new venture financing
Post on 18-Aug-2015
40 Views
Preview:
TRANSCRIPT
On New Venture Financing
Ziya G. Boyacigiller
This presentation was created and given by Ziya Boyacigiller who was leading Angel Investor and a loved mentor to many young entrepreneurs in Turkey. We have shared it on the web for everyone’s benefit. It is free to use but please cite Ziya Boyacigiller as the source when you use any part of this presentation. For more about Ziya Boyacigiller’s contributions to the start-up Ecosystem of Turkey, please go to www.ziyaboyacigiller.com
Copyright (c) 2003 Ziya G. Boyacigiller
New Venture Financing
Ziya Boyacigiller Sabanci University
(Based on a Presentation by Andy Rachleff, Benchmark Capital)
Make a bet:
1. Give me 1TL each now, and I will give everyone back 1.25TL (except for one person) at the end of this presentation.
2. Give me 1TL each now, and I will give back one of you 10TL next month, and the others 0.25TL.
3. What would you do if I raised amounts by 1000X?
Copyright (c) 2003 Ziya G. Boyacigiller
New-Venture Financing is about managing high-risk investments
Copyright (c) 2003 Ziya G. Boyacigiller
Poker as a Metaphor…
Copyright (c) 2003 Ziya G. Boyacigiller
Wipe Out
Ante
Follow on Bets
Chips
Cards Dealt
Ziya G. Boyacigiller (c) 2008 6
In 2000, there were 454 spinoffs, within all American academic institutions, pp57
In 2000, average was 4.2% spinoffs-to-disclosures ratio within 26 selected universities (~37% of total with spinoffs) in USA. Pp68
During 1980-1996, MIT spinoffs = 134, went public = 24, 18% public “spin-off ratio, pp19 & pp30
Using 4.2% and 18%, we get 0.8%. This means
almost 1 spinoff for 100 disclosures
succeed to go public (IPO). (Note that this ratio is for MIT and is much higher than non-academic success rates. For example, the rate for most startup companies is probably over 10 times worse!)
< 3 in 1,000 success rate…
“Success Bias”
Idea to IPO
Reviewed plans to IPO
Funded plans to IPO
6 in 1,000,000
60 in 10,000
Less than 1 in 10
Source: Saratoga Venture Finance
8
Venture Capital - Size of the Market
US - 2006 $27.5 bn 1446 transactions $10.5 M average investment
Europe - 2006 Euro 4.1 bn 867 transactions Euro 14 M average investment
Copyright (c) 2003 Ziya G. Boyacigiller
Venture Capital Food Chain
INSTITUTIONAL INVESTORS
(Limited Partners – e.g.
Endowments, Pension Funds, High worth individuals)
VENTURE CAPITALISTS
(Finding and Funding
Entrepreneurial Companies)
ENTREPRENEURS
(Starting and Building
Companies)
10
Venture Capital - How the VCs make money?
Raise “fund” every 2-4 years Pension funds, financial institutions, and specialist “fund of
fund” investors, high net-worth individuals/families
Invest money over 3-5 years ~ 1/2 investments lose money ~ 1/3 investments break even ~ 1/6 investments make (lots of) money
Very small “management fee” on funds managed ~1-2.5% PA
“Carry” ~20-25% x (Total Return-Total Amount Invested)
Metric Used: IRR
Copyright (c) 2003 Ziya G. Boyacigiller
IRR “Internal Rate of Return”
Parameters:• Initial Investment• Follow on Investments• Cash Out• Time (maximum 10-12 years)
Use Excel built in formula….
VC Firms Performance
Kleiner Perkins Caufield & Byers
IRR Sequoia IRR Matrix Partners
IRR
1992 fund 39%/y 1992 fund 110%/y 1995 fund 223%/y
1994 fund 122%/y 1995 fund 175%/y 1997 fund 516%/y
1996 fund 287%/y 1998 fund 93%/y 2000 fund -30%/y
1999 fund -21%/y 1999 fund -5%/y 2001 fund -39%/y
2000 fund -16%/y 2000 fund -25%/y
Source: Venture Scoreboard
VC Returns (as of 3/31/04)
VC Fund Type 1 year 3 year 5 year
Early Seed funding -2.9% -19.8% 47.1%
Balanced funding 20.5% -9.4% 17.5%
Later stage funding 38% -6.0% 7.1%
All venture funds 15.7%* -13.3% 22.0%
Stock Indexes
Nasdaq 48.7% 2.7% -4.1%
S&P 500 32.8% -1.0% -2.6%%
Source: SJMN 7/22/04
* First double digit yearly return since 2000
Copyright (c) 2003 Ziya G. Boyacigiller
Which of the following firms would you rather invest in?
Each invests $1 million per company in 10 companies:
1. One gets 2x their money on all 10.
2. The other loses all their money in 8 and gets >20x their money on the remaining 2.
Copyright (c) 2003 Ziya G. Boyacigiller
How can you recognize vision?
•Early insight into technology inflection point (disruptive innovation)
•The Napkin test
Single most important determinant of success that overwhelms all else is the choice of industry.
Copyright (c) 2003 Ziya G. Boyacigiller
Copyright (c) 2003 Ziya G. Boyacigiller
Second Most Important Determinant of Success is the Effect of Management Team
•When a great management team meets a lousy market market wins
•When a lousy management team meets a great market market wins
•When a great management team meets a great market something special happens
Copyright (c) 2003 Ziya G. Boyacigiller
Capital Intensity
•Least Amount of Money = Most Attractive Business
•Minimize Capital Required by
High gross margins (Unfair advantage)
monopoly
Rapid escape velocity (Product/Market fit)
importance=high, satisfaction=low
Copyright (c) 2003 Ziya G. Boyacigiller
How do Valuation & Terms get established?
•Look at milestones achievedYDY (aynasi istir kisinin, lafa bakilmaz…)
DWYSYWD (credibility is doing what you promise…)
•Look at comparables(It’s just like buying a house…)
•Then it’s up to supply & demand
Copyright (c) 2003 Ziya G. Boyacigiller
Term SheetTERM SHEET
FOR SERIES A PREFERRED STOCK FINANCING OF[Insert Company Name], INC.
[ __, 200_]
This Term Sheet summarizes the principal terms of the Series A Preferred Stock
Financing of [___________], Inc., a [Delaware] corporation (the “Company”). In consideration of the time and expense devoted and to be devoted by the Investors with respect to this investment, the No Shop/Confidentiality and Counsel and Expenses provisions of this Term Sheet shall be binding obligations of the Company whether or not the financing is consummated. No other legally binding obligations will be created until definitive agreements are executed and delivered by all parties. This Term Sheet is not a commitment to invest, and is conditioned on the completion of due diligence, legal review and documentation that is satisfactory to the Investors. This Term Sheet shall be governed in all respects by the laws of the [State of Delaware].
Ref: Golden Horn Ventures 31
Reasons to Raise VCUnique
Product or Concept
Excellent Development
Capability
Large Potential Market
Opportunity
Intense Competition Likely
Need to Move Rapidly
Implications
VC Funding Supports:
• Capital
• Network
• Experience & Expertise
• Credibility & PR
Copyright (c) 2003 Ziya G. Boyacigiller
What VCs Don’t Look For
•Another Microsoft!
•Do you think they care if you build a long-term great company (beyond their holding period)?
- No benefit to IRR or distributions
- Impacts their reputation
Copyright (c) 2003 Ziya G. Boyacigiller
Who is the ideal funding source?
Potential Market Size
Ideal Funding Source
Small Bootstrap or Angel
Unclear Bootstrap or Angel then VC
Large Venture Capital
Copyright (c) 2003 Ziya G. Boyacigiller
How should you choose among Venture Capitalists / Investors
•Industry experience / perspective
•Recruiting help (network)
•Partnering/Contacts
•Brand/Credibility
•Price/Stage
•Funding Required
•Location
•Chemistry
top related