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Stephanie McCoy
March 9, 2010
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I. Venture Capital Process
II. Venture Capital Investing Trends
III. Industry Compensation
IV. Dos and Don’ts
Agenda
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I. Venture Capital Process
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Venture Capital Process
SelectingStructuring
& Syndication
SelectingStructuring
& Syndication
FundRaising
FundRaising
SourcingSourcingCreating
ValueCreating
ValueExitingExiting
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Commitment Sources
Source: Venture Economics
Other22.0%
Foundations &
Endowments15.0%
Families & Institutions
19.0%
Pension Funds18.0%
Banks & Insurance
11.0%
Corporations15.0%
FundRaising
FundRaising
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SourcingSourcing
Key Sources For Transactions
Relationships with Entrepreneurs
Limited Partner Investors
Other Venture Capital Firms
Accountants
Bankers
Attorneys
Investment Bankers
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Investment Criteria
Market Potential and Size
Quality of Management
Product/Services
Sustainable Competitive Advantage
Financial Drivers
SelectingStructuringSyndication
SelectingStructuringSyndication
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Creating Value
• Build Independent Boards
• Guide Strategy
• Facilitate Strategic Relations
• Recruit Key Managers
• Raise Additional Debt and Equity
Creating Value
Creating Value
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Realization of Gains
• Sale/Merger of Portfolio Company
• Sale of Portfolio Company Securities (Public Offering)
• Private Placement of Portfolio Securities
ExitingExiting
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Venture Portfolio Company Returns
Source: Venture Economics
1-2x Return30%
Losses40%
10x Return2%
5-10x Return8%
2-5xReturn20%
ExitingExiting
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Timing of Winners and Losers
Source: Venture Economics
0
10
20
30
40
50
60
70
0 to 3 3 to 7 7 to 10
Write-Offs
5x or Better
Years
Per
cen
tag
e o
f C
om
pan
ies
63%
12%
37% 32%
56%
ExitingExiting
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Length of Time to Liquidate a Venture Capital Fund
0%
5%
10%
15%
20%
25%
30%
<= 10 11 to 12 13 to 14 15 to 16 17 to 18 > = 19
Years to Liquidate
% o
f F
un
ds L
iqu
idate
d
Source: NVCA – Adam Street PresentationData sample size = 64Data as of 9/30/05
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II. Venture Capital Investing Trends
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Equity Difficult For Companies to Obtain
Fewer deals are getting funded compounded by smaller investment sizes
PWC Moneytree
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Credit Virtually Unavailable
28% Annualized
Decline
Federal Reserve: loans to commercial and Industrial
In the first half of 2009, companies consumed more capital than they raised for the first time in 60 years
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• IPO market has become virtually shut to smaller issuers (less than $50 million offering)
IPO Market Unavailable for Small Companies
Grant Thorton and Thompson Reuters
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Going, Going, Gone
2009 Estimated
American Bankruptcy Institute
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III. Industry Compensation
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Venture Capital Fee Structure
1. Management Fees
- Typical Venture Fund receives 2% of the Fund annually for salaries and operating expenses
2. Carried Interest
- 20% of realized value
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Entrepreneur Compensation
Salary and Stock Compensation by Title
Title SalaryMBO
BonusTotal Comp % of Stock
Chief ExecutiveFounder $180 $0 $200 7.45%
Non-Founder $230 $65 $300 5.00%
Chief Operating OfficerFounder $195 $0 $200 3.67%
Non-Founder $200 $20 $225 1.80%
CFO-Finance ExecutiveFounder $150 $12 $153 2.19%
Non-Founder $165 $11 $180 0.80%
Chief Technical OfficerFounder $160 $0 $175 3.75%
Non-Founder $175 $0 $186 1.03%
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IV. Dos and Don’ts
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How Not to Get a VC’s Attention
1. Address Plan to “Dear Sir”
2. Management team is all ex venture capitalists
3. After reading the summary, have no idea what the company does
4. Project profitability in 6 months
5. Plan sent from jail
6. Projections exceed Microsoft’s
7. “There is no competition”
8. Plan comes from an out of work consultant
9. Guaranteed Exit in 3 months
10. Provide VC ownership of 10% or less
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How to Get a VCs Attention
• A Compelling Story• An Unfair Advantage• Pinching Pennies• Entrepreneurs have Skin in the Game• The Team has Done it Before• Command of the Key Business Metrics• Big Vision• Winning Attitude• A CEO Who Can Sell• Undeniable Customer Pain that will be Relieved• An Elevator Pitch that is Easily Repeatable
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Stephanie McCoy
March 9, 2010