Lecture 10 - Venture Capitalist Flashcards
What is a venture capital?
A type of private equity, a form of financing that is provided by firms or funds to small early-stage, emerging firms that are deemed to have high growth potential, or which have demonstrated high growth
Where do VCs get their funding from?
General partner: Manage the committed funds, often contribute to 1-2% of committed funds
Limited Partners:
Super funds, endowments, foundations, high net worth families/ individuals, contribute money
What do VCs do?
Exit its portfolio within life cycle of the fund
Ensure that it can provide a return to its Limited Partners, at a pre-agreed return rate of X% per year (often compounding interest)
Achieve a return beyond a pre-agreed hurdle, to be able to participate in profit share
What do VCs look for in a deal?
- Fantastic Science
- Unique point of difference
- Strong IP
- Team
- A clear path to exit
How does Fantastic Science attract VCs?
New drug targets or approaches are key in treating diseases with compelling supporting biology
New compositions or the potential for new compositions
How does having a unique point of difference attract VCs?
How different is this technology/ opportunity different to all competitors and what makes it unique
Why will it be the best option when compared to competitors in the target patient group
What solutions are others developing and how would your idea win over the rest?
How does having strong IP attract VCs?
What claims are likely to be achieved and will it protect the competitive advantage?
What are the potential workarounds and will it have value to an acquirer
How does having a strong team attract VCs?
A strong team have requisite skills and experience and would be able to achieve the milestones in the development plan.
Everyone would be able to work together
What is a Standard VC term sheet?
An offer to invest in a company providing a concise summary of the terms of an investment. It is intended as an outline only and provides a negotiating document to see if a deal can be done. They provide the ‘road map’ for legal documentation and are generally non-binding.
What does a standard VC term sheet include?
Amount of investment, tranching (split up by risk)
Valuation (pre-money: how much is the idea worth)
Form of investment - preferred shares (Preference rights to seek to protect the money invested)
Liquidation Preference, Qualifying exit
Governance: Control, Board composition, Preference shareholder approvals
IP License Agreement/ Research Agreement
How do you approach a Venture Capitalist?
Identify the VC Fund you want to target
Do not cold call, find a way to get an introduction
Prepare your pitch
