Global Private Equity Investing Conference April 2, 2008 Raising Venture Capital: An Entrepreneurial & GP/LP Perspective Pradeep Pandey Board Member, TiE Silicon Valley CEO, Gelina, Inc.
Agenda An Entrepreneur Raising Venture Capital The process Getting started Preparing to meet VCs Looking for the right VCs Entrepreneur s perspective VC s perspective The Pitch Negotiation and closing Emerging Trends: Going Global Summary
Entrepreneur s Perspective General Partner Legal Services Advisors Entrepreneur Venture Capital Fund Limited Partners Financial Services Focus of first part of Focus of second part of presentation presentation
Personal Background Board Member, TiE Silicon Valley Early career worked at start-ups Co-founder or founding team Voyan Technology (acquired by TEL) Lara Technology/EmpowerTel Lara acquired by Cypress, EmpowerTel acquired by IP Unity. Gelina, Inc Business Advisor -- successfully raised private equity Neoteris, Margi Systems, Nuelight Education Ph.D. in EE, UCSB M.S., Duke University B.Tech., IIT Delhi.
About TiE Summary Founded in Silicon Valley in 1992 Fosters entrepreneurs 48 chapters worldwide Founded by successful entrepreneurs Take an active role in mentoring Focus on both early stage and expansion stage companies Well connected with the entrepreneurial ecosystem Venture Capital Law and Financial firms Programs Several programs for entrepreneurs TiE Institute focus on hands-on learning Special Interest Groups (SIGs) focus on particular market segments TiEcon annual event attended by 4000+ entrepreneurs and business executives.
Entrepreneurship: Context Shortest path from dream to reality Difficult, challenging but rewarding! Well recognized in Silicon Valley Usually a startup Fresh start no previous baggage Lean and mean Can be within an organization Institutionalized entrepreneurship New company division New product line But remember: Entrepreneurship is about disruptive change not incremental change
Getting Started The BIG idea Dare to change the world Even large companies were startups Sun, Yahoo, Google Market research Review the opportunity pin down metrics Business plan Clear and compelling Mission Statement Identify both opportunity and risks Business metrics Market size Expected revenues Margins Time to profitability Advisory Board Get feedback from colleagues, friends, business associates Formalize the advisory process
Preparing to Meet VCs Executive summary 2-3 pager for quick review Useful for initial contact/review Elevator pitch Get someone s attention even if you only have 5 minutes Due Diligence package Background of company since inception Background of key personnel Business plan including exit strategy Audited and un-audited financials Capitalization ( Cap ) Table Agreements employee, lease Purchase or sale agreements Referral Find contacts to connect to VCs Referral much more likely to get attention
What to look for in a VC Firm? They get it Share your vision and plan Understand the market opportunity Have been following the trends in this area History: Been there, done that Prior experience in operational roles in this area Prior investments in related areas Geography: Global perspective The World is (becoming) flat Resources and markets are increasingly global Do the investors have expertise in these geographical areas?
What to look for in a VC Firm? Math: the numbers add-up Can lead a syndicate of investors In for the long-haul Biology: People resources A good network and set of resources Connect you to suitable partners in their ecosystem Open doors to customers Chemistry Personal relationship Style, approach Can we work together effectively Build a long-term relationship Summary Do your homework Focus on smart money
What are the VCs looking for? Team Are team members A players Does the team have A clear vision Passion for their idea Previous startup experience/success Clear expertise in the selected area Technology Is there some secret sauce? Will it provide a competitive advantage Will it provide a barrier to entry Is it viable/demonstrable? How much will it take (in $) to demonstrate Has the team spelled out the risks involved
What are the VCs looking for? Market Is there a market for this product/service? Is there a well-defined business model that is profitable What is the competitive landscape do we have an unfair advantage? Does it fit with the fund Product/service area The stage of the company Fit with the style early, expansion Time horizon of the fund Relation to other investments Synergy Hedge bets Exit What is a likely exit strategy? What is the likely ROI?
The Pitch Invitation to present One or more GPs; may also include Associates, EIRs Know their backgrounds beforehand previous investments, area of expertise Preparation Practice the presentation Keep back-up slides to show if someone wants more details Interactive Be ready for an interactive session The aim is Discovery Discussion Discuss the plan with as many metrics as possible Spell out opportunity and risks: Investors value entrepreneur has thought through risks Post Analysis Was there a meeting of the minds Follow-up Agree on a time-table to circle back
Negotiations and Closing Term Sheet Negotiations revolve around the Term Sheet Key aspects are Valuation Liquidation Preference Class of shares: Common, Preferred Vesting Founder, employees Control Board positions Change of control Process Review typical term sheet before negotiations start Helps to determine where you are flexible or fixed Closing Signed Term sheet Money in the bank!
Emerging Trends: Going Global Even early stage Venture Capital is going global Some History Pre 1990s: Local Focus Venture Capital (especially early stage) focused on local investments only Metro Hot spots Silicon Valley Boston 1990s: Local HQ with outsourcing/subsidiaries Focus remained local HQ, marketing, sales Some aspects outsourced Software, Call center, BPO to India Manufacturing to China 2000+: Direct investment in local companies Leverage local assets Local entrepreneurial talent Local markets leading to global markets Continue to provide cost-effective solutions for global markets
Emerging Trends: Going Global Many VC firms have decided to focus on India and/or China Some examples India: Sequoia, Canaan Partners China: Accel Partners, Doll Capital Structure GPs located in those countries with multiple offices Fund raising still primarily in US/Europe Legal/financial structures in place to exit investments What does it mean to you? Count on having a global aspect to your business In development, support, marketing, sales Starting market may be in these emerging markets Gain expertise in these areas else you may miss an entire market segment
Next Steps? Define, refine, and adapt your vision Think out of the box Document your ideas and refinements Create a business plan Start prototyping your product/service Review going global Build a suitable infrastructure and Eco-system Partner, mentor, team, community Network, exchange ideas, and learn the process Start networking with Venture Capital firms Attends conferences, events Get Going!