BUS 314 Lecture Notes - Lecture 10: Disruptive Innovation, Flickr, Angel Investor

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SFU
BUS 314
Fall 2020
A.3 Notes
Early Exits Overview
Definition:
- “traditional” VC is used in this case
o “old” VC = to mean the multi-hundred million, or billion, dollar funds of the last decade
- “new” VC funds, micro-VC, VC2.0 and angel funds are new models we’re still figuring out
- M&A advisor are often called ‘i-banker”
Much of what you hear is wrong
- Many myths
- Early Exits workshop is about what actually works today
Building a “5 year” VC Fund
- As a fund manager, I had to focus intently on exits during screening and post investment
- To have any hope of liquidity in just 5 years
- I managed the BC Tech Fund for 3 years
- During that period, I made 9 investments
- Had 3 exits 2 acquisitions and an IPO
- #1 Canadian VC tech fund of that vintage
o Focusing on exiting = huge returns
Successful Investing
- Successful investing requires 2 things:
o 1. Investing right
In the right companies
At the right valuation
With the right terms
o 2. Exiting well
At a good price
In a reasonable time
More $ and More
- We spend a lot of time on the investing part
- Angel investors + entrepreneurs would have:
o More fun
o More money
- If we fused more on our exits
Angel Investing is Still New
- Angel investing today is where traditional VC was in the early 1980s
- Still discovering the best practices
- Don’t have enough hard data
What Angels Used to Think
- In the past, most angel investors would:
o 1. Find a company
o 2. Write a check
o 3. Hope an old style VC fund followed
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SFU
BUS 314
Fall 2020
o 4. Wait 10 15years for an exit
- That may have worked in the 90’s but not anymore
The Economy has Changed
- Traditional VC doesn’t work in TECH anymore
- When old VCs invest they set the terms, so our returns suffer with theirs or worse
o Crammed down (angel investors)
What happens to Angels when traditional VCs invest in our companies?
- Angels or VCs but NOT BOTH
o When VC funds angels backed up companies?
- Angels along “as likely as the VC baked firms to have successful liquidity events”
- “angel funded firms are also more likely to show improved venture performance and growth
- “outcomes are inferior when angels and VS invest in the same company”
o VC terms are risker than angels
o More failures
o Fewer exits 1x-5x
o More exits 5x -10x
o Slight increase in high multiple exits
The bottom line
- When traditional VC funds follow on in angel investment:
o Takes 1 decade longer to exit
o Risks increase substantially
o Extra time, higher risks, and dilution = lower average returns for both the angels and
entrepreneurs when traditional VCs invest
Are VCs ever a good idea?
- Depends on the type of company and market opportunity
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Document Summary

Traditional vc is used in this case: old vc = to mean the multi-hundred million, or billion, dollar funds of the last decade. New vc funds, micro-vc, vc2. 0 and angel funds are new models we"re still figuring out. Early exits workshop is about what actually works today. To have any hope of liquidity in just 5 years. I managed the bc tech fund for 3 years. As a fund manager, i had to focus intently on exits during screening and post investment. During that period, i made 9 investments. Had 3 exits 2 acquisitions and an ipo. #1 canadian vc tech fund of that vintage: focusing on exiting = huge returns. In the right companies: at the right valuation, with the right terms, 2. We spend a lot of time on the investing part. Angel investors + entrepreneurs would have: more fun, more money. Angel investing today is where traditional vc was in the early 1980s.

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