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2. Entrepreneurship & Capital:the Engines that Power anEconomy ForwardThomas D. Nastas27 October 2011Kazan, RussiaTom@IVIpe.comwww.scalingupinnovation.comwww.IVIpe.comTel. +1.517.899.1432Innovative Ventures Inc.Haslett, MI. USA www.IVIpe.com Info@IVIpe.com 3. Entrepreneurship & $The Joy of Entrepreneurshiphttp://www.youtube.com/watch?v=T6MhAwQ64c0&feature=player_embeddedwww.IVIpe.comInfo@IVIpe.com 4. Entrepreneurship & $Entrepreneurship & $: The Engines that Poweran Economy Forward MIA: take your moneyhttp://www.youtube.com/watch?v=7sei-eEjy4gwww.IVIpe.comInfo@IVIpe.com 5. www.IVIpe.comInfo@IVIpe.com 6. Topic #1: Entrepreneurship www.IVIpe.com Info@IVIpe.com 7. Topic #2: History of VCwww.IVIpe.comInfo@IVIpe.com 8. Topic #3: VC in the World www.IVIpe.com Info@IVIpe.com 9. Topic #4: How VentureCapital Works www.IVIpe.com Info@IVIpe.com 10. Topic #1: EntrepreneurshipTest: Knowledge of Entrepreneurshiphttp://yalepress.yale.edu/yupbooks/entrepren eurshipquiz.aspwww.IVIpe.comInfo@IVIpe.com 11. Topic #1: Entrepreneurship What is Entrepreneurship? How can/should it be defined?www.IVIpe.comInfo@IVIpe.com 12. Topic #1: Entrepreneurship What is Entrepreneurship? Its a process High uncertainty, many start-upshappen by accident A means for people (dreamers?) toachieve their goals To create something where it did notexist before, to create some good, tofix something broken www.IVIpe.com Info@IVIpe.com 13. Topic #1: Entrepreneurship Requires determination & perseverancesince nothing goes to plan Live with uncertainty, isolation, lack ofprogress, most of all, rejectionDont worry about people stealing your ideas.If your ideas are any good, youll have to ramthem down peoples throats.www.IVIpe.comInfo@IVIpe.com 14. Topic #1: EntrepreneurshipTraits & Characteristics of Entrepreneurs Passion vs. Money? Realize Goals vs. Make Dreams Come True? Born or Made? Control vs. Letting Go Planning vs. Executionwww.IVIpe.comInfo@IVIpe.com 15. Topic #1: EntrepreneurshipPassion vs. Money? Motivation is to improve things, solvean existing problem, create some good Get rich as a result of the passion Wanting to be rich doesnt create thepassionwww.IVIpe.comInfo@IVIpe.com 16. Topic #1: Entrepreneurship Realize Goals vs. Dreamers? Cannot reach their goals through othermeans As they implement, they have thefeeling, the hunch that this thing mightbe bigger than they imagined Create products and services that createnew markets www.IVIpe.com Info@IVIpe.com 17. Topic #1: Entrepreneurship Born or Made? A little of both Combination of following instincts &an environment that developed theirtalentswww.IVIpe.comInfo@IVIpe.com 18. Topic #1: EntrepreneurshipControl vs. Letting Go Have control & not at the same time. Adaptable since what users wantchange as do plans. Trial & error-change their ideas as theydevelop them to give users what theywant. Deal with rejection early on; the mostfragile time.www.IVIpe.comInfo@IVIpe.com 19. Topic #1: EntrepreneurshipPlanning vs. Execution Attitude & energy for action Have a general idea of the directionthey are headed Adapt not plan Strategy is a discovery process vs. aplanning process www.IVIpe.com Info@IVIpe.com 20. Entrepreneurs Work Philosophywww.IVIpe.comInfo@IVIpe.com 21. Topic #2: History of VCwww.IVIpe.comInfo@IVIpe.com 22. Topic #2: History of VCwww.IVIpe.comInfo@IVIpe.com 23. Topic #2: History of VC Invested $70k (1957) ROI: $377MM (1968)IRR: 101%In $1999-$2010: $415k=$2.4Billionwww.IVIpe.comInfo@IVIpe.com 24. Topic #2: History of VC 1969: Pension Fund Reformwww.IVIpe.comInfo@IVIpe.com 25. Topic #2: History of VC Invested $57k (1978)ROI: $14MM (1981)IRR: 23,000%In $2007-$2010: $185k=$35millionwww.IVIpe.comInfo@IVIpe.com 26. Topic #3: VC in the World www.IVIpe.com Info@IVIpe.com 27. Topic #3: VC in the WorldInternet & New Economy Business Models 1999 Vintage Funds Returned 150% Momentum & Greed replaced common sense Business Plans Funded without thorough Analysis of their Weaknesses 1st Mover = 1st Loserwww.IVIpe.comInfo@IVIpe.com 28. Topic #4: How VentureCapital Works www.IVIpe.com Info@IVIpe.com 29. Topic #4: How VentureCapital Works www.IVIpe.com Info@IVIpe.com 30. $ Flows into VCwww.IVIpe.comInfo@IVIpe.com 31. Liquidity vs. Profitswww.IVIpe.comInfo@IVIpe.com 32. Risk & Return www.IVIpe.com Info@IVIpe.com 33. Topic #4: How Venture Capital Works The Reality (Business) of VC (How it Works)Equity is a Great Product, but:1. Its Expensive (% ownership)2. Selective-1/100 SMEs (in USA) seeking VC get $$ Need Big Markets ($50-$100MM) People (Technical, Mkting, Mgt, Support, etc.)3. Requires Capital Mkts &/or Strategic Buyerswww.IVIpe.comInfo@IVIpe.com 34. Topic #4: How VentureCapital Works ProbabilityIndividual Event 80%Company has enough $$80%Mgt. Capable & Focused 80%PD Successful80%Mfging Successful80%Competitors Behave as Expected 80%Customers Want Product 80%Pricing is Correct 80%IP Issued17%Combined Probability of SuccessLow Success Rate = Invest 1 of every 100 deals www.IVIpe.com Info@IVIpe.com 35. Topic #4: How VentureCapital Works www.IVIpe.com Info@IVIpe.com 36. Topic #4: How Venture Capital WorksRequirements to Receive VC1. Large addressable market or defined niche2. Uniqueness in concept or application to create LT competitive advantage (vs. 1st mover advantage) &/or Do it Better vs. the Competition3. Focused management4. Liquidity potentialwww.IVIpe.comInfo@IVIpe.com 37. Topic #4: How Venture Capital Works Value-Added of VC (Beside $$)1. Sometimes Create the Deal2. Raise New $$$ & Add Corporate Governance, Experience & Contacts3. Keep Interests Aligned4. BOD Participation, not Manage the Firm5. Encourage Founders to Think in Kilometers, not Centimeterswww.IVIpe.comInfo@IVIpe.com 38. Topic #4: How Venture Capital Works VC & PE in CIS & Russia1. Two major investors EBRD & US Govt2. Enterprise Funds in CEE3. Enterprise Funds in CIS/Russia4. EBRD Funds in CEE, CIS & Russia5. Approximately $4 Billion Committed, 75%+ from the Multilaterals (w/IFC & DFIs)6. Growth in Oligarch Funds/PEwww.IVIpe.comInfo@IVIpe.com 39. Topic #4: How VentureCapital WorksVC to PE in Russia Today1. 1st in VC (1994-1999). Deals w/VC Characteristics. Migrated to PE financing/growth in Post Financial Crisis2. Expansion Stage Financing, US$2-$20 million/deal with limited syndication3. Deals = For Domestic Economy, FMCC, F&B, Retailing, Real Estate, Wholesaling, Transportation & Western Successes Transplanted to Russia, Sabarro Pizza www.IVIpe.com Info@IVIpe.com 40. Topic #4: How Venture Capital WorksEmerging Interest in Tech-Russia1. Intel Capital, AddVenture, etc.2. One-off Deals by PE Investors, Barings3. Russian Govt Initiatives-Regional VC, RVC & Rusnano4. Multiple Infrastructure Groups Emerging; doing Conferences, Exhibitions, facilitating Collaborative R&D, etc. www.IVIpe.com Info@IVIpe.com 41. Topic #4: How VentureCapital WorksWhy Little /$ Goes to Russian Tech1. Capital Seeks the Highest Rate of Return Strong Growth in Non-tech, Retailing,Distribution, FMCC, F&Bs, etc.2. Competition from Stock Mkt & Real Estate3. Competition from Israel, US, Europe, etc. www.IVIpe.com Info@IVIpe.com 42. Topic #4: How Venture Capital WorksMost Tech Opts in Intl MktsWhere Demand IsButGaining Access is ExpensivePenetration & Growth Takes Much Timewww.IVIpe.comInfo@IVIpe.com 43. Topic #4: How Venture Capital WorksMost Tech Opts in Intl Mkts Where Demand Is Gaining Access is Expensive Penetration & Growth Takes Much TimeRussian Deal Flow is too Young to Meet Intl Test Instead, Target Domestic Market, e.g., Tech for Oil/Gas Industry, Auto Components, Systems Integration www.IVIpe.com Info@IVIpe.com 44. Topic #4: How Venture Capital WorksFACT: Russia Has Good Ideas: Ideas Deals1/200 SMEs seeking VC get /$: Why Reject?Undeveloped OpportunityLack of Uniqueness/No Competitive AdvantageToo much $$$, too much time & too little rewardPeople (mgt./employees)Lack of Transparency, No Clear Title/Ownership of IP www.IVIpe.com Info@IVIpe.com 45. Topic #4: How VentureCapital Works Whats Common Here? www.IVIpe.com Info@IVIpe.com 46. Topic #4: How VentureCapital WorksSummaryEntrepreneurship & VC are linkedVC only successful if entrepreneurs aresuccessfulwww.IVIpe.comInfo@IVIpe.com 47. Where is the Technology? 48. Technology In Many Places! Just Look & DefineSlaughter Raising Genetic Engineering& Breeding ButcherDistribution, Storage &Retail LocationsProcessing- Ham, KielbasaDelivery16-19 November 2009www.IVIpe.com Info@IVIpe.com 49. Thomas D. NastasTom@IVIpe.comwww.IVIpe.com Tel. +7.985.923.4727 Tel. +1.517.899.1432Innovative Ventures Inc. Haslett, MI USA23 June 2010 50. Case Study Discussion &Analysis: HotmailWhat are objectives (implicit/explicit)?What decisions (implicit/explicit) must s/hemake/face?What problems, opts, & risks does s/he face?www.IVIpe.comInfo@IVIpe.com 51. Case Study Discussion &Analysis: Hotmail Does the opportunity fit Hotmails corecompetencies? Did they think imaginatively about thebusiness model? Did their product change the lives of theircustomers? What are the learning curve lessons fromHotmail that you can apply to your worksituation? www.IVIpe.com Info@IVIpe.com 52. Case Study Discussion &Analysis: Hotmail What was their value creation model? Did they create value? For whom? Were the macro-economic andenvironment factors in Hotmails favor?Did demand exist? In their targetmarket(s)? What about customers abilityto pay? What about future forecasts?www.IVIpe.comInfo@IVIpe.com 53. Case Study Discussion & Analysis: Hotmail What changes do customers need to maketo use the service? How did partners/competitors impacttheir model & chance for success? Were they undercapitalized? www.IVIpe.com Info@IVIpe.com 54. Case Study Discussion &Analysis: HotmailWhat evidence do I have to help make the decision?Is the evidence reliable/unbiased? Can I improve it?What alternative courses of action are available?What criteria should I use to evaluate the alternatives?www.IVIpe.comInfo@IVIpe.com 55. Case Study Questions to Ask YourselfWhat action should I take?How should I convince others in the case & theclassroom that my approach is best?What did I learn from this case?How does it relate to past cases & my ownexperience?www.IVIpe.comInfo@IVIpe.com