Module 1: Introduction to Venture Capital Flashcards
Year of Birth of Modern Venture Capital
1946
1946 was a pivotal moment for modern venture capital with the establishment of the _________
American Research and Development Corporation (ARDC)
American Research and Development Corporation was founded by MIT president
Karl Compton
It was in the 1960s and 70s that the VC industry truly found its footing, with VC firms foucing on starting and expanding companies instead of investing in exisitin ones.
Notable Public Policy for VC and formation of NVCA
With the growth and maturation of VC in the 1970s, it became clear that the industry would need a lobbying voice… Venture forward’s supporting organization _________
National Venture Capital Association
The rise in personal computer usage and internet becoming more mainstream led to a boom cycle in the 1990s.
Dot-com Boom and Bust
Although a lot of money was lost, VCs were still excited about the tech sector as innovation was booming. There was also a shift in the way VCs invested, as they now focused their portfolios and funds on stages and industries.
The Era of Apps and Accelerators
what year brought new types of VC investors to the mix, diversifying the sources of capital available to startups. (creation of micro VC firms, almost as a sub-asset class of VC)
2010s - present
is equity support to fund new concepts that involve a higher risk and at the same time, have a high growth and profit.
Venture capital
Stages in Venture Capital Funding
(1) Seed - seek funding
(2) Startup Stage, Series A - Sample products are available
(3) Early Stage, Series B&C - Products have been developed and sold
(4) Expansion Stage, Series D&Beyond - Company is well established
(5) Bridge Stage, Exit - Impressive sales, eliminate competitors
Roles Within a Venture Capital
(1) Principals
(2) Associates
(3) Analysts
(4) Intern
(5) Venture partners
(6) General partners
(7) Managing partners
Play a critical role in evaluating potential investments. Their role requires a deep understanding of markets, industries, and technologies.
Principals
Their role is a mix of human judgment and analytics. Often serving as the initial filter through which potential investment must pass.
Associates
They form the backbone of the venture capital firm’s operation. Their work is instrumental in shaping the firm’s understanding of market dynamics and investment opportunities.
They play a vital role in analyzing potential investments, conducting market research, and preparing investment memos.
Analysts
Are usually budding professionals looking to learn the ropes of venture capital. They assist with various tasks, including conducting research, preparing presentations, and supporting other team members.
Intern
aid the firm in souring and assessing new investment oppoprtunities. They typically have domain expertise that they could bring to the firm. They play a significant role in connecting the firm to a broader network of startups and investors.
Venture partners
typically involved in high level decision making. They are resposible for making significant investment decisions and developing relationships with entrepreneurs and investors.
General partners
They lead the strategic vision and overall operations of the company. They play a pivotal role in shaping the investment portfolio and fundraising for the firm.
Managing partners
Main Features of Venture Capital
(1) Long-Time Horizon
(2) Lack of Liquidity
(3) High tech
(4) High risk
(5) Equity participation and capital gains
(6) Participation in Management
Advantages of Venture Capital
(1) Provides early companies with capital to bootstrap operations
(2) Companies don’t need cash flows or assets to secure venture capital funding
(3) VC-back mentoring and networking services help new companies secure talent and growth
Disadvantages of Venture Capital
(1) Demand a large share of Company Equity
(2) Companies may find themeselves loosing creative control as investors demand immediate returns
(3) VCs may pressure companies to exit investments rather than pursue long term growth.
Method of Venture Capital
(1) Financing
(2) Equity Financing
(3) Conditional loans
(4) Income Note
(5) Debentures
To raise funds to survive and grow a profitable venture
Financing
To finance the start-up’s huge capital requirement, companies may offer a percentage of business or the company to the investors, in exchange for capital. The investors who buy the share of any company have a voting right.
Equity Financing
Unlike bank loans, _________ have neither pre-determined repayment schedule nor any fixed interest rate on the borrowed capital.
Conditional loans
In the case of conditional loans, an entrepreneur needs to pay the lender in the form of _______
Royalty
The royalty rate varies between ___ and ____ on the basis of revenue, profit percentage, cash flow of the venture.
2% and 15%
This is the combination of both the traditional loans from banks and conditional loans.
Income note
The start-up companies raise funds by issuing _______ with a guarantee to repay the amount of the invested money when the security is matured. Then the company pays out the interest on the money invested at the fixed maturity date.
debenture
Interest on debentures is payable at three various rates in accordance with the phase of operation or business
(1) Before the commencement of operation
(2) Commencement of operation
(3) After reaching a particular level of sales or profit
Two types of debentures
(1) Convertible debentures
(2) Non-convertible debentures
debentures that can convert the debt to the equity shares
Convertible debentures
Process of Venture Capital
(1) Sourcing - identify potential investment opportunities
(2) Due diligence - evaluate the company’s financials, business model, products, and history.
(3) Investment - venture capitalists will proceed to make an investment after passing the due diligence stage.
(4) Exit - selling the equity back to the company or other investors.
Founded in 1834, is one of the oldest and largest conglomerates in the Philippines with core interests in real estate, banking, telecommunications, and power.
Ayala Corporation
is Ayala’s platform for peeking into new technologies and business models that are relevant to the group.
AC Ventures
Four elements of Ayala
(1) Strategic Business Development
(2) Capital Allocation
(3) Portfolio Management
(4) Balance Sheet Management
is the largest venture capital fund to come out of the Philippines. The fund is backed by Ayala Corporation, the first business house in the Philippines.
Ayala Corporation Technology Innovation Venture Fund (ACTIVE)
