yoav leitersdof: early stage venture investments
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TRANSCRIPT
Web.Start Zagreb May 2008
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BIO SNAPSHOT –YOAV ANDREW LEITERSDORF
Managing partner of YL Ventures European & Israeli early stage tech VC w/Silicon Valley presence Unique medium-size exit strategy to known acquirers
Founded, grew and successfully sold 3 tech businesses Movota (London) – Cofounder, MD & CEO (exit Bertelsmann ‘05) ExchangePath (New York) – Cofounder & CTO (exit CMGI ‘99) PcEntertainer Magazine (Tel Aviv) – Founder & CEO (exit ‘93)
VC Associate at Draper Fisher Jurvetson
15 yrs coding, engineering & telecom experience
MBA (Columbia University); studied at IMD, Switzerland
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MOVOTA LTD. –18 MONTHS FROM INVESTMENT TO EXIT
Company founded: London, March 2004
Capital: $1MM from founders and several investors
Business: Mobile software for TV broadcasters & producers
Product: Mobile games synchronized with TV game shows
Customers: BBC, RTL, SBS, Endemol, FremantleMedia…
Months 1-6: invention, product development, prototyping
Months 7-12: proof of concept deployments with the BBC
Months 13-18: minor revenues, expansion, exit negotiations
Acquired: Bertelsmann AG, September 2005
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MOVOTA LTD. –PRODUCTS AND CUSTOMERS
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EXCHANGEPATH LTD. –2.8 YEARS FROM INVESTMENT TO EXIT
Company founded: New York, January 1997
Capital: $3MM from angel investors
Business: Person-to-person & micro online payment system
Product: Online payments for data & auction items
Customers: MasterCard International, Hoovers, 20 others
Consumers: 25,000 accounts
Revenues: Minor, product in Beta (pre-breakeven)
Acquired: CMGI, September 1999, $25MM
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PROBLEMS WITH TODAY’SEARLY-STAGE VENTURE CAPITAL
Funds are too large; entrepreneurs are too frugal!
VCs look for billion-Euro exits; founders want to make 1st million
Average time-to-exit: 5.8 years; investors in VC get impatient
Multiple rounds of VC investment; founders get diluted to <5%
1-2 portfolio companies win; another 8-9 completely lose
Funds launched in 1999 & 2000 have negative returns
At 2008, the IPO window is still closed to all but a few
Is early stage venture capital in trouble? Is there another way?
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EARLY EXITS APPEALING TO FOUNDERS –LESS CAPITAL AND DILUTION REQUIRED
Date Company Acquirer Price Funding Comments
17 Apr ‘08 Sphere AOL Undisc $4MM 3 years* start to exit
28 Feb ‘08 Yadata (Israel) Microsoft $25MM $2.5MM 1.5 years* start to exit
5 Feb ‘08 Foxytunes (Israel) Yahoo! $40MM <$1MM 3 years* start to exit
4 Feb ‘08 Goowy AOL Undisc <$1MM 4 years* start to exit
12 Dec '07 Multimap (UK) Microsoft $50MM $6MM $25MM went to founder
Microsoft, Google, Yahoo! & AOL acquired 57 companies Q1 ’07 to Q1 ‘08 (inc.),vast majority of which are valued at under $100MM or “value undisclosed”
9 Dec ‘05 Del.icio.us Yahoo! $30MM Undisc 2 years* start to exit
20 Mar ‘05 Flickr Yahoo! $40MM <$1MM 3 years* start to exit
Motivation for the founders?
Lower probability of $200MM exit owning 5%-10% of the company in 5-7 yrs
Higher probability of $50MM exit owning 40%-60% of the company in 2-3 yrs
OPTION A
OPTION B
* Note YL Ventures typicallyinvests 1 year after the start
Founders’ Share = $15MM
Founders’ Share = $25MM
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INTRODUCING:THE YL VENTURES (“YLV”) WAY
1. Seek good valuation opportunities that YLV can improve quickly, with low burn, to maximise near-term exit value Back start-ups suited as corporate divisions rather than standalones Stage-invest to fund 24 months of burn-rate through to acquisition Guide company strategy and provide access to customers & partners
2. In parallel, introduce qualified, pre-identified acquirers for speedy, successful (IRR/x) sale
Time (and capital)
En
terp
rise
Val
ue
5+ Years~24 Months
HyperGrowth
Venture Chasm Home Run1-2 per Portfolio
Most YLV deals exit here
Some YLV exits
YLV investment
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YLV EXIT STRATEGY
Start Early
Exit Aptly
Manage companies towards accelerated exits Identify potential acquirers prior to investing using strategic fit Iteratively fine-tune company strategy to acquirer tastes Recruiting customers/partners that can later be acquirers
Exit ‘sweet spot’ is $20MM-$80MM, with potential for more Acquirer motivation: technology, products & management Valuation basis: revenue potential, not revenue history 1-2 portfolio companies will take longer and exit at over $200MM
Earn O
utP
eriod
Sourcing &Negotiations
Q-1 t0 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12Q-2
RiskControlStage
Expansion Stage –deployments,US presence,more features
Management Earn Out –
acquirer synergies,revenue growth
BridgeFundingStage
$ Invested: $500K-$1MM $500K- $1M $500K $ Exit: $20MM-$80MM
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YLV SOURCING STRATEGY
Internet, telecom (mobile) & digital media software
Europe & Israel (70% cheaper than Silicon Valley)
Deep tech intellectual property
Technological expertise & unquestionable ethics
R&D is complete and product ready for deployment
Bootstrapped operations / low burn rate
The fund can establish a clear M&A exit route
Sectors
Geography
Technology
Management
R&D
Finances
Exit
Blog scanning: primary deal sourcing strategy (monthly funnel routine)
The firm’sresearchers
scan blogs anddatabases
Associateand analyst
filter 100’s ofopportunities
Managing Partnerauthorizes sending‘radar emails’ out toseveral companies
Interestedcompanies
submitdocumentation
Bestprospectsinvited to a
meeting
Best of thebest start
duediligence
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SUMMARY
Early stage venture capital is going through a shakeup
Venture capitalists are rethinking their exit strategies
Not all start-ups are destined to be the next Google
Corporations are hungry for external talent & innovation
Accelerated medium-sized strategic exits might just work!
More at www.YLVentures.comRefer start-ups to [email protected]
Yoav Andrew LeitersdorfManaging Partner