introduction to venture funding
TRANSCRIPT
January 2015
Introduction to Venture Financing
Douglas Abrams
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About the facilitator
Wharton MBA
JP Morgan – Vice PresidentIB Technology, GM Internet Marketing
Parallax Capital Mgmt – Co-founder and MD Private Equity
Extream Ventures – Co-founder and MDS$20 million seed fund
Expara – Founder and MDIDM Ventures Incubator, advisory, training
NUS – Adjunct Associate Professor, Business School, Entrepreneurship, Sasin – Visiting Professor, Venture Capital
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VC mindset
Risk and return are highly correlated
You cannot increase return without taking more risk
Return
Risk
Potential outcomes
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Key elements for success
• Solving a painful problem for customers – Value proposition
• Developing an innovative product – Innovation
• Customers and competitors – Market identification and analysis
• Reaching customers – Marketing, sales and distribution strategy
• Competing when others enter - Sustainable competitive advantage
• Make money – Business model and financial plan
• Team – A team or B team
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Key venture finance terms
Business model
Financial projections
Valuation
Funding required and equity offered
Use of Proceeds
Exit Strategy and ROI
Cap table
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Company valuation methods
Price to earnings (p/e)
Dividend yield
Multiple of book value
Comparables
Discounted Cash Flow (DCF)
VC method
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How much equity does the investor receive?
Pre-money valuation– Amount invested by VC ÷ (Agreed pre-money value of business
+ Amount invested by VC) – $3MM pre + 1 MM VC = 25% VC equity
Post-money valuation– Amount invested by VC ÷ post-money valuation– $4MM post = 25% VC equity
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How do VCs make money?
Trade sale – sell to another company
IPO – sell to the public through listing on an exchange
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Stages and sources of funds
Founder’s Capital
Seed/Angel
Series A, B, C
Mezzanine Pre-IPO IPO
VC hurdle rates 60-100% 40-60% 20% Why are these rates so high?
OM F,F&F
Incubators corporations government
Customers, suppliers, strategic partnersVCs, Banks for VC loans
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Calculate investor’s ROI including dilution
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Key elements of a venture deal
Board of directors
Protective provisions
Drag-along agreement
Conversion
Control
Price-per-share
Valuation
Amount of financing
Liquidation preference
Vesting
Options pool
Anti-dilution
Pay-to-play
Economics
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Contact us
Douglas Abrams
Expara, Expara IDM Ventures– [email protected]– www.expara.com
Block 71 Ayer Rajah Crescent
#$02-10/11 S139951
65-9780-5381