Venture capital cartoon #7

"We'd like to make a bid for a management buy out - if you'll lend us the money."

Developing a financing map

There is a clear destination, and the prize for reaching it is intoxicating - the fabled Initial Public Offering (IPO) or the successful trade sale of the company that turns the founders & investors into latter-day robber barons. There is a generic five-to-seven-year map that has been established by prior generations of entrepreneurs regarding how to build a business.

But this is new terrain. Every new business that has world-beating aspirations is unique. There are lots of issues. What competitors are out there lurking in the tall grass? If a competitor or some other roadblock thwarts the company, is there a way round? Are there small steps that the company might take up front to block competitors? Is the destination as clear as it seems at first glance? Or are there multiple possible destinations - might some of them be even more interesting than the most obvious destination?

Take the example of Creditica. Clearly, it is a modest creation today. At its simplest, it is a 20-page slide presentation containing insightful perspectives on the opportunity, put together by some smart mathematcians. It is plausible to look forward five to seven or more years and to see it as a good-sized company capable of undertaking an IPO. The situation is pregnant with possibilities. But it is dizzying to think of everything that needs to be done on the journey from here to there. What should be done first? Who should be hired and when? Which customers should be approached first? What happens if competitors get to the market first? How is Creditica going to be financed?

Communicating the complexity of all these execution issues to investors, while still conveying the sense of opportunity, is very difficult.

An early stage venture should simplify its business plan by breaking the planned development of the company into 3 or 4 major stepping stones on the way to the prize. These stepping stones should become the financing blueprint for the business. This concept of building a valuable business through multiple staging posts, each of which is financed separately, is the core tenet underpinning entrepreneurial finance. All the complexities and incongruities on the way are derived from this one concept.

The best place to start is to show how the 5 to 10 year plan for a business can and should be split into a series of major stepping stones, normally 3 to 4.

VCing startups

The chairman says to the board of directors in the meeting, "We've financed three more startups for no fathomable reason."

Regional VC organizations in the United States

Apart from the National Venture Capital Association (NVCA) there are many regional Venture Capital organizations in the United States which are mentioned below:

• The Atlanta Venture Forum
• Dallas/Ft. Worth Private Equity Forum
• The Collaborative
• Connecticut Venture Group
• Council for Entrepreneurial Development
• Evergreen Venture Capital Association
• Florida Venture Forum
• Illinois Venture Capital Association
• Los Angeles Venture Association
• Long Island Capital Alliance
• Michigan Venture Capital Association
• Mid-Atlantic Capital Alliance (MAC)
• The Mid-Atlantic Venture Association (MAVA)
• Mid-America Healthcare Investor Network (MHIN)
• Minnesota Venture Capital Association (MVCA)
• The New England Venture Capital Association (NEVCA)
• New Jersey Tech Council
• New Mexico Venture Association
• OCTANe
• Orange County Venture Group
• Pittsburgh Venture Capital Association
• Rocky Mountain Venture Capital Association
• Venture Investors Association of New York
• San Diego Venture Group
• Texas Venture Capital Association
• Upstate Venture Association of New York (UVANY)
• Venture Club of Indiana
• Venture Club of Louisville
• The Western Association of Venture Capitalists (WAVC)
  

Venture capitals cartoon

We'd like to make a bid for a management buyout - if you'll lend us the money.

Raising Venture Capital for the Serious Entrepreneur

Raising Venture Capital for the Serious Entrepreneur is a book by Dermot Berkery which helps you in understanding the basics of the venture capital method, raising the finance, valuing the early stage venture and negotiating the deal with term sheets with topics such as Developing a financing map, Getting to the first stepping stone, The Unique Cash Flow & Risk Dynamics of early stage ventures, Determine the amount of capital to raise & what to spend it on, Getting behind how VC firms think, creating a winning business plan, valuing early stage companies, agreeing on a term sheet with a VC, terms for splitting the rewards, allocating control between founders/management & investors and aligning the interests of founders/management & investors.

The book also attempts to answer questions like Why new ventures are not fully funded from the START and also has term sheet exercises to draft a best one for your venture.

Another cartoon for a Venture Capital

Find another cartoon for a Venture Capital which says, "Simpson, you promised you wouldn't tell anybody I turned down Bill Gates!"

Legal documents for a Venture Capital

Some of the legal docments required in a VC are:

• Term Sheet
• Stock Purchase Agreement
• Certificate Of Incorporation
• Investor Rights Agreement
• Voting Agreement
• Right of First Refusal & Co-Sale Agreement
• Management Rights Letter
• Indemnification Agreement

These documents aim to:

• reflect and in a number of instances, guide and establish industry norms
• be fair, avoid bias toward the VC or the company/entrepreneur
• present a range of potential options, reflecting a variety of financing terms
• include explanatory commentary where necessary or helpful
• anticipate and eliminate traps for the unwary (e.g., unenforceable or unworkable provisions)
• provide a comprehensive set of internally consistent financing documents
• promote consistency among transactions
• reduce transaction costs and time

We will also be posting a few of the templates for legal documents which you can download & use for your VC.

Mistaken for capital

See the above cartoon which says (knowingly or unknowingly) that venture capitals are basically vulture capitals. The man says to the VC, "My error, sir. On the phone I though you said venture capitalist."

Some Venture Capital facts

Find below some interesting Venture Capital facts particularly about the USA:

• Top ten states for venture capital investing in 2008 were: CA, MA, NY, TX, WA, CO, NJ, PA, MN, VA.
• Venture capitalists typically invest and actively engage in their portfolio companies for 5 – 7 years, often longer and rarely less.
• The Clean Technology industry is the fastest growing sector of venture investment, growing 54 percent in the last year alone.
• 1 in every 3 Americans is positively impacted by a venture backed medical innovation.
• There are fewer than 700 venture capital firms in the United States.
• 1 in every 4 venture backed public companies was founded by a foreign born national.
• In 2008, corporate venture capital arms were investors in 19.2 percent of all venture deals.
• Venture-backed companies account for 10.4 million U.S. jobs and 18 percent of U.S. GDP.
• Since 1970, venture capitalists have invested $466 billion into more than 60,700 companies.
  

(Re)inventing the wheel

See the cartoon above which parodies on the Venture Capital industry saying, "I call my invention The Wheel, but so far I've been unable to attract any venture capital."

Venture Capital & popular culture

Find below some notable incidents in history on the popular culture about Venture Capital:

• Robert von Goeben & Kathryn Siegler produced a comic strip called 'The VC' between the years 1997 & 2000 that parodied the VC industry, often by showing humorous exchanges between VCs & entrepreneurs. Von Goeben was a partner in Redleaf Venture Management when he began writing for the comic strip.
• Mark Coggins' 2002 novel 'Vulture Capital' features a venture capitalist protagonist who investigates the disappearance of the chief scientist in a biotech firm in which he has invested. Coggins also worked in the industry & was the co-founder of a dot-com startup.
• In the Dilbert comic strip, a character named 'Vijay, the World's Most Desperate Venture Capitalist' frequently makes appearances, offering bags of cash to anyone with even a hint of potential. In one strip, he offers two small children with good math grades money based on the fact that if they marry and produce an engineer baby he can invest in the infant's first idea. The children respond that they are already looking for mezzanine funding.
• Drawing on his experience as reporter covering technology for the New York Times, Matt Richtel produced the 2007 novel Hooked, in which the actions of the main character's deceased girlfriend, a Silicon Valley venture capitalist, play a key role in the plot.
• In the TV series Dragons' Den, various startup companies pitch their business plans to a panel of venture capitalists.
  

Venture Capital cartoon #1

Just in case you want to invest, I've got a great idea for a dot com startup.

Sand Hill Road: Address to many VCs

Sand Hill Road is a popular place in Menlo Park, California, where one can locate many Bay Area VC firms. Sand Hill Road is referred to Private Equity in the US in the same way as Wall Street is referred to the stock market. Sand Hill Road connects El Camino Real & Interstate 280 and an provides easy access to the Stanford University & the Silicon Valley.

Some of the top VCs on the Sand Hill Road are:

• Accel-KKR
• Azure Capital Partners
• Battery Ventures
• Benchmark Capital
• Draper Fisher Jurvetson
• Highland Capital Partners
• Kleiner, Perkins, Caufield & Byers
• Kohlberg Kravis Roberts
• Matrix Partners
• New Enterprise Associates
• Sequoia Capital
• Shasta Ventures
• Silver Lake Partners
• Storm Ventures
• The Blackstone Group
• TPG Capital, L.P.
• U.S. Venture Partners
  

What Is Venture Capital?

Entrepreneur.com describes a VC as the following:

What It Is: Institutional venture capital comes from professionally managed funds that have $25 million to $1 billion to invest in emerging growth companies.

Appropriate for: High-growth companies that are capable of reaching at least $25 million in sales in five years.

Best Use: Varied. From financing product development to expansion of a proven and profitable product or service.

Cost and Funds Typically Available: Expensive. Institutional venture capitalists demand significant equity in a business. The earlier the investment stage, the more equity is required to convince an institutional venture capitalist to invest. The range of funds typically available is $500,000 to $10 million.

Ease of Acquisition: Difficult. Institutional venture capitalists are choosy. Compounding the degree of difficulty is the fact that institutional venture capital is an appropriate source of funding for a limited number of companies.

Venture Capital investments in Google

The first funding for Google as a company was secured in August 1998, in the form of a $100,000 contribution from Andy Bechtolsheim, co-founder of Sun Microsystems, given to a corporation which did not yet exist.

On June 7, 1999 a round of funding of $25 million was announced, with the major investors being rival venture capital firms Kleiner Perkins Caufield & Byers and Sequoia Capital.

The Google IPO took place on 19 August 2004. 19,605,052 shares were offered at a price of $85 per share. Of that, 14,142,135 (another mathematical reference as √2 ≈ 1.4142135) were floated by Google, and the remaining 5,462,917 were offered by existing stockholders. The sale of $1.67 billion gave Google a market capitalization of more than $23 billion. The vast majority of the 271 million shares remained under the control of Google. Many Google employees became instant paper millionaires. Yahoo!, a competitor of Google, also benefited from the IPO because it owned 8.4 million shares of Google as of 9 August 2004, ten days before the IPO.

The stock performance of Google after its first IPO launch has gone well, with shares hitting $700 for the first time on 31 October 2007, due to strong sales and earnings in the advertising market, as well as the release of new features such as the desktop search function and its iGoogle personalized home page. The surge in stock price is fueled primarily by individual investors, as opposed to large institutional investors and mutual funds.

The company is listed on the NASDAQ stock exchange under the ticker symbol GOOG and under the London Stock Exchange under the ticker symbol GGEA.

Twitter - The 100% VC online business

With Twitter making waves all across the internet, it's interesting to note that with not any revenue income, the company has raised millions of dollars from venture capitalists. The exact amounts of funding have not been made public yet but the total stands at around US$ 57 million under different rounds and the highest being $35 million from Institutional Venture Partners and Benchmark Capital. Some VCs who have invested money in Twitter are Benchmark Capital, Bezos Expeditions, Digital Garage, Institutional Venture Partners, Spark Capital & Union Square Ventures.

Top Venture Capitalists

Some of top Venture Capitalists of the world are:

• Atlas Venture
• Azione Capital
• Bain Capital Ventures
• Benchmark Capital
• Bessemer Venture Partners
• Canaan Partners
• Charles River Ventures
• Clearstone Venture Partners
• Draper Fisher Jurvetson
• Enterprise Partners
• Fidelity Ventures
• Highland Capital Partners
• Insight Venture Partners
• Kleiner, Perkins, Caufield & Byers
• Mayfield Fund
• New Enterprise Associates
• Oak Investment Partners
• Point Judith Capital
• Quicksilver Ventures
• Scottish Equity Partners
• Sequoia Capital
• Sevin Rosen Funds
• Sigma Partners
• Tenaya Capital
• Union Square Ventures
• Viking Venture
• Wellington Partners Venture Capital