Venture Capital

What investors look for...

Prepared for Desai Narasimhalu’s Technopreneurship class, SMU Vinnie Lauria, Managing Partner, Golden Gate Ventures

13-Feb-2013

Venture Capitalists invest in

• Early-stage • High Risk • Large Market Potential • Scalability

Fundraising

1. When to raise 2. Investor Expectations 3. The Pitch 4. The Term Sheet

When to raise .1.

When to raise? • When you have an idea? • When you’ve built an idea? • When you’re making money? .

Raise money from who? • Friends & Family? • Angels? • VCs? • Banks? .

Typical investment structures • Convertible Notes (unpriced) • Incubators ($20-40k for 8-12%) • Seed (250k-1M for 20-33%) • Series A ($2M+) .

How much to raise? • Forecast: • Product roadmap • Traffic estimates • Revenue estimates • Team hires If VC -> Enough to carry the company for 18+ months .

flickr.Placing the money Photo credit: http://www.com/photos/clry2/1366937217/ .

1. Investor Expectations .

Investor Expectations • A strong founding team • Deep market knowledge and expertise • Large market potential • Execution • Scale .

etc. VC • Stage (Series A. . Banks.Not all investors are the same • Angel vs. B.) • Industry (i. etc.e. etc. Cleantech. Internet.) • Geography • PE. Medical.

Most Internet VCs look for: • Strong Founding Team (2 or more) • Big thinkers • Self motivated • Passionate • Rule breakers • Problem/Solution • Scale w/ technology • Disruption .

etc. I look for • People I like • Southeast Asian market (not the U.Additionally..) • Early Stage.S. traction. <2 years old • Coachability . 3+ mo. China.

..Revenue models for the internet.org/wiki/File:Gnomes_plan.wikipedia.png . Photo credit: http://en.

.Revenue models for the internet.. • E-commerce • Ad Supported • Premium Services • App Stores • Virtual Goods & Gifts • Affiliates and Referrals .

com/photos/rickharris/75642670/ .Look at similar industries in different verticals http://www.flickr.

2. The Pitch .

Sand Hill Road .

What it looks like • Meet an associate at a conference • Have a coffee w/ associate • Get invited to meet with the firm’s partner and the associate • Get a few more meetings with the partner & associate • Full Partner meeting • Lots of legal back and forth • Docs signed & money in the bank :-) .

What do you need to start? • Superior knowledge of your market • Elevator Pitch • Executive Summary • Pitch Deck .

Approach • What investors are you closely connected to? • Which investors like your market? • Who invested in the competition? • What value can they bring? • Practice w/ your ‘B’ list first .

so make it count .The Elevator Pitch • Short. like a few sentences short • This is all the time you may get.

opportunity. and market • Bios of the co-founders • Terms you’re looking for • Advisors & Lawyers .The Executive Summary • 1 pager • Sums up the problem.

The Deck • Start with the team • Tell a good story • Problem/Opportunity • What makes you different? • Get to market strategy • Traction http://bit.ly/PerfectingYourPitch .

lasvegassun.Force their hand Photo credit: http://www.com/news/2010/nov/04/youngest-final-table-history-should-equal-exciteme/ .

3. The Term Sheet .

The Term Sheet • The term sheet sets the terms for your investment agreement • You can always negotiate terms • Get a lawyer • Shop around .

Equity Investment .Convertible Notes • Convertible Notes (debt) vs.

ly/TermSheetExplained • Governance • Voting Rights • The Board .Pricing & Governance • Pricing • Valuation • Liquidation Preferences • Participation http://bit.

Valuation • Revenues? • Market? • Competitors? • Magic 8-ball? http://www.com/photos/gammaman/8034358960 .flickr.

merging. (but not IPO) • Preferred stock class = returned first • Liquidation is commonly paired with ‘Participation’. etc. • Capped vs.Liquidation & Participation • Liquidation = acquisition. Full ... selling assets.

flickr.com/photos/gammaman/8034358960 .Governance http://www.

[Monthly] • How they can help [be specific. now what? • Active Communication • Reports.You have investment. etc. lessons learned. remind frequently] .

flickr.com/photos/stevenharris/4775722590/ .What to report on? • Customer)growth • Cost%of%customer%acquisi/ons • Reten/on • Revenue%/%Customer • [customize*for*your*industry] Photo credit: http://www.

Thank you ! Building a great idea? Email vinnie@goldengate.vc Questions? Tweet @vlauria .

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