Venture Capitalisim By Talha Lodhi

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1. VENTURE CAPITALISTS LECTURED BY MR. PIERRE HANNES 2. SEQUENCE <ul><li>PIERRE HANESS: PROFILE </li></ul><ul><li>PRINCIPLES OF VC…
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  • 1. VENTURE CAPITALISTS LECTURED BY MR. PIERRE HANNES
  • 2. SEQUENCE <ul><li>PIERRE HANESS: PROFILE </li></ul><ul><li>PRINCIPLES OF VC INVESTMENT </li></ul><ul><li>INVESTMENT BANKER VS. VC </li></ul><ul><li>VC INVESTMENT SCHEME </li></ul><ul><li>SCALABLE BUSINESS </li></ul><ul><li>HOW TO FIND AN INVESTMENT?? </li></ul><ul><li>PROPOSALS FOR VCS </li></ul><ul><li>WHAT DOES AN INVESTOR LOOK AT, WHILE INVESTING????? </li></ul><ul><li>TEAM IMPORTANCE </li></ul><ul><li>THE BIG 5 QS </li></ul><ul><li>GAINS FOR VC </li></ul><ul><li>VCS IN CHINA AND INDIA </li></ul><ul><li>SCREENING MECHANISM </li></ul><ul><li>RECESSION AND ITS IMPACTS ON VCS </li></ul>
  • 3. PIERRE HANESS: PROFILE <ul><li>Worked as an IT consultant for investment portfolio’s. </li></ul><ul><ul><li>Working through the “dot com” boom and subsequent crisis </li></ul></ul><ul><li>Set up an enterprise by the name of “Upstream Venture”, a fund management company. </li></ul><ul><ul><li>Various types of funds working in its association. </li></ul></ul><ul><li>Upstream Angel Fund. </li></ul><ul><ul><li>Angel investments. </li></ul></ul><ul><ul><li>Investment of 50 – 200 thousand USD per company. </li></ul></ul><ul><ul><li>Investment based on geographical territories. </li></ul></ul><ul><ul><li>Opportunistic sector investment only. </li></ul></ul><ul><ul><li>Cont’d…. </li></ul></ul>
  • 4. <ul><li>Upstream Pioneer Fund </li></ul><ul><ul><li>Venture capital investments. </li></ul></ul><ul><ul><li>500 thousand to 2 Million USD per company. </li></ul></ul><ul><ul><li>A seat on the Board of Directors. </li></ul></ul><ul><ul><ul><li>Hands on management of firm. </li></ul></ul></ul><ul><li>Extreme Ventures Fund: </li></ul><ul><ul><li>Setup by the Govt. </li></ul></ul><ul><ul><li>20 Mil USD early stage venture fund targeting Singapore based tech. companies. </li></ul></ul><ul><ul><li>Six early stage companies, each with 20M USD. </li></ul></ul>
  • 5. PRINCIPLES OF VC INVESTMENT <ul><li>VC invests in </li></ul><ul><ul><li>Established firms requiring finances, already having a business model. </li></ul></ul><ul><li>Risk and Return are co-related. </li></ul><ul><ul><li>One can not increase the return without embarking on a more risky path. </li></ul></ul><ul><li>Ecosystem: investors, lawyers, service providers; all working in unison to create an environment to launch a new enterprise. </li></ul><ul><li>Invention  turning money into knowledge. </li></ul><ul><li>Innovation  turning that very knowledge into money. </li></ul><ul><li>Cont’d…. </li></ul>
  • 6. INVESTMENT BANKER VS. VC <ul><li>Investment bankers </li></ul><ul><ul><li>Financial engineers </li></ul></ul><ul><ul><ul><li>Dealing with numbers and finances only. </li></ul></ul></ul><ul><ul><ul><li>Not involved in actual business execution. </li></ul></ul></ul><ul><li>VCs </li></ul><ul><ul><li>Human engineers </li></ul></ul><ul><ul><ul><li>Deals with the human aspect. </li></ul></ul></ul><ul><ul><ul><li>Involved in actual running of a business. </li></ul></ul></ul><ul><ul><ul><li>Requires long term commitment with the company he has invested in. </li></ul></ul></ul>
  • 7. <ul><li>Investment in about 10 to 12 companies at one time. </li></ul><ul><ul><li>2.5% of all the proposals being considered, end up being signed. </li></ul></ul><ul><li>Of the ten companies invested in, the general ratio of success is </li></ul><ul><ul><li>10% turn out to be future big businesses </li></ul></ul><ul><ul><li>20 % broke, </li></ul></ul><ul><ul><li>30% avg. earners, </li></ul></ul><ul><ul><li>40% hang in a balance. </li></ul></ul><ul><li>Cont’d…. </li></ul>VC INVESTMENT SCHEME
  • 8. <ul><li>A typical fund life cycle last 10 years. </li></ul><ul><ul><li>To establish a full-scale corporation, it takes 6-8 years. </li></ul></ul><ul><li>First four years is the investment period and the following 4-6 yrs are harvest period </li></ul><ul><li>By the 6th year of harvest period, </li></ul><ul><ul><li>A company is all set to be liquidated, </li></ul></ul><ul><ul><ul><li>it has grown to its maximum potential. </li></ul></ul></ul><ul><li>Bottom line; it is the people who make a company successful despite all the money influx on part of investor’s. </li></ul>
  • 9. SCALABLE BUSINESS <ul><li>A scalable business is </li></ul><ul><ul><li>Dynamic </li></ul></ul><ul><ul><li>Risky with a very fast growing rate. </li></ul></ul><ul><li>How to build a scalable business? </li></ul><ul><ul><li>Innovation rather than invention. </li></ul></ul><ul><li>Think product-based rather than service-oriented. </li></ul><ul><ul><li>Attracts more investor. </li></ul></ul><ul><ul><ul><li>Service-based business usually funds itself. </li></ul></ul></ul><ul><ul><ul><li>Total life span for a service based industry is about 8-10 yrs. </li></ul></ul></ul><ul><li>Real-estate sector is non-scalable. </li></ul><ul><li>VC’s don’t tend to invest in manufacturing sector </li></ul><ul><ul><li>Capital expenditure of the company runs too high. </li></ul></ul><ul><ul><li>Rate of return is slow and small. </li></ul></ul>
  • 10. HOW TO FIND AN INVESTMENT?? <ul><li>Form a start up team  identify ideas and write business plan  Present to investor to raise capital. </li></ul><ul><li>The capital life tree of a company runs such that; </li></ul><ul><ul><li>Friends and Family, Founder’s Capital (F.F.&F) </li></ul></ul><ul><ul><li>Incubators, government corporations, Seed angels </li></ul></ul><ul><ul><li>Strategic partner, customers, suppliers, services </li></ul></ul><ul><ul><li>Mezzanine </li></ul></ul><ul><ul><li>Pre-IPO </li></ul></ul><ul><ul><li>IPO. </li></ul></ul>
  • 11. PROPOSALS FOR VCS <ul><li>VCs in Singapore get investment ideas from; </li></ul><ul><ul><li>Yet2.com </li></ul></ul><ul><ul><li>Exploiting NTU’s Innovative and Technological Transfer Office. </li></ul></ul><ul><li>VCs, very conscious about Intellectual Property. </li></ul><ul><li>Best time to start a company </li></ul><ul><ul><li>Recession </li></ul></ul><ul><ul><ul><li>16 out of 30 Dow Jones-listed companies launched during recession. </li></ul></ul></ul><ul><ul><ul><li>Star names include </li></ul></ul></ul><ul><ul><ul><ul><li>Micro Soft, MTV, HP, IBM, P&G. </li></ul></ul></ul></ul><ul><ul><ul><li>Cont’d… </li></ul></ul></ul>
  • 12. <ul><li>Be critical but not pessimistic. </li></ul><ul><li>Business plan is of utmost importance. </li></ul><ul><li>Initial revenue benchmark of 5 mil USD. </li></ul><ul><ul><li>Emphasis sustainable growth of business. </li></ul></ul><ul><li>25-35% share holding by VC. </li></ul><ul><ul><li>During initial phase of investment. </li></ul></ul><ul><ul><li>Later on gradually decreases culminating in liquidation. </li></ul></ul>
  • 13. WHAT DOES AN INVESTOR LOOK AT, WHILE INVESTING????? <ul><li>How has an investor been approached by the prospective entrepreneur? </li></ul><ul><ul><li>Must possesses strong referrals. </li></ul></ul><ul><ul><li>“ Never approach an investor directly”. </li></ul></ul><ul><li>Something unique about the model. </li></ul><ul><li>Executive Summary </li></ul><ul><ul><li>Plays a pivotal role in securing VCs interest in a business proposal. </li></ul></ul><ul><ul><ul><li>Concise but comprehensive </li></ul></ul></ul><ul><ul><ul><li>Convincing </li></ul></ul></ul><ul><li>Strong Team </li></ul><ul><li>The 5 Questions. </li></ul>
  • 14. TEAM IMPORTANCE <ul><li>Open minded-thinker and a liberal businessman come up with a successful business plan more often. </li></ul><ul><li>Team, the focal centre. </li></ul><ul><ul><li>Leadership qualities. </li></ul></ul><ul><ul><li>Group cohesion. </li></ul></ul><ul><ul><li>Team working capabilities. </li></ul></ul><ul><ul><li>Past working experiences. </li></ul></ul><ul><ul><li>Past business experiences. </li></ul></ul><ul><ul><li>Everything that one needs to know about any person. </li></ul></ul><ul><ul><li>Cont’d… </li></ul></ul>
  • 15. <ul><li>Team forms the nuclei for all the other variables such as; </li></ul><ul><ul><li>Technology and IP. </li></ul></ul><ul><ul><li>Fund objectives. </li></ul></ul><ul><ul><li>Innovations and Value Proposition. </li></ul></ul><ul><ul><li>Finances and Returns. </li></ul></ul><ul><ul><li>Revenue Model. </li></ul></ul><ul><ul><li>Growth market and Channel Strategy. </li></ul></ul><ul><ul><li>Competitive Advantage. </li></ul></ul><ul><ul><li>Innovations and Value propositions. </li></ul></ul>
  • 16. THE BIG 5 QS <ul><li>Is market craving to solve the problem, whose solution is being proposed by you? </li></ul><ul><li>How is market solving the problem currently? </li></ul><ul><li>How different and unique is your solution? </li></ul><ul><li>What are the required resources? </li></ul><ul><li>What are the profitability prospects? </li></ul>
  • 17. GAINS FOR VC <ul><li>Investors and VCs get preferential shares. </li></ul><ul><li>2.5% of the total investment forms annual fee for the VC. </li></ul><ul><ul><li>After payback of initial investment, the profit is split on 80:20 ratio between the investors and the VCs. </li></ul></ul><ul><li>10% of the total investment is from VC manager. </li></ul><ul><ul><li>A guarantee to ensure that VC too has something at stake. </li></ul></ul>
  • 18. VCS IN CHINA AND INDIA <ul><ul><li>In last four years VC invested; </li></ul></ul><ul><ul><ul><li>2.5 billion USD in India. </li></ul></ul></ul><ul><ul><ul><li>3 billion USD in China. </li></ul></ul></ul><ul><ul><li>Investment in India owed to economic boom hype. </li></ul></ul><ul><ul><ul><li>Actual worth of deals signed with a company ranges between 0.5 to 1 million dollars. </li></ul></ul></ul><ul><ul><ul><li>Not withstanding above, investment to the tune of 10 million dollars per company has been made. </li></ul></ul></ul><ul><ul><li>Investor’s have started pulling out of India. </li></ul></ul><ul><ul><ul><li>Super-saturation level reached. </li></ul></ul></ul>
  • 19. SCREENING MECHANISM <ul><li>Entire process takes about 4-6 months. </li></ul><ul><ul><li>Abnormality found at any stage leads to process being called off. </li></ul></ul><ul><li>Divided into three distinct phases; </li></ul><ul><ul><li>Look up phase </li></ul></ul><ul><ul><li>Discovery Phase </li></ul></ul><ul><ul><li>Due-Diligence Phase. </li></ul></ul><ul><li>Cont’d… </li></ul>
  • 20. <ul><li>Look-up phase </li></ul><ul><ul><li>Summarily look up. </li></ul></ul><ul><ul><li>Takes about one and a half week. </li></ul></ul><ul><ul><li>If interested, a meeting is setup. </li></ul></ul><ul><li>Discovery phase </li></ul><ul><ul><li>Full business plan, discussed in detail. </li></ul></ul><ul><ul><li>Finances involved, evaluated. </li></ul></ul><ul><ul><li>An analyst deputed by the VC prepares a summary report. </li></ul></ul><ul><ul><ul><li>Summary report brought to the investment committee </li></ul></ul></ul><ul><ul><ul><ul><li>A third party overseeing the investment being made is being done at the right place with no foul play involved. </li></ul></ul></ul></ul><ul><ul><li>The phase lasts about 2 weeks. </li></ul></ul><ul><ul><li>Cont’d… </li></ul></ul>
  • 21. <ul><li>Due-Diligence Phase </li></ul><ul><ul><li>Takes about 4-12 weeks. </li></ul></ul><ul><ul><li>Minute attention is paid to all the field areas </li></ul></ul><ul><ul><ul><li>from technology being employed and Intellectual Property rights to administrative model’s being used to run the organization. </li></ul></ul></ul><ul><ul><ul><li>Regulatory laws and legal issues related to governance. </li></ul></ul></ul><ul><li>Market Research to evaluate competition. </li></ul><ul><ul><li>While looking at the competitor’s, VC looks at </li></ul></ul><ul><ul><ul><li>Their revenues. </li></ul></ul></ul><ul><ul><ul><li>Feasibility of their working models. </li></ul></ul></ul><ul><ul><ul><li>How well are they doing. </li></ul></ul></ul>
  • 22. RECESSION AND ITS IMPACTS ON VCS <ul><li>VC’s tend to liquidate their investment in 10 years time. </li></ul><ul><ul><li>Recession has affected the VCs pan of liquidation. </li></ul></ul><ul><ul><ul><li>Pushed back by a couple of years. </li></ul></ul></ul><ul><ul><ul><ul><li>Projects already being invested in, facing the bean of financial crunch. </li></ul></ul></ul></ul><ul><li>Increased investment in VC funds being witnessed. </li></ul><ul><ul><li>Recession comes as an opportunity for new businesses. </li></ul></ul>
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