April 8, 2023

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VC JUNIORThe Next Generation of Venture Capital

VENTURE CAPITAL INDUSTRY FACTS

More than 1,400 seed and early stage companies received VC investment in 2007

One U.S. job created for every $25,000 of VC invested between 1970 and 2006

Nearly 800 venture capital firms operate in the U.S.

Most venture capitalists were once entrepreneurs, scientists or engineers before they began investing

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VENTURE CAPITAL FIRM SNAPSHOT

Source: http://en.wikipedia.org/wiki/Image:Venture_Capital_Fund_Diagram.png

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VENTURE FUNDING STAGES

1. Seed Money: Low level financing needed to prove a new idea (Often provided by "angel investors")

2. Start-up: Early stage firms that need funding for expenses associated with marketing and product development

3. First-Round: Early sales and manufacturing funds

4. Second-Round: Working capital for early stage companies that are selling product, but not yet turning a profit

5. Third-Round: Also called Mezzanine financing, this is expansion money for a newly profitable company

6. Fourth-Round: Also called bridge financing, 4th round is intended to finance the going public process S

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VENTURE SELECTION PROCESS

Sponsored Support Services

8. Venture capital fund (s)

7. Local business advisors6. Consultants5. University or laboratory participation

4. Seminars

3. Luncheon or dinner club

2. Newsletter1. Incubator

Sou

rce:

Silv

er, A

. Dav

id. V

entu

re C

apit

al,

1985

.

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VENTURE SELECTION PROCESS

Fund’s Pre-determined Criteria

1. At what stage is the company?

2. What problem is the company attempting to solve?

3. Is its solution proprietary or conveyed to the problem in a unique way?

4. Is the entrepreneurial team experienced and competent to manage a rapidly emerging company?

5. Has the company, its product or solution or its management team, been endorsed by a responsible and highly regarded customer or investor?

6. How much capital is required?

Sou

rce:

Silv

er, A

. Dav

id. V

entu

re C

apit

al,

1985

.

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VENTURE SELECTION PROCESS

First Law. Risk Aversion: “Accept no more than two risks per investment.”

1. The Development Risk: Can we develop the product?

2. The Manufacturing Risk: If we can develop it, can we produce it?

3. The Marketing Risk: If we can make it, can we sell it?

4. The Management Risk: If we can sell it, can we sell it at a profit?

5. The Growth Risk: If we can manage the company, can we grow it?

Sou

rce:

Silv

er, A

. Dav

id. V

entu

re C

apit

al,

1985

.

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VENTURE SELECTION PROCESS

Second Law. Valuation: “V = P x S x E, where V = valuation, P = problem, S = solution, and E = entrepreneurial team.”

Third Law. Law of the Big-P: “Invest in big P companies, because the public market will accord to them unreasonably high V’s, irrespective of S and E.”

1. The Audit of P.

2. The Audit of S.

3. The Audit of E.

4. The Financial Statement Audit.

5. The Legal Audit. Sou

rce:

Silv

er, A

. Dav

id. V

entu

re C

apit

al,

1985

.

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VENTURE SELECTION PROCESS

Other Due Diligenceo Background checks on the management

teamo Independent verifications of statements

made in the business plano Studies of the company’s product and

marketo Interviewing management and other

company personnelo Talk to suppliers, customers, competitors,

etc.

Sou

rce:

Silv

er, A

. Dav

id. V

entu

re C

apit

al,

1985

.

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VENTURE CAPITAL INDUSTRY PAINS

•Deal flow = Critical Success Factor•VCs look at 1,000 business plans to select 10 businesses •2% management fee must last until liquidation events•Qualified hires can take years to train•Few good education solutions to “learn the ropes”11

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Out-source preliminary vetting of business proposals

More in-depth analysis of businesses “Farm Team” for VC firms

Work-and-learn guided investment and education

Co-invest, “follow” VC firms into financing businesses; also target startups from business incubators

POTENTIAL BUSINESS OPPORTUNITIES

STARTUP AGGREGATOR WEBSITES

Company Website Users Business Model Depth of Analysis

Angelsoft http://www.angelsoft.net

Entrepreneurs X $250 to post plan for 30 days LOW. Entrepreneur posts 1 page summary of business

and proposed dealAngels X

Free* to accredited investor groupsVCs X

Funding Post http://www.fundingpost.com

Entrepreneurs X Events and publications; $100 to post plan for 90 days; $30 per add'l month LOW. "Post your Executive

Summary & Ebmed Photos, A Video Pitch!"Angels X

Events and publicationsVCs X

Go Big Network http://www.gobignetwork.com

Entrepreneurs XPost funding requests and availability, jobs,

b-plan help for $59/mo, $99/mo and $249/yr

LOW. Entrepreneur posts short summary. Reverse also

for investors.Angels X

VCs X

Student Businesses http://www.studentbusinesses.com

Entrepreneurs X Free LOW. Profiles and business descriptions are reviewed before shown to investors.Angels X

Subscription and sponsorship optionsVCs X

Venture Den http://www.ventureden.com

Entrepreneurs X

Free (temporary)LOW. Entrepreneurs can

complete a basic profile or create a video pitch profile.

Angels X

VCs X

YouNoodle http://www.younoodle.com

Entrepreneurs X Free MEDIUM. Valuation prediction, track progress, no

other evaluation.Angels X

Subscription and sponsorship optionsVCs X 13

RESEARCH PLAN

Meet with Venture Capitalist(s) In/Validate need for analyzed business proposals

Articulate need if it exists Explore opportunities for partnership

Meet with Angel Investor(s) Same or similar needs as VCs? Explore opportunities for partnership

Talk to operators of listed startup aggregator websites

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