I’m giving a talk on venture capital to a class of MBA students at the Cass Business School on Friday. I suspect some of them will be there to learn about venture capital as a career option and some of them will be there because they are (or plan to be) entrepreneurs. That is a pretty good match with how I think about the readers of TheEquityKicker, so I thought I you might have some good ideas about what I should cover.
I’m currently planning to structure my talk as follows:
- Introduction – 5 minutes
- Limited partners and the venture capital value chain – 5 minutes
- Making investments – 20 minutes
- Approaches to finding new deals
- Deciding to make an investment
- Investment execution
- Exiting investments (aka portfolio management) – 10 minutes
- Helping companies to succeed
- Making the fund a success
- How a VC fund manages itself – 5 minutes
Please respond in the comments with any ideas. E.g. things you would have loved to know before you started, things you would love to know now, common misconceptions I should dispel, things that irritate you about venture capital, things that you love, in fact anything!
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Does the common practice of requiring warm introductions promote inbreeding and reduce meritocracy?
How a VC approaches sizing the market opportunity would be a key takeaway. Short speech. Ask for more time
The potted history of a real life example from sourcing/negotiation through to exit
The biggest insights for me came from hearing Josh Koppelman speak (and write) about VC math. It's critical for entrepreneurs to understand exactly what expectations come with raising $1 million in a Series A from a giant (>$500M) VC fund. It doesn't sound like much money, but once you multiply out ROI the firm's LPs demand over time + interest and factor in the 20% stake the VC firm has in your startup, you start to see that they need you to exit at $70-$100 million to get the return they need. I think there are many entrepreneurs that can appreciate a $20 million exit (a life-changing amount of money for many) and will be very frustrated when their VC blocks a sale because the exit is too small. Of course, great VCs will say they support the entrepreneur because they are investing in the person in the long-term, but not all VCs are so entrepreneur-friendly, especially these days when many VCs realize how overcapitalized they are and how little capital IT startups need thanks to cloud computing and APIs.
As a future entrepreneur it would be useful to know the following :
1) How to prepare your business to attract VC funding
2) How to present to a VC about your business and what information do the VC's are interested.
3) What sort of stage should a company be to attract VC funding ? I think many people have the impression that you can start a business with a VC but I think it is unlikely. A company will need to build some value in the business before they can get VC funding.
Thanks Dimitri. Very useful – and you are right, VC is rarely to start companies. It is rather to accelerate success at businesses that have already gotten off to a good start.
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Thanks David. You are spot on that exit expectations should be agreed up front and that what a VC needs doesn't make sense for a lot of companie/entrepreneurs
Thanks David. You are spot on that exit expectations should be agreed up front and that what a VC needs doesn't make sense for a lot of companie/entrepreneurs