Venture Capital

What investors look for...

Prepared for Desai Narasimhalus Technopreneurship class, SMU Vinnie Lauria, Managing Partner, Golden Gate Ventures

13-Feb-2013

Venture Capitalists invest in

Early-stage High Risk Large Market Potential Scalability

Fundraising

1. When to raise 2. Investor Expectations 3. The Pitch 4. The Term Sheet

1. When to raise

When to raise?

When you have an idea? When youve built an idea? When youre making money?

Raise money from who?

Friends & Family? Angels? VCs? Banks?

Typical investment structures

Convertible Notes (unpriced) Incubators ($20-40k for 8-12%) Seed (250k-1M for 20-33%) Series A ($2M+)

How much to raise?

Forecast: Product roadmap Trafc estimates Revenue estimates Team hires

If VC -> Enough to carry the company for 18+ months

Placing the money

Photo credit: http://www.flickr.com/photos/clry2/1366937217/

1. Investor Expectations

Investor Expectations

A strong founding team Deep market knowledge and expertise Large market potential Execution Scale

Not all investors are the same

Angel vs. VC Stage (Series A, B, etc.) Industry (i.e. Internet, Medical, Cleantech, etc.) Geography PE, Banks, etc.

Most Internet VCs look for:

Strong Founding Team (2 or more) Big thinkers Self motivated Passionate Rule breakers Problem/Solution Scale w/ technology Disruption

Additionally, I look for

People I like Southeast Asian market (not the U.S., China, etc.) Early Stage, 3+ mo. traction, <2 years old Coachability

Revenue models for the internet...

Photo credit: http://en.wikipedia.org/wiki/File:Gnomes_plan.png

Revenue models for the internet...

E-commerce Ad Supported Premium Services App Stores Virtual Goods & Gifts Afliates and Referrals

Look at similar industries in different verticals

http://www.flickr.com/photos/rickharris/75642670/

2. The Pitch

Sand Hill Road

What it looks like

Meet an associate at a conference Have a coffee w/ associate Get invited to meet with the rms partner and the associate Get a few more meetings with the partner & associate Full Partner meeting Lots of legal back and forth Docs signed & money in the bank :-)

What do you need to start?

Superior knowledge of your market Elevator Pitch Executive Summary Pitch Deck

Approach
What investors are you closely connected to? Which investors like your market? Who invested in the competition? What value can they bring? Practice w/ your B list rst

The Elevator Pitch

Short, like a few sentences short This is all the time you may get, so make it count

The Executive Summary

1 pager Sums up the problem, opportunity, and market Bios of the co-founders Terms youre looking for Advisors & Lawyers

The Deck

Start with the team Tell a good story Problem/Opportunity What makes you different? Get to market strategy Traction
http://bit.ly/PerfectingYourPitch

Force their hand

Photo credit: http://www.lasvegassun.com/news/2010/nov/04/youngest-final-table-history-should-equal-exciteme/

3. The Term Sheet

The Term Sheet

The term sheet sets the terms for your investment agreement You can always negotiate terms Get a lawyer Shop around

Convertible Notes

Convertible Notes (debt) vs. Equity Investment

Pricing & Governance

Pricing Valuation Liquidation Preferences Participation

http://bit.ly/TermSheetExplained

Governance Voting Rights The Board

Valuation

Revenues? Market? Competitors? Magic 8-ball?

http://www.flickr.com/photos/gammaman/8034358960

Liquidation & Participation

Liquidation = acquisition, merging, selling assets, etc, (but not IPO) Preferred stock class = returned rst Liquidation is commonly paired with Participation... Capped vs. Full

Governance

http://www.flickr.com/photos/gammaman/8034358960

You have investment, now what?

Active Communication Reports, lessons learned, etc. [Monthly] How they can help [be specic, remind frequently]

What to report on?

Customer)growth Cost%of%customer%acquisi/ons Reten/on Revenue%/%Customer [customize*for*your*industry]

Photo credit: http://www.flickr.com/photos/stevenharris/4775722590/

Thank you !
Building a great idea? Email vinnie@goldengate.vc

Questions? Tweet @vlauria