cass business school lecture nov 2009
DESCRIPTION
Slides for Nic Brisbourne's CASS Business School talk on Venture Capital 27 November 2009TRANSCRIPT
Understanding venture capital
Nic Brisbourne Cass Business School Lecture November 27th 2009
Agenda
• Introduction
• The four aspects of venture capital– Raising money to make investments
– Making investments
– Exiting investments (aka portfolio management)
– Managing ourselves
Nic Brisbourne
• 10 years in venture– 4 years corporate venturing with Reuters
– 6 years with DFJ Esprit
• Career VC
• 2008 Deal of the Year for Buy.at exit
• Focused on the internet
• Blogger at www.theequitykicker.com
• DFJ Esprit is a leading venture capital investor focused on five target segments: technology, media, telecoms, medtech, cleantech and healthcare.
• Esprit aims to provide superior returns for investors in its funds by investing in, and helping entrepreneurs grow world class companies.
• Esprit Capital Partners is the product of the 2006 merger between Cazenove Private Equity and Prelude Ventures.
• Prelude Ventures has been successfully making early stage investments in the UK and European technology, life-science and healthcare businesses for 21 years.
• Cazenove Private Equity has been active as a cross stage investor in the European technology market since 2000, making more than 20 investments in this time.
• Recently announced:
• A new primary fund
• The acquisition of 3i’s European IT venture portfolio
DFJ Esprit
Structure of the venture industry
Fees + Carry
Home runs – the maths demands them
• Target IRR of 30-35% and a four year average holding period implies a 3x multiple on the whole fund– Sample fund of 10 companies, average
investment of £1 per company• Two 10x returns = £20
• Three 3x returns = £9
• Two money back = £2
• Three write offs = £0
• Total = £31, or 3.1x multiple on whole fund
Different funds specialise in investing differing amounts
SeedEarly StageSeries A, (B)
Later Stage(B),C,D…
Pre-IPO / Buy-out
PrivateEquity
Investment Size
Potential Sources of Funds
0 - €1m
Grant-funding
University seed funds
Friends and family
Angel Investors
(Venture Capital)
€2m-€20m
Venture Capital
(Wealthy) Angel investors
€5m-€20m
Venture Capital
€30m+
Specialist Late stage tech investment funds
Hedge Funds
The process of making investments changes with the heat in the market
How VCs find companies
• Decide what sectors to look in– Thematic investing
– Ad hoc/reactionary investing
• The process of finding companies– Network, network, network
– Advisors
– Research
– Cold approaches
Deciding to make an investment
• Fit with fund strategy
• Multiple meetings assessing exit potential – needs to be big!– Market
– Product
– Team
– Why this business will win
• Company needs to have momentum
Investment execution• Termsheet• Formal due diligence• Legal documents
– Articles– Shareholders agreement– Reps and warranties
• Takes time – need to keep performing throughout• Two end-to-end examples
– Buyat – 500 days– Tribold – 90 days
Typical deal terms
• Target 20-35% ownership
• Board Representation• Liquidation Preference• Participation rights• Certain control and veto
rights• Option Pool• Period of exclusivity to
close legals
but that’s so
unfair…
Helping companies to help themselves
• A good board focuses on (per Patrick Dunne):– Right strategy– Right resources– Staying out of jail
• A good VC investor director (generally) focuses on– The high level– Areas where they will make a difference– A small number of issues (ideally one)
What a good VC will add
• Advice and Strategy
• Hiring– Developers– Country Managers– Sales– CEO / CFO / COO– Advisory Board
• Partnerships
• Profile and PR
• Internationalisation
• Trusted service provider relationships
• Search / recruiting• Branding / PR• Finance, etc
• Exit optimisation• Knowledge / contacts
with relevant buyers• Experience with
process
Making the fund a success
• Focus resource where it will make a difference– This is tough
• Keeping sufficient reserve capital
• Maintain decision quality– Stop partners from going native
• Ensure a steady flow of exits– Buy.at example
Internal process for a VC fund
• Typically centres around a weekly partners meeting– Ours has three sections, as above
• Key is good information and good decision making
• Challenge is making it work in a partnership where everyone operates autonomously
Recruitment into a VC fund
In private equity you have to be financially trained and to have an understanding of management, but you also have to have a strategic brain while being sensitive to tactical and people issues.
““
And a passion for your sector!!!And a passion for your sector!!!
Conclusion
To do this job is a privilege
Thank you&
Questions
Nic Brisbourne, Partner DFJ EspritTheEquityKicker