I attended a seminar on how to raise venture capital yesterday. It was pretty useful because we had four real VCs in the room giving presentations, Brian Caulfield from TVC, John O’Sullivan from ACT, Shay Garvey from Delta and Micheal Donnelly from Growcorp.
My notes are below. Some of the key points that stayed with me were,
- Irish VCs are all locked into the same ten year cycle so they all raise and run out of cash at the same time. They were all cashed out last year so it was a really bad year to try and raise VC in ireland.
- VC’s regularily break their own investment rules, so its always worth meeting them even if your idea is not something that looks like it fits their current portfolio
- There is no point in emailing or colding calling, an introduction via a third party is much more likely to engage them
- Focus on building a great powerpoint presentation rather than a great business plan
- Irish VC’s will sign NDAs especially if you use the standard IVCA one.
The subheadding of the whole talk was "How to make your story investor intelligent".
Regina Breheny: DG IVCA
Venture Capital funds have a ten year life.
IRR is the key measure. Internal Rate of Return.
Only 16m in funds raised in 2006. How much in 2007?
Aldiscon spawned at least 14 startups (How many has Iona spawned?)
IVCA NDA is available on IVCA web site. Recognised by Law Society.
Irish VCs tend to be locked together in a similar ten year cycle.
EI 175m stalled investment in 2006.
Joe Tynan – Price Waterhouse Coopers
1 in 6,000,000 high-tech business ideas end up in an IPO
Less than 1% of business plans recieved by VC’s get funded
Founder CEO’s of high-tech companies typically own less than 4% of their companies after an IPO
60% of VC funded high-tech companies go bust
Most high tech companies that succeed in having a IPO take 5-7 years to do so
What point are you at in the VC’s ten cycle.
Plan to buy in management expertise.
BC : 1 minute pitch, value proposition and market opportunity
Shay: Proposition, Complication, Solution
John O’Sullivan – ACT Venture capital
VC’s continuously demonstrate exceptions
VC’s is not the only answer
VC’s are curious, positive and entrepreneurial
VC partners invest their own money in the deals
VC money is somebody’s pension fund
Risk: VC is here to reduce risk
Capital efficiency (How much will it take to exit?)
VC’s have to convince their colleagues
What do really want when you ask "What is your added value?"
What are you like to work with?
VC’s are always concerned when companies start taking their advice pre-investment
Financial’s –
- Focus on cash
- Gross margins after startup phase
When did you last meet the competition?
Competition : Anything that is an alternative for your customers.
One alternative is "do nothing"
Is the maximum valuation the optimum deal?
Asset strategy is the focus of many companies. They also need a liability strategy.
Michael Donnelly – Growcorp
Michael Donnelly – Growcorp
Deal Timings – 1m – 12 months, typically 3-6m
Does your investment preferences match the stage of the business
What is the sector track record
Is the fund compatible with your business
Does the investor have conflicts of interest
"Freedom to Operate" – Limits liability in the case of patent contention
JOS: Outside life-sciences patents rarely impact valuations at exit
Make sure you look for enough money to accommodate delays and problems
Offer letter is usually bound by exclusivity (for some period of time)
No skeletons in the cupboard, they will come out and warrants will hold you liable in the worst case
You should have invested if you expect a VC to invest, team investment should be "material"
"Material" is subjective
Due Diligence is need to support or contradict initial business plan impression
Is the venture dependent on IP for its success
Syndication limits control from any one investor
Costs grow by themselves, sales do not
Shay Garvey: Term Sheets
Irish VC’s front load the due diligence so that term sheets are close to complete
Unlikely to get two term sheets that are directly comparable
The term sheet gives clues as to what the investor wants to achieve
- Valuation
- People
- Timing
- Risk Management
How will you manage a sale and continue to run your business?
Brian Caulfield – Trinity Venture capital
Companies being acquired are much more mature
Companies going IPO are much more mature
Not looking for the perfect team, but need market opportunity
Avoid being a feature company (rating companies, OS feature companies e.g. DoubleSpace)
Price your technology sale on future potential sales if haggling over current sales is happening
Companies are bought not sold
Engage early with advisors so they are prepared for an out of the blue M&A request
Are there multiple potential acquirers?
Is there a deal on the table? If so negotiate for a % of the amount over the desired valuation
M&A advisor fees 2 to 5% of the transaction value
(see slide for other stats)
For stock deals, how long will it take to sell the stock, i.e. what is the amount of trading each day? 1m shares but 20,000 sold a day.
Tactics : We are note for sale
Deadlines drive the process
Colm Rafferty: Legal and Administration Process
Put a health warning in your business plan. Nothing contained is warranted.
Use the standard IVCA NDA/Confidentiality agreement
Take your legal advice at Term sheet stage
Test their eagerness for the deal by seeing what you can challenge/change in the term sheet
Ask for a set of warranties when presented with a due diligence questionnaire
Distinguish between what actions are controlled by VC vs what is controlled by the Board
Copacetic 