rob siegel of x/seed capital management at ucsc baskin engineering

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Venture Capital and Venture Capital and Universities Universities A Match Made in A Match Made in Robert Siegel Robert Siegel X/Seed Capital X/Seed Capital 20 January 2009 20 January 2009

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Venture Capital and Universities -- a match made in ... Robert E Siegel presents background and guidelines on venture capital investments for university-based startup founders.

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Page 1: Rob Siegel of X/Seed Capital Management at UCSC Baskin Engineering

Venture Capital and Venture Capital and UniversitiesUniversities

A Match Made inA Match Made in……

Robert SiegelRobert SiegelX/Seed CapitalX/Seed Capital

20 January 200920 January 2009

Page 2: Rob Siegel of X/Seed Capital Management at UCSC Baskin Engineering

©© Copyright, X/Seed Capital, 2009 Copyright, X/Seed Capital, 2009 All Rights ReservedAll Rights Reserved

Simple CreaturesSimple Creatures

Page 3: Rob Siegel of X/Seed Capital Management at UCSC Baskin Engineering

©© Copyright, X/Seed Capital, 2009 Copyright, X/Seed Capital, 2009 All Rights ReservedAll Rights Reserved

Rob Siegel and X/SeedRob Siegel and X/Seed

Page 4: Rob Siegel of X/Seed Capital Management at UCSC Baskin Engineering

©© Copyright, X/Seed Capital, 2009 Copyright, X/Seed Capital, 2009 All Rights ReservedAll Rights Reserved

What Do VCs Look for When They What Do VCs Look for When They Invest?Invest?

It depends on the It depends on the VCVC……–– Defendable market Defendable market

position (technology or position (technology or business model)business model)

–– Large market (ability Large market (ability to become a big to become a big company)company)

–– Ability to bring Ability to bring entrepreneurial talent entrepreneurial talent to a situationto a situation

Page 5: Rob Siegel of X/Seed Capital Management at UCSC Baskin Engineering

©© Copyright, X/Seed Capital, 2009 Copyright, X/Seed Capital, 2009 All Rights ReservedAll Rights Reserved

Different Types of InvestorsDifferent Types of Investors

““EarlyEarly”” stagestage

Late stageLate stage

Private equityPrivate equity

Seed stageSeed stage Angels Angels Seed fundingSeed funding

Page 6: Rob Siegel of X/Seed Capital Management at UCSC Baskin Engineering

©© Copyright, X/Seed Capital, 2009 Copyright, X/Seed Capital, 2009 All Rights ReservedAll Rights Reserved

What Makes a VC Tick?What Makes a VC Tick?

Economics of ventureEconomics of venture

Definition of termsDefinition of terms–– Limited partnerLimited partner

University endowments, University endowments, nonnon--profit foundations, profit foundations, insurance and retirement insurance and retirement fundsfunds

–– General partnersGeneral partners–– Management feeManagement fee–– ““CarryCarry””

Page 7: Rob Siegel of X/Seed Capital Management at UCSC Baskin Engineering

©© Copyright, X/Seed Capital, 2009 Copyright, X/Seed Capital, 2009 All Rights ReservedAll Rights Reserved

How Venture Works*How Venture Works*

16%Management fee

Investment capital84%

$100 million

* For example only – your mileage may varyAssumes $100 million fund with eight year life

$300 million

Limited Partners($160 million)

General Partners($40 million)

$100 million

Page 8: Rob Siegel of X/Seed Capital Management at UCSC Baskin Engineering

©© Copyright, X/Seed Capital, 2009 Copyright, X/Seed Capital, 2009 All Rights ReservedAll Rights Reserved

““When Talking to a VC, What Should I When Talking to a VC, What Should I Say in the First Meeting?Say in the First Meeting?””

Define the inventionDefine the invention–– PublicationsPublications–– Other research in the fieldOther research in the field–– Not too much detailNot too much detail……

Potential applicationsPotential applications–– Bigger is betterBigger is better

The teamThe team–– PostPost--docs, graduate students, docs, graduate students,

business teambusiness team

Simple slide deckSimple slide deck–– Think 20+ slidesThink 20+ slides

Page 9: Rob Siegel of X/Seed Capital Management at UCSC Baskin Engineering

©© Copyright, X/Seed Capital, 2009 Copyright, X/Seed Capital, 2009 All Rights ReservedAll Rights Reserved

Then WhatThen What

Follow upFollow up–– More technical detail More technical detail

with the right partnerwith the right partner–– Any business Any business

analysisanalysisMay not need to be a May not need to be a

full planfull plan

Page 10: Rob Siegel of X/Seed Capital Management at UCSC Baskin Engineering

©© Copyright, X/Seed Capital, 2009 Copyright, X/Seed Capital, 2009 All Rights ReservedAll Rights Reserved

What Does It Mean When He/She What Does It Mean When He/She WonWon’’t Call Me Back?t Call Me Back?

VCs have little VCs have little incentive to say incentive to say ““nono””

Someone might want to Someone might want to play with their toyplay with their toy

Innovation <> commercial Innovation <> commercial successsuccess

Page 11: Rob Siegel of X/Seed Capital Management at UCSC Baskin Engineering

©© Copyright, X/Seed Capital, 2009 Copyright, X/Seed Capital, 2009 All Rights ReservedAll Rights Reserved

How Do I Know if it Is Going Well?How Do I Know if it Is Going Well?

First meeting leads to First meeting leads to follow up and more follow up and more meetingsmeetings

Ongoing due diligenceOngoing due diligence

Term sheetTerm sheet

Fund the dealFund the deal

Page 12: Rob Siegel of X/Seed Capital Management at UCSC Baskin Engineering

©© Copyright, X/Seed Capital, 2009 Copyright, X/Seed Capital, 2009 All Rights ReservedAll Rights Reserved

What Should A First Round of What Should A First Round of Funding Look Like?Funding Look Like?

It dependsIt depends……

Things to considerThings to consider–– How much money goes inHow much money goes in–– How far along How far along

development isdevelopment is–– How the Board is How the Board is

comprisedcomprised–– Financial rights of Financial rights of

preferred shareholderspreferred shareholders–– VestingVesting

Page 13: Rob Siegel of X/Seed Capital Management at UCSC Baskin Engineering

©© Copyright, X/Seed Capital, 2009 Copyright, X/Seed Capital, 2009 All Rights ReservedAll Rights Reserved

They Are Trying To Steal My They Are Trying To Steal My Company!!Company!!

It just feels that wayIt just feels that way–– They donThey don’’t sign t sign NDAsNDAs, ,

blah, blah, blahblah, blah, blah

Remember: VCs arenRemember: VCs aren’’t t operatorsoperators–– They canThey can’’t run the t run the

businessbusiness

ItIt’’s always easier when s always easier when things are going wellthings are going well–– What matters is when What matters is when

things arenthings aren’’t going wellt going well

Page 14: Rob Siegel of X/Seed Capital Management at UCSC Baskin Engineering

©© Copyright, X/Seed Capital, 2009 Copyright, X/Seed Capital, 2009 All Rights ReservedAll Rights Reserved

Things to ConsiderThings to Consider

Take the Take the ““right amountright amount”” of moneyof money

You will be dilutedYou will be diluted

All men [people] are created equalAll men [people] are created equal–– But not all VC firms are created equalBut not all VC firms are created equal–– Not all partners in VC firms are created Not all partners in VC firms are created

equalequal

Page 15: Rob Siegel of X/Seed Capital Management at UCSC Baskin Engineering

©© Copyright, X/Seed Capital, 2009 Copyright, X/Seed Capital, 2009 All Rights ReservedAll Rights Reserved

Things You Can Do to Help Things You Can Do to Help YourselfYourself

Mentors/advisors Mentors/advisors that you can trustthat you can trust–– Be careful that you Be careful that you

hook up with the right hook up with the right crowdcrowd

Understand the Understand the history of the venture history of the venture fund and partner with fund and partner with whom you are whom you are speakingspeaking

Do your own Do your own reference checkingreference checking

Page 16: Rob Siegel of X/Seed Capital Management at UCSC Baskin Engineering

©© Copyright, X/Seed Capital, 2009 Copyright, X/Seed Capital, 2009 All Rights ReservedAll Rights Reserved

Common QuestionsCommon Questions Should I already Should I already

have a company have a company formed?formed?

How do I deal with How do I deal with the tech transfer the tech transfer office?office?

How long before a How long before a liquidity event?liquidity event?

Page 17: Rob Siegel of X/Seed Capital Management at UCSC Baskin Engineering

©© Copyright, X/Seed Capital, 2009 Copyright, X/Seed Capital, 2009 All Rights ReservedAll Rights Reserved