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10 THINGS YOU SHOULD KNOW ABOUT « VC »
ABE – BECI – BVA EventJanuary 21rst, 2010
Selected messages from the firstBelgian Guide to VC
Sophie Manigart
Olivier Witmeur
An initiative supported by:
2Olivier Witmeur, 21/01/2010
Venture Capital / VC
Capital-RisqueCapital-Développement
Risicokapitaal
Seed Capital
Start-up capital
Private Equity / PE
Durfkapitaal
3Olivier Witmeur, 21/01/2010
Risk
leve
l
High
Low
Company maturity
FFFFFF
BUSINESS ANGELSBUSINESS ANGELS
VENTURE CAPITAL
STOCK MARKETSSTOCK MARKETS
BANKSBANKS
Low High
1. VC is typical inside entrepreneurial finance
4Olivier Witmeur, 21/01/2010
2. High risks = High returns
• Typical expected yearly return:– Seed: 60-100%– Start-up: 50-60%– Early development: 40-50%– Growth: 30-40%
RISK
RETURN
5Olivier Witmeur, 21/01/2010
3. VCs are professionals with their own business strategy
• Multiple types of VC firms: public, private, captive…
• They all have:– Investment strategy
• Industry, region, maturity stage…– Portfolio strategy (risk diversification)– Organizational structure
• Investment Manager• Investment Committee
6Olivier Witmeur, 21/01/2010
4. Equity for growth … not lifestyle
BE AMBITIOUS.
7Olivier Witmeur, 21/01/2010
5. A very selective filter
1
100
80
2
Contacts
Initial meetings
10 Start of Due Diligence
Investment Proposal (term sheet)
Investment
DON’T GIVE UP AFTER A FIRST REJECTION.
8Olivier Witmeur, 21/01/2010
6. A systematic Due Diligence process
InitialContact In-depth analysis Negotiate
Go / No go Go / No go ShareholderagreementTerm sheet
Pitch Initialmeeting
Business Plan
More info items
Closing
From 6 to 9 months
BE PREPARED.
9Olivier Witmeur, 21/01/2010
7. Define Exit route in advance
• Trade sales• IPO (Initial Public
Offering)• Buy-back / MBO
DEFINE EXIT ROUTE IN ADVANCE.
10Olivier Witmeur, 21/01/2010
8. The value of a company is mainly based on its future
• Multiple valuation methods:– Discounted Cashflow /
Net Present Value– Multiple (from peer
group)– Book value– Exit based value
BE REALISTIC.
11Olivier Witmeur, 21/01/2010
9. A partnership with written rules• Formalized in a term sheet and in a shareholder agreement
– Investment conditions and milestones– Corporate governance, incl. board composition, veto rights…– Reporting– Work agreement for the entrepreneurs, incl. good leaver/bad
leaver clauses– Buying and selling shares– SOP (Stock Option Plan)– Non competition and non disclosure– Dispute litigation
ETHICS MATTERS.
12Olivier Witmeur, 21/01/2010
10. Smart money
• Best practices• Network
– Specialists– Industrial partners
• Access to more finance• Second opinion• Helicopter view• Exit preparation
BETTER A SMALLER PART OF A MUCH BIGGER CAKE.
13Olivier Witmeur, 21/01/2010