Introduction to Venture Capital
Introduction to Venture Capital
This presentation provides an introduction to venture capital, outlining its history, key players, and economics. It explores how venture capitalists fund startups, the benefits they bring, and the expectations for founders. Best practices for pitching to VCs are detailed, along with practical strategies to increase chances of securing investment.
Introduction to Venture Capital
@koladiya1 month ago
Introduction to Venture Capital
EE 203 Stanford University
March 6th, 2007
Will Price Hummer Winblad Venture Partners
- · Will Price, Principal
- - Harvard College, AB
- - Northwestern University, MBA
- - Investment banking, product mgt, startup CEO
- - wprice@humwin.com
- - http://willprice.blogspot.com
- · Hummer Winblad Venture Partners
- - $1bn AUM early-stage software firm
- -Raise pools of capital from institutional and individual investors
- -Finance new and rapidly growing companies;
- -Purchase preferred equity securities and take board positions ;
- -Add value to the company through active participation;
- -Take higher risks with the expectation of higher rewards;
- - Have a long-term orientation
- -Make $$$ by via M&A or IPO liquidity events
- · Infrastructure
- - Intel, Cisco, 3Com, Juniper, Apple, EMC, Sun, Wind River
- · Software
- - ORCL, MSFT, SEBL, EA, Lotus, Kana, Omniture, Sybase
- · Internet
- - GOOG, YHOO, Ebay, AOL, Skype, Netscape, AMZN, Youtubeâ¦
- · Healthcare
- - Genentech, Amgen, Alza, Affymetrix
- · Services
- - Fedex, Staples
- · VCs partner with entrepreneurs to build the companies of tomorrow
- · 2006 US Deal Stats
- - $25.8bn invested
- - 2,454 deals
- - $10.5m per deal
- · By Sector
- - 57% IT
- - 26% HC
- · By Geography
- - Bay Area 33%
- - CA 47%
- - New England 11%
- · Players
- - 600 Active Firms
- - 8,000 professionals
- · Huge Growth in Asset Class (LP commitments)
- - 1980 $2.1 bn
- - 1990 $3.4 bn
- - 1999 $106 bn
- - 2005 ~$20 bn
- · Internationalization Ongoing
- - India, China, EU, Israel
- - Charge a management fee to cover the costs of managing the committed capital.
- - "Carried interest" is the term used to denote the profit split of proceeds to the general partner.
- - 4x return and 2 and 20%
- - $2m per year in management fee
- - (($100m x 4) - $100m) * 20% = $60m in carried interest
- - Sector
- · Healthcare versus IT versus clean energy
- - Size
- · Small fund (<$100M) to large fund (>$1B+)
- - Geography
- · US, EU, India, Israel
- - Stage
- · Seed/early - two guys and an idea/demo
- · Mid-Stage - initial revenue traction
- · Late-Stage - near breakeven expansion/mezzanine capital
- - 6-8 active deals at a time
- · Principals/Associate
- - Drive deal flow, deal process, and portfolio company development
- · Finance, Marketing, and HR Staff
- · Decision Making
- - Typically unanimous
- - Individual partners champion deals to group
- - Deal team diligences prospect and builds investment case
- - Partnership acts as a check and balance to ensure careful decision making
- · This depends on stage - let's focus on early stage since that is what we do.
- - Team
- · Domain expertise with core technical strength and knowledge of given market opportunity
- · History of collaboration and success
- · A willingness to allow VC's to help build the team
- - Market
- · Emerging and fast growing market
- · Bad markets make for bad companies
- - Business model
- · How will you make money, how will you sell
- - Technology
- · Defensible technology/IP that can be protected to form competitive barriers over time
Introduction
What Is Venture Capital?
· Venture capitalists:
A Long History!
capital"
36 November 1, 2004
Impact on Economy
Snapshot
Private Equity Returns Over 20-Year Horizon
(by investor type; as of 3/31/05)
The 20 year early stage risk premium is 9.4% versus S&P 500
Economics of VC Firm
· Management Fees (typically 2-2.5% of AUM)
· Carried Interest (typically 20-25%)
· Example $100m fund
Flavors of VCs
· VC's segment in a number of ways
Structure of Firm
· General Partners
What do VC's want
