Transcript class4lecture

Slide 1
Investment Models and Deal Filters
Venture and Angel Panel
The Venture Capitalist Case
70-397 Venture Finance
Fall 2002
© Andrew W. Hannah
Slide 2
Agenda
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Assignments due tonight
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Venture and Angel Panel
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Info Card C
The Venture Capitalist
Jay Katarincic, Draper Triangle
Paul Cohn, Mellon Ventures
Jane Kirkpatrick, Angel Investor
Investment frameworks and filters wind-up
The Venture Capitalist Case
70-397 Venture Finance
Fall 2002
© Andrew W. Hannah
Slide 3
Last Week’s Key Concepts
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Fundraising
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Harvesting
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Most capital comes from pension funds
Fundraising is a highly institutionalized process
Harvests generate liquid cash
Bad exits (living dead, etc) must be avoided
Most exits are sales or write offs
Investing
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70-397 Venture Finance
VIs need a plan as much as any entrepreneur
Expressed by an investment model and deal filter
Fall 2002
© Andrew W. Hannah and William C. Hulley
Slide 4
The Portfolio
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What matters…
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Expected return profile
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Distribution of outcomes
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How do deals usually do?
Are strike outs common?
Are home runs?
Can you limit losses?
Do home runs matter?
Time spans – how long to exit
Invested
Lose All
1X
4X
10X
10
2
5
2
1
Lose All
1X
4X
10X
$50
-$100
$250
$400
$500
$50
$50
$50
-$250
-$50
-$100
$100
$250
$100
$400
$400 $1,000
$500 $1,000
$500
$1,050
$550
2.10
$750 $1,600 $1,500
$250 $1,100 $1,000
1.50
3.20
3.00
Total Return
Net Return
Cash-on-Cash
10
5
2
2
1
10
1
5
2
2
10
2
2
5
1
Shows the importance of loss
management
70-397 Venture Finance
Fall 2002
© William C. Hulley
Slide 5
The Venture Capitalist
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“The venture capitalist plays a role in the management
of the companies receiving investment” – Is this true?
Who really has control?
What is most important to/from a venture capitalist?
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What attributes make an effective venture capitalist?
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Role
Power
Impact
How dependent on the individual is this? What does this
mean?
Could this model work with a public company as we
struggle as a financial community with governance?
70-397 Venture Finance
Fall 2002
© Andrew W. Hannah
Slide 6
Next Week
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Gurus in the Garage Case
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Come prepared to discuss
Deal Evaluation
Question Card B - Entrepreneur
WA pp 143 - 177
70-397 Venture Finance
Fall 2002