A VC serves two masters. Investors in the VC fund and entrpereneurs. Normally the way VC’s get paid is 2 and twenty. 2% of committed capital as a management fee and 20% of profits. 80% goes back to investors.
Valuation must be managed through multiple dependent rounds of financing while considering
1. Ability to attract later investors
2. Management ownership levels
The six keys to improve your negotiating position
1. Credibility ( Serial entrepreneur, Team, Advisors, Board, Plan etc.)
2. Interest from other investors
3. Interest from other investors
4. Interest from other investors
5. Time ( Ability to walk away)
6. Hot Industry/Market
Common mistakes while raising venture capital
1.Lack of focus on People People People
2. Insufficient Time
3. Failing to Generate Investor Competition
4. Staying Domestic
5. Price as the only criteria
Myth : VC’s are risk takers
Reality : VC’s are in the business of identifying and mitigating risk through due diligence, valuation, term sheet - economic provisions, control provisions. The VC process is slow deliberative and based on lots of information
I received a presentation on “Raising Venture Capital” by Diane Mulcahy author of Venturing Forward a guide to Raising Equity Capital in Ireland. I have not read the book but the presentation was excellent. It gave some data on how Amazon got started.
Entrepreneur : Q3 94 - Founder Jeff Bezos got started investing $10k and borrowing $44k
Friends & Family : Q2 95 - Founders Parents invest $245.5K, Q2-96 siblings invest $20k
Angels: Q4 95 - Two Angels invest $54.4K, Q1,96 , Angel Syndicate - 20 angels invest $46.85 each raising $937K
VC: Q2,96 - Two VC firms invest a total of $8MM
Exit : Q2,97 - 3MM shares sold on NASDAQ , IPO raising $49.1MM
I am going to be at the TiEcon SV later this week — would love to catch up if any of the venturewoods subscribers are there,
I came across a VC quiz at Frobes that was very interesting. The quizes describe a venture situation and ask you to vote if the Venture thrive or die.
I found the Quiz 4 Interesting:
NEW YORK - Think you can sniff out a promising young company? Read the following preliminary analysis of an unnamed yet real startup and vote on whether you think the company thrived or died. Later, we’ll reveal the results of your picks–and explain what happened to the company and why. The answers might surprise you.
Concept: Pain management is big business for pharmaceutical makers such as Pfizer (nyse: PFE - news - people ), Merck (nyse: MRK - news - people ), Bayer (nyse: BAY - news - people ) and Johnson & Johnson (nyse: JNJ - news - people ). Now alternative treatments that don’t involve drugs–such as acupuncture, magnet therapy and electrical stimulation–are getting some attention, thanks to companies like Boston Scientific (nyse: BSX - news - people ), Cyberonics (nasdaq: CYBX - news - people ) and Advanced Neuromodulation Systems (nasdaq: ANSI - news - people ).
Formed in 2002, our candidate for Quiz No. 4 developed a device–a flexible harness lined with electrodes–that ameliorates pain by delivering precisely controlled electrical impulses to the sore area. The theory: Manage the frequency and wavelengths just so, and at the right shock level, and you can disrupt the way nerves transmit pain messages. Treatments last for ten to 15 minutes apiece, two or three times a week, and have no known side effects. The company claims that its device can battle many types of pain ….
And Quiz 4 Results even more interesting and educative!
It discusses the venture using “TVA Radar Graph” that maps 12 parameters like Market Opportunity to IP to evaluate the venture.
I suggest you vote before you look at the results.
Cheers
-Balaji S.
Idea, Execution, Profit!
The finals of this global competition are being held in Delhi. See link.
When I was in Citibank in India ( 1981-1989) I remember a couple of firms that are quite big to day getting started because Citibank agreed to be their first customers. Building on this thought it may be possible for the Band of Angels to link up with some large companies and invite business plans in areas where large companies are looking to outsource.
I keep getting approached by entrepreneurs who have not done the basic steps before trying to raise angel funding. I thought it may be useful to put down a basic checklist. My checklist follows.
1. Incorporate the company that is seeking funding
2. Get a good law firm and have basic documentation in place
3. Put some of your own/friends/family money in the company
4. Use that money to build something, get advisors, customers or atleast expressions of interest
5. Build a team. Part of the team may be angel employees
6. Be clear on how much money you want to raise and how will you use it to get to the next level
7. Think and articulate possible exits
8. Put yourselves in the shoes of the angel investor and make a pitch to yourself
I have yet to see a pitch for angel investing that is excellent but I am sure I will see some soon.
Do most entrepreneurs in India prefer just in time capital raising and spending ?
In my experience in Silicon Valley keeping a large capital cushion was considered quite important and after the initial proving stage, spending on say office space , key talent etc was done rapidly.
The just in time approach minimizes dilution. I guess the right strategy is situation dependent.
In China Alibaba raised $1 billion from Yahoo for 40% of the company. It seems that $750 million of that is spent. Tao Bao ( like Ebay) and AliPay ( like PayPal) are free to users and lose money to build the network.
In India I think a more conservative approach is followed though in areas like Telecom/Retail big bucks are being spent.
It will be interesting to see how this evolves.
Hi everyone,
I am doing some research on cultural differences in startup organizations across India, Japan and the US. If you have been involved with a startup which was started in India, please take this survey. I really appreciate it.
http://www.hubspot.com/HubSpotSurvey/TakeSurvey.asp?SurveyID=3JMn73124p63G
If you were involved with a startup in the US, you can help me out too. Here is another survey link for that:
US:
http://www.hubspot.com/HubSpotSurvey/TakeSurvey.asp?SurveyID=63J3932K2981G
Let me know if you face any issues. Thanks in advance.
- Shiva Venkatraman
MIT Sloan Fellow 2006
shivav@sloan.mit.edu
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