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An Introduction to Venture Capital
About The VC
  J. Skyler Fernandes
  - VC @ Centripetal Capital Partners,
    invests $1-3M across industry sectors
  - VC Mentor @ ER Accelerator
  - Entrepreneur, co-founded a number of
    internet startups
  - Leads Missing Middle Initiative,
    launched at World Economic Forum
         Connect With
  J. Skyler Fernandes:


                                      2
Why We’re Here
     I’m not here for you to pitch me your
     investment (unless you’re the next Google!)

     I’m here to:
     - Answer questions on Venture Capital
     - Help you be a more successful entrepreneur

     The VC world looks complicated and closed.
     Can seem scary and feel you’re in the dark.

     Purpose of event: To be very open with
     questions and answers with entrepreneurs


     Tonight, let me be your VC sherpa!

                                              3
When To Seek Funding?
It Depends…

Ideal Time For VC Could
Be After Initial Testing &
Proof Of Concept

Or Even After You’ve Been
Around For A Few Years!




                                 4
Do You Need VC Funding?
$14,000,000.00

$12,000,000.00

$10,000,000.00

 $8,000,000.00

 $6,000,000.00

 $4,000,000.00

 $2,000,000.00

          $-
                  Year 1       Year 2   Year 3      Year 4      Year 5
$(2,000,000.00)
                           Revenue       Expenses            EBITDA
                                                                         5
Size Matters: Your Funding Options
                                                 Private Equity
Current Company Valuation:
       Angels: $1-5M                             ($50M-100M+)
        VC: $5-100M                  Venture Capital
         PE:100M+
                                       ($3M-50M)
                             Missing Middle
                                ($1M-3M)

                     Angel Capital
                      (up to $1M)
         Friends & Family                  Know the type of capital you need
                                                to execute your plan:
             (up to $1M)
                                                   Sources & Uses
         Debt                                 Negative EBITDA vs. Cumulative
 Bootstrap                                           Negative EBITDA

                                           Value of the $: Ownership (5-50%+)
                                              + Relationships + Experience 6
The Two Most Important Words

            IRR
        Angels: >50%+
         VC: 30-50%
         PE: 10-30%

   Return Multiple
        Angels: 20x+
         VCs: 5-20x
          PE: 2-5x
                               7
Value of the $ / Brand
  Raise more than you need
 …Takes Longer / Costs More

             Angels
         Advisors: 0.10%-1%
     Capital = 5-20%+ Ownership
              Intro to VCs
    Intro to Customers / Partners
       Operational Experience
           Test the demand




                                    8
Value of the $ / Brand
    Raise more than you need
   …Takes Longer / Costs More

                   VCs:
                    Board Seat
                Capital = 10-50%+
         Ability to do follow on rounds
              Intro to larger capital
         Intro to Customers / Partners
            Operational Experience
           Early Stage growth capital
  Scare Away Competition / Protect Company
                                             9
How To Find The Right VC For You
                               Do Your Research & Find
                                    A Fund That…
                               - Invests in your sector
                               - Invests at your stage
                               - Not invested in a competitor
                               - Invests your needed $ size
                               - Is located in your area




 First Choice Is To Find A VC You Have Connections To!
                                                          10
Working With A VC
 It’s Like A Marriage…
                Keys To A Successful VC
                     Relationship:
                - Compatibility
                - Honesty
                - Communication
                - Effort
                - Understanding
                - Faithfulness
                - Ability To Change

                                      11
The Goal!
  …But unlike a successful marriage a
successful VC relationship is temporary.


                   Goal is to part ways
                      in 3-5 years

                      Assets are split

                                           12
What Do VCs Really Invest In?




             Or


                                13
Pitching To A VC
     Key Elements For Success:
     • Be Introduced, Don’t E-mail/Call
     • You Are The Brand: so own that and be the
       “best you” you can be for your company
     • NDA: Not needed until 2nd/3rd meeting
     • Business Plan vs. Pitch Deck
     • A Way To Get Rich: Emphasize how to make
       a lot of money and quickly
     • Don’t Do Their Job: Don’t come to the table
       with your own term sheet
     • Know The Financial Return Potential
     • Capital Raise Strategy: Round 1, 2, 3



                                             14
Common Missing Items
        Key Elements For Success:
        •   General Market Size vs. Target Market Size
        •   Large & Growing or Strong Niche / High $
        •   Market Gap: Why does gap exist?
        •   We Have No Competition
             – Direct / Indirect Competition?
        • Reaction of entry into marketplace?
        • Proprietary = Patents & Relationships
        • These Are Conservative Projections
             – Show low case/ base case / high case




                                                      15
Dedication
  Key Elements For Success:
  • Personal Investment: Skin in the Game
      – Size doesn’t matter, but how meaningful to you
  • Full-Time Commitment: Don’t half ass
      – No side projects!
  • Don’t just be looking to create a job
    because you lost yours
      – Even after funded could be no salary
  • Not looking to stay forever
      – Desire to sell in 5 yr




                                                   16
Be Smart
 Key Elements For Success:
 • Be Respectful / Don’t Be Fearful
     – VCs see lots of business pitches
 • Don’t Be Overly Emotional / Be Passionate
     –   Don’t take anything too personal
 • Don’t sell the house / all assets
     – Take care of family first
 • Spend time really vetting your idea
 • Gather the right team / Cut people quick




                                            17
Advice:
80/20 Rule – Don’t get bogged down in development

Focus On Customer Not Technology

Test Market Well To Find
 Your Achilles Heel



                  Be Prepared to Pivot
                  Pivoting     Failure
                                               18
Questions?

             19

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Inside The Mind Of The Venture Capitalist: An Introduction to Venture Capital

  • 1. An Introduction to Venture Capital
  • 2. About The VC J. Skyler Fernandes - VC @ Centripetal Capital Partners, invests $1-3M across industry sectors - VC Mentor @ ER Accelerator - Entrepreneur, co-founded a number of internet startups - Leads Missing Middle Initiative, launched at World Economic Forum Connect With J. Skyler Fernandes: 2
  • 3. Why We’re Here I’m not here for you to pitch me your investment (unless you’re the next Google!) I’m here to: - Answer questions on Venture Capital - Help you be a more successful entrepreneur The VC world looks complicated and closed. Can seem scary and feel you’re in the dark. Purpose of event: To be very open with questions and answers with entrepreneurs Tonight, let me be your VC sherpa! 3
  • 4. When To Seek Funding? It Depends… Ideal Time For VC Could Be After Initial Testing & Proof Of Concept Or Even After You’ve Been Around For A Few Years! 4
  • 5. Do You Need VC Funding? $14,000,000.00 $12,000,000.00 $10,000,000.00 $8,000,000.00 $6,000,000.00 $4,000,000.00 $2,000,000.00 $- Year 1 Year 2 Year 3 Year 4 Year 5 $(2,000,000.00) Revenue Expenses EBITDA 5
  • 6. Size Matters: Your Funding Options Private Equity Current Company Valuation: Angels: $1-5M ($50M-100M+) VC: $5-100M Venture Capital PE:100M+ ($3M-50M) Missing Middle ($1M-3M) Angel Capital (up to $1M) Friends & Family Know the type of capital you need to execute your plan: (up to $1M) Sources & Uses Debt Negative EBITDA vs. Cumulative Bootstrap Negative EBITDA Value of the $: Ownership (5-50%+) + Relationships + Experience 6
  • 7. The Two Most Important Words IRR Angels: >50%+ VC: 30-50% PE: 10-30% Return Multiple Angels: 20x+ VCs: 5-20x PE: 2-5x 7
  • 8. Value of the $ / Brand Raise more than you need …Takes Longer / Costs More Angels Advisors: 0.10%-1% Capital = 5-20%+ Ownership Intro to VCs Intro to Customers / Partners Operational Experience Test the demand 8
  • 9. Value of the $ / Brand Raise more than you need …Takes Longer / Costs More VCs: Board Seat Capital = 10-50%+ Ability to do follow on rounds Intro to larger capital Intro to Customers / Partners Operational Experience Early Stage growth capital Scare Away Competition / Protect Company 9
  • 10. How To Find The Right VC For You Do Your Research & Find A Fund That… - Invests in your sector - Invests at your stage - Not invested in a competitor - Invests your needed $ size - Is located in your area First Choice Is To Find A VC You Have Connections To! 10
  • 11. Working With A VC It’s Like A Marriage… Keys To A Successful VC Relationship: - Compatibility - Honesty - Communication - Effort - Understanding - Faithfulness - Ability To Change 11
  • 12. The Goal! …But unlike a successful marriage a successful VC relationship is temporary. Goal is to part ways in 3-5 years Assets are split 12
  • 13. What Do VCs Really Invest In? Or 13
  • 14. Pitching To A VC Key Elements For Success: • Be Introduced, Don’t E-mail/Call • You Are The Brand: so own that and be the “best you” you can be for your company • NDA: Not needed until 2nd/3rd meeting • Business Plan vs. Pitch Deck • A Way To Get Rich: Emphasize how to make a lot of money and quickly • Don’t Do Their Job: Don’t come to the table with your own term sheet • Know The Financial Return Potential • Capital Raise Strategy: Round 1, 2, 3 14
  • 15. Common Missing Items Key Elements For Success: • General Market Size vs. Target Market Size • Large & Growing or Strong Niche / High $ • Market Gap: Why does gap exist? • We Have No Competition – Direct / Indirect Competition? • Reaction of entry into marketplace? • Proprietary = Patents & Relationships • These Are Conservative Projections – Show low case/ base case / high case 15
  • 16. Dedication Key Elements For Success: • Personal Investment: Skin in the Game – Size doesn’t matter, but how meaningful to you • Full-Time Commitment: Don’t half ass – No side projects! • Don’t just be looking to create a job because you lost yours – Even after funded could be no salary • Not looking to stay forever – Desire to sell in 5 yr 16
  • 17. Be Smart Key Elements For Success: • Be Respectful / Don’t Be Fearful – VCs see lots of business pitches • Don’t Be Overly Emotional / Be Passionate – Don’t take anything too personal • Don’t sell the house / all assets – Take care of family first • Spend time really vetting your idea • Gather the right team / Cut people quick 17
  • 18. Advice: 80/20 Rule – Don’t get bogged down in development Focus On Customer Not Technology Test Market Well To Find Your Achilles Heel Be Prepared to Pivot Pivoting Failure 18