Ben Holmes - Index Ventures
Pan Eurpoean venture fund
1.3bn Euros under managemnent
Based in London and Geneva.
Examples: Zend, Skype, MySQL, netvibes, moo, last.fm, king.com.
Overview of VC
Size of market:
$25bn 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
Carry 20-25% total return - total amount invested.
What a good Vc will add:
Advice and strategy Hiring Partnerships Profile and PR Internationalisation Trusted service providers Search/recruiting Branding PR Finance 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 http://www.thealarmclock.com/euro/ http://ww.vecosys.com
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
100page business plan not required. 20 slide ppt answering the main questions.
Lots of meetings 2-4 weeks Blah blah blah
Valuation should not be the decisive factor.
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