How To Get Started In VC (On & Off Sand Hill Road)

Kate Mitchell, Scale Venture Partners, @KateDMitchellPreMoney SF 2015 Investment Conference

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

3

Are You Ready To Invest in Venture Capital?

4Kate Mitchell @KateDMitchell

Are You Right For It?

Do You Have Relevant Skills From The Venture Ecosystem??

5Kate Mitchell @KateDMitchell

What Are The Relevant Skills?

6Kate Mitchell @KateDMitchell

What Are The Relevant Skills?

Journalism…?An Exceptional Exception

7Kate Mitchell @KateDMitchell

Technical/Startup Skills

More Common…& More Predicative of VC Success

8Kate Mitchell @KateDMitchell

Why Skills Matters to LPs

Relevant Experience Provides Context …Improving Probability of SuccessA:

9Kate Mitchell @KateDMitchell

Is It Right For You?

• Player vs. Coach?

Entrepreneurs Are “In the Game”

10Kate Mitchell @KateDMitchell

Is It Right For You?

• Are You A Player or A Coach?• VCs Role is “NIFO” (Nose In/Fingers Out)

11Kate Mitchell @KateDMitchell

Is The Model Right For You?

Invest Personal Savings & Sweat Up FrontCo-Invest Alongside LP Partners

12Kate Mitchell @KateDMitchell

Is The Model Right For You?

Repay All Called Capital First (Including Fees)Before the “Equity” or Carry Benefit Begins

13

Investing in Venture Capital -What Is It?

14Kate Mitchell @KateDMitchell

Venture Invests In New, Unproven Ideas

15Kate Mitchell @KateDMitchell

This Is The Alchemy…

Ideas + Capital = Growth

16Kate Mitchell @KateDMitchell

VC Serves Entrepreneurs & Investors

CEO Venture Investor

17Kate Mitchell @KateDMitchell

VC Serves Entrepreneurs & Investors

CEO Conduit Investor

18

How Does Your Fund Fit Into An Investor’s Portfolio?

19Kate Mitchell @KateDMitchell

Understand Your Customer

• Mission• Appetite • Investing “Map”

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

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

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

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

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

25Kate Mitchell @KateDMitchell

Returns Are Widely Disbursed In Venture

Pitchbook, 2Q 2015 VC PE Report

Top Quartile

Second Quartile

Third Quartile

Bottom Quartile

26

How To Get Started In Venture: Define Your Strategy

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

28Kate Mitchell @KateDMitchell

Be Willing To Stand Out From The Crowd

Why? LPs Want Portfolio Diversification

29Kate Mitchell @KateDMitchell

Are You Doing What You Do Best?

• Avoid Being A Lemming• Follow What You Know

30Kate Mitchell @KateDMitchell

Know What Makes Your Fund Unique

• Deal Flow • Geography• Sector Focus• Partner Expertise• Team

Composition

31

How To Get Started In Venture: Execution Matters

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

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

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

35Kate Mitchell @KateDMitchell

On & Off Sand Hill Road

You Can Get Started In Venture Capital

How To Get Started In VC (On & Off Sand Hill Road)

Kate Mitchell, Scale Venture Partners, @KateDMitchellPreMoney SF 2015 Investment Conference