BUS 314 Lecture Notes - Lecture 11: Due Diligence, Initial Public Offering, Demographic Targeting

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LECTURE 11/7/2016 VENTURE CAPITAL
- W/ Iestig ou do’t at to e the last a stadig
- Should never accept all your money from 1 investor because if you find yourself on a
pier instead of a bridge, the life of your company when you need more investment
weighs on that.
- If you get offered 500k make a term sheet for 100k 200k that amount but have the
remainder on standby
- VC’s iest i earl rouds soeties ased o opetitio
- VC’s iest i earl rounds if you have a good reputation
- VC’s iest i later rouds if the arket is ad like 2008 reessio
Phases of the Company Will Determine the Nature of Investors who will come to your
business
- Customers can be a great form of capital
- Get into Venture Capital he ou’e uilt our sales pipelie
Venture Capital Snapshot
- Fuds that iest i opaies ith high groth ad eit potetial te agers eah
company they invest in need to be able to make 10x the invest
- They lose with the ten bangers because high return means high risk
- Most interested in tech sector. (Have to be an extremely scalable business)
- Must be beyond validation stage
- Investors called Limited Partners are high net worth individuals or instructions
- VC rounds typically take 20-30% Fully Diluted post money capital (VC’s do’t at to
take away the owners intrinsic value of owning the majority)
- THE BEST VENTURE FUNDS RUN OUT OF DRY POWDER / CASH WILLING TO INVEST IN
NEW COMPANIES/THINGS. (VC’S INVEST BUT THEY ALSO PARK CASH TO INVEST IN
FUTURE ROUNDS)
- EVEN IF VC’S HAVE DRY POWDER THEY MAY TAKE A COMPANY’S MEETING TO SIMPLY
TAKE YOUR IDEA
- SHOULD ALWAYS KNOW IF THEY HAVE DRY POWDER LEFT OR DO THEY HAVE A
COMPETITOR OF YOURS
- Size and stage of fund matters find out
Roles at Venture Capital Firms
1. Analyst
a. Fresh MBA, looks for & screens deals, performs basic DD, can pump you for info,
need to get pass them asap
2. Associate
a. O a up or do, idustr or fiaial akgroud, uild relatioships, do’t
have much power.
3. Principal
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a. Usually previously useful analysts, Senior, en-route to partner, can bring deals to
partners * run file
4. Partner
a. Venture, General or Managing Partners, VP only brings deals, GP/MPs vote, raise
and manage funds, firm admin
5. Exec in Residence (EIRs)
a. Ofte foud at VC’s have made firm money, looking for new gig, and giving it to
Venture firm to fund.
Should I Bother?
Do’t other hasig eture apital if ou
- Are still validating your market
- Are in a small niche with limited upside
- Do’t hae uh ustoer tratio
o This is a moving target
- Hae’t raised a seed roud
- Hae’t got ou ooks ad reords i order
- Are i a spae that’s out of faor.
Chinese companies are experts in deflation. When China gets involved with an industry they
become cheaper.
Finding VC’s That Fit
- Ma VC’s hae a iestet thesis
o See Crunchbase, CB Insights, Venture Deal
- Large funds will stretch thesis for hot deals
o But lea teh o’t ross to IT et.
- Need warm introductions
o Best intros are from successful fund investees or other VCs they deal with
- Looking for lead or syndicate member?
o How followable would this VC be as a lead? (Know their reputation)
- Does this fund have dry powder?
The Dance
1. The intro
2. The call
3. The pitch meeting
4. The thanks / no thanks call
5. The partners meeting
6. The partner pitch
7. Go/ no go , term sheet
8. Due diligence
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Document Summary

W/ i(cid:374)(cid:448)esti(cid:374)g (cid:455)ou do(cid:374)"t (cid:449)a(cid:374)t to (cid:271)e the last (cid:373)a(cid:374) sta(cid:374)di(cid:374)g. Should never accept all your money from 1 investor because if you find yourself on a pier instead of a bridge, the life of your company when you need more investment weighs on that. If you get offered 500k make a term sheet for 100k 200k that amount but have the remainder on standby. Vc"s i(cid:374)(cid:448)est i(cid:374) earl(cid:455) rou(cid:374)ds so(cid:373)eti(cid:373)es (cid:271)ased o(cid:374) (cid:272)o(cid:373)petitio(cid:374) Vc"s i(cid:374)(cid:448)est i(cid:374) earl(cid:455) rounds if you have a good reputation. Vc"s i(cid:374)(cid:448)est i(cid:374) later rou(cid:374)ds if the (cid:373)arket is (cid:271)ad like 2008 re(cid:272)essio(cid:374) Phases of the company will determine the nature of investors who will come to your business. Customers can be a great form of capital. Get into venture capital (cid:449)he(cid:374) (cid:455)ou"(cid:448)e (cid:271)uilt (cid:455)our sales pipeli(cid:374)e. Fu(cid:374)ds that i(cid:374)(cid:448)est i(cid:374) (cid:272)o(cid:373)pa(cid:374)ies (cid:449)ith high gro(cid:449)th a(cid:374)d e(cid:454)it pote(cid:374)tial (cid:862)te(cid:374) (cid:271)a(cid:374)gers(cid:863) ea(cid:272)h company they invest in need to be able to make 10x the invest.

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