FOWA Notes: Everything you need to know about Venture Capital - Ben Holmes

Ben Holmes - Index Ventures

Pan Eurpoean venture fund

1.3bn Euros under managemnent

Based in London and Geneva.

Examples: Zend, Skype, MySQL, netvibes, moo,,

Overview of VC

Size of market:


1446 transactions
$10.5m average investment


4.1bn Euros
867 transactions
14m euros average investment

55% within IT

however rapid increase in web app investments

How the VC makes money

Raise fund every 2-4 years.
Pension funds, financial institutions and specialist fund of fund investors

Invest money over 3-5 years
1/2 of investments fail
1/3 break even
1/6 make lots of money

Management fees
1-2% pa

20-25% total return - total amount invested.


What a good Vc will add:

Advice and strategy
Profile and PR
Trusted service providers
Branding PR
Exit optimistaions
Relevant buyers
Experience with process

VC Case Study - Star Doll

Two people, 50 yr old nurse. Built pictures of dolls in flash and her son added google ads to the site.

We found out they had been approached by viacom for $2 million 
We got involved and looked to work out what the owners wanted.

Created a team in Stockholm. Board hiring Fred Davis
Additional finance - Sequoia Capital
Celebrity PArtnerships
Fashion industry partnership

VC Case Study - Skype

Company established in London
Day to day contact with the founders
Team recruitment

Exit strategy - successful sale to Ebay

Typical Deal Terms

20-30% ownership
  5-10% would mean a billion+ exit.
  Maybe we can start lower with seed investment
Board representation - we wan to be represented on the board

Liquidation preference. If the company goes down the pan the first money goes to the investors.

Participation rights, we want to be able to particiapate in future rounds of investment.

Element of reverse vesting. This means that the entrepreneur can only vest a certain amount of stock over time. If you've been in business for several years then not all of your stock is likely to be subject to reverse vesting
Certain control and veto rights. VC firms can veto a low value exit. Vc wants to push for a big exit.

When to raise VC?

unique product
Excellent development capability
Large potential market opportunity.

intense competition -> need to move quickly

When not to raise VC.
Application is a feature not a product. Not always the case. Features tend to have a lower value.
Market is too small.
motivation is not financial

Risk is not that you waste time trying to raise funds
More that you do succeed, as you may not get a lower value exit that would work for you.
Can't run a lifestyle business
Tied into 3 years of work that you may not enjoy.

The Top tips:

have a great product
Focus on the business not fundraising.
Evidence of executional ability is more exciting to a VC that a100 page business plan.

Identifying relevant VC partners

Has funds to invest - not just a website
Match of size/stage/geography
relevant protfolio
No competitors
Excellent track record

Good free sources of info

Getting on radar screens

Out of the blue email is a longshot

Try to build context (editor: read as buzz!)
Then the VC will come to you.

VCs spend their time looking for companies with momentum

Sharing relevant information

Pre-first meeting

100page business plan not required.
20 slide ppt answering the main questions.

Pre termsheet

Lots of meetings
2-4 weeks
Blah blah blah

Post termsheet
1-2 months

Valuation should not be the decisive factor.

Entrepreneur's equation

Value at exit x probability of getting there x %share of business at exit


Right partner at a fair price vs any partner at the best price

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