Financing Silicon Valley

Understanding Venture Capital and Making a Killer Pitch

J. Alexander Sloan
Partner Blackwolf Partners

I. II. III. IV. My Background Some Basics on the Venture Business Making a Killer Presentation Discussion


My Experience and Perspective
1993 - 1996: The Vietnam Fund Limited 1996 - 1998: Cornell MBA 1999 - 2002: Hambrecht & Quist venture capital unit  Merged into J.P. Morgan Partners  Invested in many younger private technology companies 2004 on: Founding Partner, Blackwolf Partners  Early stage venture fund focus on Cleantech: healthier, cleaner, more energy efficient products & services. Board Member, Center for Sustainable Global Enterprise at JGSM


Tech Fund driven by demands of: driven by demands of: Clean Technologies Healthy Lifestyle Healthy Lifestyle (~33%) (~33%) • Food quality & choice • Clean air & water • Personal development Natural Resource Natural Resource Sensibility Sensibility (~33%) (~33%) • Air & water utilization • Energy efficiency • Environmental management Differentiated Differentiated Healthcare Healthcare (~33%) (~33%) • Healthcare solutions • Complimentary medicine • Cleaner Pharma 4 .The Blackwolf Cleantech Strategy Blackwolf Ventures Blackwolf Ventures $100 m. Tech Fund $100 m.

+ $25 m.Financing Lifecycle Capital Required IPO/Buy Out/Merger Risk $50 m. < $1 m. Cap l Re ita ired qu Val & tion ua Startup Expansion Mid to Late Mezzanine Post IPO Mature Company Stage Takes months to years to reach IPO/Buy Out 5 .

public stock = currency. • Corporate venture units: Intel Ventures. • Debt instruments  Don’t expect to get traditional venture funding…look for best option. more specialized: Blackwolf ! • Traditional venture capital firms!!: Kleiner. Sequoia. Benchmark. etc. • Investment banking venture: JP Morgan Partners. • Investment banks: IPO underwriting. etc. • Strategic corporate: customers/suppliers who buy into the company. • Public investors. 6 . Goldman Sachs.Many Types of Financing Partners • Founders/bootstrap: entrepreneur and personal savings • Angels:  Individuals: “friends and family” “Bands of Angels”: informal groups of “professional” angels • Specialized v!enture firms: smaller. etc. Nokia Ventures.

set in pubic market of buyers and sellers.“Valuation”: what is a company worth? Public Company: • # shares outstanding X market price per share = market capitalization = valuation. no “market clearing” mechanism. • This is an “indirect”. secondary market. Private Company: • # shares outstanding X negotiated price per share. • Stock price changes minute to minute. • Transaction negotiated directly between investor and owner. 7 .

raising $5 m. 8 . But at a $20 m. pre-money valuation raises $10 m.Fuzzy Math: The Mechanics of Valuation and Dilution “Pre-Money” Valuation (negotiated value for company) $10 million $5 million $15 million + Capital invested = “Post Money” Valuation (new valuation for company) • Investor now owes 5/15 or 33% of the company. • 33%!! of the company “cost” $5 m. only costs 20% of the company. and the prior owners are “diluted” to 66% ownership. Or 33% of the company at a $20 m. “pre”.

banking. sales. • Business (MBA) versus technical (Ph. operating.Organization & People • Firm culture: ranges from small private partnership to more corporate style. engineering.D.) perspective. • Classic polarities to each partner’s investment approach: • quantitative versus qualitative appraisal. marketing and/or venture experience. • Decision making process: rule by consensus of all partners. • Operating versus finance experience. 9 . • the “Monday meeting” • Partners have diverse backgrounds: technology. consulting.

What Value do Venture Investors Add after the Money is Invested? • Board seat. guidance on strategy.(theoretically) 10 . check and balance for management • Accessing contracts/customers/introductions • Hiring key managers • Interaction with management • Network of relationships and synergies between portfolio companies Long-term. involved.. active partner….

). 11 . Carried interest: 20% . Larger f!und size can drive up average size of investments sought: bigger bets. etc.30% of profits after (and only if) original capital is returned to investors. office.Compensation to Venture Firm 1. overhead. Fees: 2% . 2. • • Fees can drive bigger fund size (bigger base) and faster timing to raise the next fund (double dipping).3% of committed capital. paid annually (covers salaries.

• Primary means to exit: acquisition/trade sale or IPO. • Lock-ups and other selling restrictions can dramatically affect returns. • Returns calculated and compensation paid to venture managers only when cash or securities are actually distributed to investors. • Time horizon from investment to exit: months to 5-7 years. $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 Co X Stock O tu IP ys en of da da da ys ys re +3 ay +1 +3 D 20 65 12 V 0 .Exit and Timing are Key • We need to get our investment out of the company to make money.

II.  a compelling and practical product.  a clear business plan. …and you want to pitch to a venture firm or other investor? . Making Killer Presentations So. you have:  a winning team.

Your Overall Challenge • You must clearly convey TWO value propositions: 1. Convince me that both are highly attractive and likely to be realized. • • 14 . To the customer 2. To the investor They are related but not the same.

– Play to the firm’s point person. 15 . Get an advocate. • No venture investor ever got fired for saying “Pass”.Understand Your Audience • Try to learn the backgrounds and perspectives of your expected audience. an associate or EIR will likely meet with you first.D. “mentality” or both? Adjust your pitch. – Understands your industry? • In larger firms. • Research the firm’s website and Google the team. Partners can drift in and out. – Prior successful and loser deals in your space? – MBA or Ph.

16 . how long to get there?  You need to communicate answers clearly through a written business plan and sharp presentation.What Do Venture Investors Look for? • Our Needs: – Company matches current Fund’s investment strategy and timing? • The Opportunity: – What is the core business opportunity? How big? • Management: – Great management team? Done this before? Done it together? Can I work with them? • Well Planned: – Clear business plan? Plan B & C? – Unique approach/technology that can be defended? • The “Deal”: – Attractive price/valuation? Potential for up-rounds? – Extent of future financing needs before profitability? – What are the exit opportunities.

” 17 . one shot. Give them what they want. • One hour (including Q&A). • Smile and make good eye contact.D. Turn. Totally different dynamic. • “Touch.D. • The audience is unprepared and has A. • It’s not about your slides or your planned order. Talk. Feel the flow of each meeting. (and has a Blackberry under the table).General Tips to Knock Em Dead • This is not a corporate presentation. • Expect to be interrupted.

• Go with the flow of each meeting. • A presentation is ideally a give and take of what you want to say and the audience wants to hear. – Respect both. • Be prepared to jump to a supporting “go-to” slide if asked something out of your planned order. it is a test… • Watch your time. – Have a printed reference guide of your slide order for yourself. • Answer the question.Interruptions & Flow Management • You will be interrupted and asked questions out of your planned sequence. and go with it happily. but maintain control. then try to get back to your order. – Yes. 18 . Expect it.

Business model. successes. 2. Your market and its dynamics and opportunities. • If I don’t get the info. 3. then you get zero credit for it. Management team and advisors.  Let’s discuss some additional venture investor-oriented needs for each of these section… 19 .Manage Your Content • Carefully balance your allocation (time and content) to: 1. 4. opportunities. Your product/service. 5. Competition: lessons.

? ? Startup ? ? Mid to Late Post IPO 20 . Just the Facts…please! On slide 1 or 2. product status. # of employees. revenue/customers (if any)? How much money has been raised/invested to date. How big is the company: age. 3. valuations used? How much investment are you looking for now?  I need to put your company into investment & portfolio context. 2. no later. explain: 1.First.  Don’t make me wait or dig for it. stage. when.

Keep moving. – IDC and Gartner are often wrong…and we know it (just check our track records). • Where is their demand need/pain? What is the current solution? Why is this solution insufficient? • Go quickly into discussing your product as the solution.Market Opportunity • Be highly specific to your product’s target market segment. 21 . • Who are your customers? Explain customers’ current buying behaviors. – Don’t just use the biggest market research numbers you can find.  Too much time is typically spent on this section.

Your Product/Service • What is the technology? – How does it work? Is it new or repurposed? – Is it yours? • What are the next phases/applications/opportunities for your core product/service if Plan A fails? • How will your product sell? Nice or need to have? – Push or Pull market dynamic? Build it and they will come? – Did you start with a technology or with a market need? • How will you defend your technology/advantage? – Patents: yeah. and…. 22 .

not just upside. – Investor is buying into the company. – Clearly walk through the growth milestones of the business: • Capital needs. – Seen too many “hockey sticks”. not into the product. Get to it quickly. Tell a story. hiring. – Not just excel sheets at the back.Business Model • Gets the least attention in presentations. 23 . spending.. • What is Plan B and C for your technology/product? – Think about downside protection.. alternatives. inflection/decision points. • Reasonable projections and assumptions are more impressive (and believable) than highly optimistic ones.

Investors need to get out. How? – IPO only? Trade sale options? Likely buyers? – Comps of similar deals done? – Timing counts.More Business Model Questions • How much money will this company need to get profitable? • Minimum and maximum manageable investment load? – What would you do with 1/2 or 2x or 3x the money you are looking for now? • Can my fund invest its per deal minimum (could be up to $15-$20 m. • Exit strategies are key. A fund has its own specific timing needs. 24 .) in this company within 3 years.

800.000 40 $ $ 800.000 Product Exit Plan v1.8 25.000.6 7.2 12.2 1.400.000 $ 30 15.8 3.000 $ 5.8 14.600.000 500.6 million.2 0.3 million).3% 5.5 M&A V 2.Connect the Dots and Tell a Story ($ Millions) Revenue Gross Profit Gross Margin Operating Expense EBITDA EBITDA Margin 2005 6/30/03 6/30/04 (1) Year 1 (2) 2009 2010 20114 2012 5 2006 2007 2008 Year 2 6/30/02 Year 3 Year Year 5.4% FYE FYE FYE FC Revised Projections (1) Preliminary.000 2.3% 23.8% 4.5 0.000 $ $ 1.2% 10.000 100.2 31.000.876.4 70.000 $ 600.000.8 7.7% 4.8 72.6 54.0 IPO 25 .400.0 30.000.000 9.000 $ $ 3.0% 7.000 $ 3.2 52.000 12 25 $ $ $ $ 250.6 53.0 v1.2 11.9 18.1% 6.8% 6.000 6.0 74.3% 35.0 18.000.3 2.6 24. New rental contracts in year 1 are assumed to generate only 3 months of revenue for the year ($0.000 55 $ $ 1.000 $ 14.7% 3.8% 2.1% 3.1 65.9% 16.6 5.6 million.000 1.000 $ 323.0 30.0 31. Revenue relating to new system sales is projected to be $2.200.6 58.2% 29.2% 4.4 15.6 4.4 9.4 4.000 $ 124. Staff Capital Invested Cash Burn/month Cash Burn/year Cash Balance $ $ $ $ 8 4.200. (2) Revenue already under contract for year 1 is $7. audit to be received prior to close.000 $ 9.000.5 9.

then are you smart or dumb for entering the space? • Is your competition a potential threat. If you have none.Explain Your Competition • Who is doing your business idea now? • What do they do wrong or right? What have they taught you? • Very few new companies have no competition. 26 . target or source of acquisition…or all of those? How will you manage this? • Know case studies of your product area and industry that show success. including a money-making exit for investor. partner.

advisors and investors? 27 . midsized.The Team • Backgrounds? Done this sector/product before? • Worked together before? • Made mistakes before? Learned what? • Made money for investors before? • Worked in startup. and/or larger companies? • Worked with venture investors before? Whom? • Relevant connections to this industry and product? • Board of directors.

Do you know your stuff? How well and openly do you respond to questions? Are you honest about weaknesses and needs? • Is this just a one-person show? 28 . this applies to decisions about working with people. through tough times? Let your personality come through. • Personality & chemistry matters.The Softer Stuff • Venture decisions are made on imperfect. “soft” qualitative data. – – – – – Do I want to work with you for years.

what do you think your company is worth today?” Yes. • We love “comps”. sales and business.Talking Valuation A venture investor will ask. “So. • Have a plausible answer related to the current status of the product. but be ready: • Have a reasonable pre-money valuation range prepared. it’s a sucker question. Be ready with some examples and 29 stories. .

• Great presentations are honest. not just cool technology. • How can an investor buy low and sell high. • Lots of deals come our way. – We call it a “deal” for a reason. clear. You need to stand out. Thanks for your attention! 30 . • It’s about the business opportunity. direct and flexible. • Choose your investors as carefully as we choose you. exciting. and on time? • Avoid seeking professional money until you have to (or never at all).Summary • Much easier for a venture investor to say “no” to a deal.

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