E, Revenue Multiple, NPV, EBITDA?
Exit Strategy?
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VC PROCESSVC PROCESS
Marketing- news articles, talks, networking Only meet people who cold call that have been recommended by
someone who the VC respects. Review business plans. The VC wants to check out the quality of
your thinking. This is a work in progress but it needs to be done by you.
Court the business man. Check out their management ability by reviewing what they done in the past.
If we agree to proceed we may do some preliminary due diligence. In our case we review market size and do some character references.
If agreed in principal we prepare a PIM- Preliminary Investment Memo.
If approved we may give a draft term sheet. This outlines the broad terms on which we invest.
Due Diligence. Technical Due Diligence maybe outsourced to a technical expert. Accounting due diligence by an accounting firm, legal due diligence by a legal firm. This should take one month.
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VC PROCESS (cont.)VC PROCESS (cont.)
Technical due diligence will include simple things like does it work? is it stable? competition analysis,- trying too understand the competitive edge in the technology.
Once due Diligence completed , move to agree term sheet. We go back to our investment committee to report our findings. No adverse findings then we move to contract.
Term sheet finalised move to completion. Go to documentation.Need to complete all the
conditions precedent. This process can take one month or more.
All the CP’s completed the deal becomes unconditional and money is released.
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VC’s Add Value by taking a active roleVC’s Add Value by taking a active role
Help management
Identify Business Opportunities
Strategic Planning
Develop Scalable Business Models
Raise Sufficient Capital to Execute Business Plan
Build World Class Management
Increase Market Share
Build Barriers to Dominate
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Examples of how VC’s can helpExamples of how VC’s can help
Network Countries, companies, people – Ajia Partners
Strategic & Business Advice Markets, trends, technology, financials, overseas Business courses
Executive Recruitment Top management: CEO, CTO, Marketing, etc Investment in JObstreet
Strategic Alliances Macro picture and contacts Help companies make contacts- use advisors
IPO & M&A Experience Timing, Valuation, Expertise
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Choosing the right VC is importantChoosing the right VC is important
VC’s are NOT money lenders or banks
Choosing a VC is NOT about money
Choose one: That you can work with That can help you take your company to the next
level That has a proven track record That share your views and aspirations That has network and connections That gives you a good valuation
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Different VC have very different Different VC have very different characteristicscharacteristics
Investment Size, Instruments, Time to Exit
Stage of Company Start-Up, Early Stage, Expansion, Mezzanine
Purpose of Funding
Industry Focus Broad-based vs. focused
Management Participation Active vs. laissez-faire
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VC TermsVC Terms
Typically use Redeemable Preference shares Right to redemption in 5 years Right to take over firm if not redeemed. Breach of reserve matters means prefs can be redeemed
Have rachet provisions in case of down round Value stays the same
Typically have board seat and reserve matters Regular meetings, monthly accounts
Valuation maybe dependent on future performance Based on future PE or sales multiple
Tranched release of money Based on milestones to reduce risk
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Evaluate thoroughlyEvaluate thoroughly
Be prepared – trends move fast
A business plan is a living thing – if its broke fix it!
Rejection & failure are NORMAL
Learn learn learn
Chase your dream
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Intelligent CapitalIntelligent Capital
Partnership of three partners and a analyst
All partners have industry experience
Have started and owned 30 companies between the partners
Manage $15m first fund. Made 5 investments to date.
Focus on early stage companies where we can add value
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Call Asgari Stephens
tel : +6-03-9281-6588
fax : +6-03-9281-6598
email : [email protected]
Further Information