prerequisites for international growth investments
DESCRIPTION
Presentation held by Fergal Mullen from Highland Capital Partners, at the Nordic Seed Capital Summit 2011 in Stockholm, 16 May 2011.TRANSCRIPT
Prerequisites For International Growth Investments
NORDIC SEED CAPITAL SUMMIT
MAY 2011
2
AGENDA
HIGHLAND BACKGROUND
WHAT GROWTH INVESTORS LOOK FOR?
WHAT SHOULD YOU LOOK FOR?
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BACKGROUND
Formed in 1988
$3 billion under management & 8 funds
» Backed 230 companies; over 100 IPOs and M&A
Venture growth & early stage focused investment strategy
» tech | internet | life sciences
Global presence
» Offices in Boston, Silicon Valley, Geneva, London & Shanghai
Europe Focus & Strategy
» Venture Growth
» Internet & Digitial Media and Information & Communications Tech
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GLOBAL INVESTMENT AMBITION
In Any Geography & Regardless of Sector…
…We look for extraordinary entrepreneurs… with a burning desire to succeed… who can inspire others and build their companies from
the garage to the Fortune 500… reinventing themselves and their companies along the way…
NOTABLE WINS
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Nasdaq: CKFR $86,4000,000
Electronic bill pay systems
Nasdaq: BFRE $67,200,000
Performance-based online marketing
Nasdaq: AVID $56,000,000
Video editing systems
Nasdaq: ASKJ $42,000,000 Online Search
$567,000,000 Acquired by Cisco Systems Broadband VPN solutions
Nasdaq: CONR $78,000,000 Acquired by J&J for $1.4B
Drug eluting stents
$1,100,000,000 Acquired by AOL
Advanced mapping solution
Acquired by Staples Specialty retailer
Nasdaq: SYBS $49,600,000
Relational database management software
$295,000,000 Acquired by Lucent
Switching equipment
Nasdaq: VPRT $120,200,000
Internet-based printing
Nasdaq: STAR $126,000,000
Acquired by Cisco $2.9B Infrastructure Products
Nasdaq: LULU $32,760,000
Specialty apparel retailer
$5,400,000,000 Acquired by Terra
Networks Global internet network
$355,000,000 Acquired by Tellabs
Optical access solutions
Acquired by Apple Mobile advertising
platform
Acquired by HP Database engine
technology
$411,100,000 NYSE: QIHU
Chinese-based Internet company
$278,000,000 Acquired by Apple Low power chips
Acquired by AOL Online advertising
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LEVERAGING A GLOBAL PLATFORM
Reputation & Brand
Portfolio Companies
Highland Capital Partners
Network & Knowledge
Back Office & IT
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EUROPE STRATEGY
Venture growth focus » Growth capital » Proven business models » Attractive returns profile
Focus on Internet & Technology » Disruptive e-commerce » Internet advertising technologies & platforms » Mobile “everything” business models & technologies » Big data, virtualization, cloud computing
Geographic focus » Proactive in: UK, Germany, Nordics, Israel, France, Spain » Reactive in: Eastern Europe and Russia
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» Online eyewear retailer
» Online photo sharing, storing and printing
» Semiconductor wireless infrastructure
» Online private sales club
» Online shoe retailer
» Social games developer
HIGHLAND EUROPE PORTFOLIO
» United Kingdom
» France
» United Kingdom
» Spain
» France
» Germany
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AGENDA
HIGHLAND BACKGROUND
WHAT GROWTH INVESTORS LOOK FOR?
WHAT SHOULD YOU LOOK FOR?
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Team » “A” Players » Capital efficient » Speed and Agility » PSD
Deal » Financial model » Price & Ownership » Structure
GROWTH STAGE FILTER
Product or Service » Unique / Differentiated » Value Prop & Defensible
» Customers Buying
Market » Size, Growth, Proximity » Competition » Ripe for disruption » How big can you be?
Compelling Growth Story
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TEAM
Hire A Players and remember A players hire A players, B players hire Cs
Balance culture fit and need for diversity of new backgrounds
Hire resourceful problem solvers
Trust your gut, you have spent 30+ years developing it
Search beyond local geography
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We don’t buy the “there’s a gap in the market” line, we want to know if there is a market in the gap!
Growth investors generally spend a lot of time validating market » Size, Growth & Proximity (is company too early to market?) » Competition » Ripe for disruption » How big can you be?
And they will do this by talking with a lot of your customers and their own contacts
Investor has to believe in market potential and that you will be among the leaders
MARKET
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PRODUCT
Unique & Differentiated? » IP is good but does not guarantee success » Execution, execution, execution
Defensible? » IP or Execution play » First mover » Economies of scale » Capital intensity
Value Proposition » Must be easy to understand » Better stand up to scrutiny
Never perfect…have to be commited to constant evolution » Don’t be afraid to test and get feedback
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FINANCIAL PLAN & DEAL
1, 3, 5 perspective is very important » 1 Year budget, 3 Year Plan, 5 Year perspective » Key metrics and model drivers must be realistic relative to current
performance » 50% Rule (combination of EBITDA & Growth NOT less than 50%)
In Internet relatied businesses, customer analytics are crucial » INTERNET: LTV perspective, Cohort Analysis, Contributon, etc) » ICT: Bookings, Sales, Growth, Pipeline, Customer Concentration, etc.
Deal » Price & structure are very important to growth investors, look for win/win » Valuation: Profit/Revenue dilemma » Public market comps and precedent transaction multiples guide disucssions
Banker or no Banker? » Totally depends, a good banker can be very helpful, a bad one disasterous
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DOs
1. Know what you are talking about
2. Develop a solid pitch deck
3. Do you pass the elevator test?
4. Do you pass the airplane test?
5. Target the right audience
6. Know exactly what you are asking for and why?
7. Have a vision of where you are going?
8. Show apetite for making money in the day-to-day business
9. Articulate your apetite for making money on exit
10. Demonstrate your focus on building a world class business
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DO NOT
1. Target growth investors with pre-revenue business
2. Hit the road to fund raise until you are ready
3. Pretend business model is de-risked when it is not
4. Claim that founding team can take the company all the way
5. Show a plan with steeper revenue curves than MS or Google
6. Pitch a financial plan with big discontinuities
7. Postpone answers to questions as you pitch
8. Ask for substantially more or less capital than you really need
9. Pretend you know which one or two companies will buy you
10. BS: no surprises in the due diligence process, tell investor what to expect
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THE DEAL….A TYPICAL DEAL SCENARIO
Deal A
Raise: €10M Valuation: €30M Pre-Money Liq Pref: 1X, Participating You sold 25%?
€100M Exit VC return: €32.5M You sold 32.5% So what’s the “effective” Pre-Money
» €10M / .3250 = €30.76M post Effective Pre-Money: €20.76M €50M Exit, “effective” pre is €15M
Deal B
Raise: €10M Valuation: €22M Pre-Money Liq Pref: 1X You sold 31.25%?
€100M Exit VC return: €31.25M or 31.25% So what’s the “effective” Pre-Money
» €10M / .3125 = €32.00M post
Effective Pre-Money: €22.00M €50M Exit, “effective” pre is €22M
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Agenda
Who We Are
What growth investors look for
What you should look for in a growth investor
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WHAT SHOULD YOU LOOK FOR?
1. Trust
2. Remember airplane test? …can you hang with these people?
3. Remember elevator test? …..do they really get it?
4. Enthusiastic supporter
5. Knowledgeable
6. Balance of operating and investing experience
7. Relevant network
8. Relevant board experience
9. A cool hand in good times & bad times…reference this
10. Ability to shape or help with exit at right time
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