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How To Get Started In VC (On & Off Sand Hill Road)
Kate Mitchell, Scale Venture Partners, @KateDMitchellPreMoney SF 2015 Investment Conference
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2Kate Mitchell @KateDMitchell
Why Are We Talking About This?
• Venture Returns Not Entirely Persistent• LP Interested In “Next Generation” Managers
Q: How Reduce Risk Of Investing In New Managers?A: Get Educated On How To Reduce That Risk
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3
Are You Ready To Invest in Venture Capital?
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4Kate Mitchell @KateDMitchell
Are You Right For It?
Do You Have Relevant Skills From The Venture Ecosystem??
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5Kate Mitchell @KateDMitchell
What Are The Relevant Skills?
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6Kate Mitchell @KateDMitchell
What Are The Relevant Skills?
Journalism…?An Exceptional Exception
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7Kate Mitchell @KateDMitchell
Technical/Startup Skills
More Common…& More Predicative of VC Success
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8Kate Mitchell @KateDMitchell
Why Skills Matters to LPs
Relevant Experience Provides Context …Improving Probability of SuccessA:
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9Kate Mitchell @KateDMitchell
Is It Right For You?
• Player vs. Coach?
Entrepreneurs Are “In the Game”
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10Kate Mitchell @KateDMitchell
Is It Right For You?
• Are You A Player or A Coach?• VCs Role is “NIFO” (Nose In/Fingers Out)
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11Kate Mitchell @KateDMitchell
Is The Model Right For You?
Invest Personal Savings & Sweat Up FrontCo-Invest Alongside LP Partners
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12Kate Mitchell @KateDMitchell
Is The Model Right For You?
Repay All Called Capital First (Including Fees)Before the “Equity” or Carry Benefit Begins
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Investing in Venture Capital -What Is It?
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14Kate Mitchell @KateDMitchell
Venture Invests In New, Unproven Ideas
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15Kate Mitchell @KateDMitchell
This Is The Alchemy…
Ideas + Capital = Growth
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16Kate Mitchell @KateDMitchell
VC Serves Entrepreneurs & Investors
CEO Venture Investor
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17Kate Mitchell @KateDMitchell
VC Serves Entrepreneurs & Investors
CEO Conduit Investor
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How Does Your Fund Fit Into An Investor’s Portfolio?
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19Kate Mitchell @KateDMitchell
Understand Your Customer
• Mission• Appetite • Investing “Map”
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20Kate Mitchell @KateDMitchellSource: Hewitt EnnisKnupp, An Aon Company Global Invested Capital Market June 2014,
Public Equity 36%
Fixed Income 43%
Cash & Other 6%
Alternatives15%
• Concentration In Liquid Assets
• Alternatives For Return
$101.1 Trillion INVESTED CAPITAL
Alternatives Are Small Part Of Portfolios
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21Kate Mitchell @KateDMitchell
Source: Hewitt EnnisKnupp, An Aon Company Global Invested Capital Market June 2014,
Private RE Debt 38%
Private RE Equity30%
Hedge Funds 16% Private Equity15%
• PE is 2% of Total Invested Capital
• Endowment Model Is 7%
$15 Trillion INVESTED CAPITAL IN ALTERNATIVE ASSETS
PE Is Small Part Of Alternatives
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22Kate Mitchell @KateDMitchellSource: Hewitt EnnisKnupp, An Aon Company Global Invested Capital Market June 2014,
Buyouts53%
Growth, Mezzanine & Distressed
22%
Other10%
Venture15%
• VC Is 0.3% of Invested Capital
• Illiquid, Long Term• Providing Needed
Return
$2.5 Trillion INVESTED CAPITAL IN PRIVATE EQUITY
Venture Is Small Part Of Private Equity
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23Kate Mitchell @KateDMitchell
Cambridge Venture Return vs. Russell 2000 Return
Source: Cambridge Associates, U.S. Venture Capital Index, September 30, 2014
As of September 30, 2014
1 Year 5 Year 10 Year 20 Year
Cambridge Venture
Russell 2000
24.5%
14.9%10.0%
34.1%
3.9%
14.3%
8.2% 9.0%
Venture Cyclical But Outperforms Over Time
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24Kate Mitchell @KateDMitchell
Fear of Reentry At Wrong Time In Cycle
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-20%
0%
20%
40%
60%
80%
100%
120%
US Venture % of GDP Vintage Year Pooled Return
Venture Returns & Capital as % of GDP
Source: Thomson Reuters/National Venture Capital Association/Cambridge Associates
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25Kate Mitchell @KateDMitchell
Returns Are Widely Disbursed In Venture
Pitchbook, 2Q 2015 VC PE Report
Top Quartile
Second Quartile
Third Quartile
Bottom Quartile
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How To Get Started In Venture: Define Your Strategy
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27Kate Mitchell @KateDMitchell
Know What Venture “Product” You Are Selling?
• Develop Tech• Product/market fit
• Sales & marketing execution• Management team build out
• Financial risk • Market Conditions
LATE: VALUATION RISK MID: SCALING RISKEARLY BINARY RISK
Understand• Risk Profile• Return Expectations
(Multiple & IRR)
• Expected Liquidity• Passive vs. Active
Role
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28Kate Mitchell @KateDMitchell
Be Willing To Stand Out From The Crowd
Why? LPs Want Portfolio Diversification
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29Kate Mitchell @KateDMitchell
Are You Doing What You Do Best?
• Avoid Being A Lemming• Follow What You Know
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30Kate Mitchell @KateDMitchell
Know What Makes Your Fund Unique
• Deal Flow • Geography• Sector Focus• Partner Expertise• Team
Composition
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How To Get Started In Venture: Execution Matters
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32Kate Mitchell @KateDMitchell
It Is All About The People
• Individual & Team Experience– Individual Skills– Complementary Skills
• Relationship– Experience As A Team– Individual vs. Team Sport
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33Kate Mitchell @KateDMitchell
Take The Limited Out Of The Term “LP”
LPs Invest In 10+ year Blind Pool • Based on Trust In You• & Your Honest Relationship With Them
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34Kate Mitchell @KateDMitchell
Do Your Fundraising Homework
• Get The Best Advisors• Get Tough Feedback/Market Test• Invest In Materials/Data• Governance Matters• Do Homework on LPs
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35Kate Mitchell @KateDMitchell
On & Off Sand Hill Road
You Can Get Started In Venture Capital
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How To Get Started In VC (On & Off Sand Hill Road)
Kate Mitchell, Scale Venture Partners, @KateDMitchellPreMoney SF 2015 Investment Conference