VC Workshop - one day

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  • January 2015

    From Idea to InvestmentVenture Capital workshop one-day program

    Douglas Abrams

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    Douglas Abrams

    About the facilitator

    Wharton MBA JP Morgan Vice President - IB Technology, Global

    Markets Internet Marketing

    Parallax Capital Management Co-founder and MD - Venture Capital

    Extream Ventures Co-founder and MD - S$20 million VC fund

    Expara Founder and MD - IDM Ventures Incubator, fund, advisory, training

    NUS Adjunct Associate Professor, Business School, Entrepreneurship

    Sasin Visiting Professor, Venture Capital

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    Douglas Abrams

    VC mindset

    Risk and return are highly correlated

    You cannot increase return without taking more risk

    Return

    Risk

    Potential outcomes

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    Douglas Abrams

    Why do companies raise investment?

    Lifestyle or scalable?

    Paycheck or payout?

    A big piece of a small pie?

    A small piece of a big pie?

    Founder

    Investors

    Investors

    Founder

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    Why invest in venture capital?

    As of June 30, 2014. The Cambridge Associates LLC U.S. Venture Capital Index is an end-to-end calculation based on data compiled from 1,508 U.S. venture capital funds (963 early stage, 165 late & expansion stage, 374 multi-stage and 6 venture debt funds), including fully liquidated partnerships, formed between 1981 and 2014. (1)Pooled end-to-end return, net of fees, expenses, and carried interest.(2) 2007-2015 Sources: Cambridge Associates LLC, Barclays, Dow Jones Indexes, Frank Russell Company, Standard & Poor's, Thomson Reuters Datastream, and Wilshire Associates, Inc

    Case Shiller Real Estate Index 4.1Expara IDM Ventures (2) 43.03

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    SEA exit markets at an inflection point

    Exit activity in SEA, especially in Singapore, exploded in 2013 Increased investment in startups since 2007 is beginning to yield results

    Number of exits increased from 6 in 2010 to 20 in 2013

    Singapore alone has had 30 exits since 2007, 13 in 2013

    Value of exits increased from 51 MM in 2010 to 400 MM in 2013

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    Some recent exitsCompany Country Acquiror Price Year

    ZopIM Singapore Zendesk US$29.8MM 2014Non-Stop Games Singapore King US$ 100MM 2014sgCarMart Singapore SPH S$60 MM 2013DS3 Singapore Gemalto S$50 MM est. 2013Asian Food Channel Singapore Scripps Networks Undisclosed 2013Reebonz Singapore MediaCorp and Existing investors S$250MM 2013Yfind Singapore Ruckus Wireless Undisclosed 2013Techsailor Singapore TO THE NEW Undisclosed 2013travelmob Singapore HomeAway Undisclosed 2013Catcha Digital Media Singapore Opt Inc Undisclosed 2013GridBlaze Singapore Undisclosed Silicon Valley Startup Undisclosed 2013Viki Singapore Rakuten US$200MM 2013SGE Singapore Tech In Asia Undisclosed 2013ThoughtBuzz India To The New Undisclosed 2013AyoPay Indonesia MOL AccessPortal Undisclosed 2013Tongue in Chic Malaysia PopDigital Undisclosed 2013Ocision Malaysia Star Publication US$ 4.36MM 2013Glamybox Vietnam VanityTrove Undisclosed 2013PaymentLink Singapore Wirecard US$41.2MM 2013Dealguru Singapore iBuy S$34.28 MM 2013Buy Together Hong Kong iBuy S$21 MM 2013Dealmates Malaysia iBuy S$10 MM 2013PropertyGuru.com Singapore ImmobilienScout24 S$60 MM 2012HungryGoWhere Singapore Singtel S$12 MM 2012AdMax Network Singapore Komli Media Undisclosed 2012TheMobileGamer Singapore Singtel US$1.5 MM 2012

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    Key elements for success

    Solve a problem for customers Value proposition

    Develop an innovative product Innovation

    Identify your customers Market identification and analysis

    Reach your customers Marketing strategy

    Compete when others enter - Sustainable competitive advantage

    Make money Business model and financial plan

    Team A team or B team

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    Key venture finance terms

    Business model

    Financial projections

    Valuation

    Funding required & equity offered

    Use of Proceeds

    Exit Strategy and ROI

    Cap table

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    Company valuation methods

    Price to earnings (p/e)

    Dividend yield

    Multiple of book value

    Comparables

    Discounted Cash Flow (DCF)

    VC method

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    How much equity does the investor receive?

    Pre-money valuation Amount invested by VC (Agreed pre-money value of business

    + Amount invested by VC) $3MM pre + 1 MM VC = 25% VC equity

    Post-money valuation Amount invested by VC post-money valuation $4MM post = 25% VC equity

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    How do VCs make money?

    Trade sale sell to another company

    IPO sell to the public through listing on an exchange

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    Trade sale or IPO?

    www.nvca.org

    http://www.nvca.org/

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    How does a venture capital fund work?

    Fund Investors VC

    8

    $ 10 mm

    2

    $ 10 mm

    $ 58 mm

    25%

    75%

    Fund size 10,000,000$ Life of the fund 7Management fee 2.5%Investable 8,250,000$ Investment size 1,031,250$ Companies 8Fail 4 50%Break even 2 25%Exit 2 25%

    Investor's required ROI 35%Fund multiple return 5.76Fund size at exit 57,600,000$ Carry @ 20% 9,520,000 Distribution 48,080,000$ Fund return multiple 4.81Fund ROI 35%Required return per exit 28 times

    Equity per company F/D 15%Required value of equity at exit 28,800,000$ Required co value at exit 192,000,000$

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    Stages and sources of funds

    Founders Capital

    Seed/Angel

    Series A, B, C

    Mezzanine Pre-Exit Exit

    VC hurdle rates 60-100% 40-60% 20%

    OM F,F&F

    Incubators corporations government

    Customers, suppliers, strategic partnersVCs, Banks for VC loans

    R&D Establishment GTM/Rollout Accelerated Expansion MaturityEnablement growth

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    Calculate investors ROI including dilution

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    Cap table

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    Key elements of a venture deal

    Board of directors

    Protective provisions

    Drag-along agreement

    Conversion

    Control

    Price-per-share

    Valuation

    Amount of financing

    Liquidation preference

    Vesting

    Options pool

    Anti-dilution

    Pay-to-play

    Economics

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    VC-Start-up negotiation game

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    Contact us

    Douglas Abrams

    Expara Pte. Ltd.

    dka@expara.com

    www.expara.com

    65-6323-3084, 65-9780-5381 (hp)

    Block 71 Ayer Rajah Crescent, #02-10/11 Singapore 139951

    http://www.expara.com/

    Slide Number 1About the facilitatorVC mindsetWhy do companies raise investment?Why invest in venture capital?SEA exit markets at an inflection pointSome recent exitsKey elements for successKey venture finance termsCompany valuation methodsHow much equity does the investor receive?How do VCs make money?Trade sale or IPO?How does a venture capital fund work?Stages and sources of fundsCalculate investors ROI including dilutionCap tableKey elements of a venture dealVC-Start-up negotiation gameContact us