VC Targets High Growth Mobile Companies
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The document is a presentation by Artturi Tarjanne about venture capital and what venture capitalists consider when evaluating potential investments. It discusses the typical backgrounds of VCs and what they expect from investment targets. Key criteria include the management team, market potential, exit strategy, business model, technology, and financials. The presentation emphasizes the importance of having a management team with relevant experience and the potential for high growth and return through acquisition by a large company.
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VC Targets High Growth Mobile Companies
- 1. 0 SPINNO 5.3.2010 Taustaa: AT ja Nexit Mitä pääomasijoittaja odottaa sijoituskohteeltaan? Artturi Tarjanne 22.11.2007 Helsinki Stockholm Silicon Valley www.nexitventures.com
- 2. Artturi Tarjanne 1 From a SW Entrepreneur to a Venture Capitalist 1. SW Entrepreneur: - Independent consultant, Movision Ltd, 1983-86 - VP Sales, Venture Investment & Automation, 1986-91 - Co-Founder, CEO, Solid Information Technology, 1992-97 2. Business Angel: Founder, Managing Director, ATC Oy, 1997-99 3. Venture Capitalist: Co-Founder, General Partner, Nexit Ventures 2000- Associations and public activities FVCA, Ohjelmistoyrittäjät, Hetky, Tietotekniikan liitto Ohjelmistoviennin neuvottelukunta, Tekes SPIN, Tekes VERSO, SW OSKE, JPT OSKE, DIGI OSKE artturi.tarjanne@nexitventures.com Helsinki Stockholm Silicon Valley www.nexitventures.com
- 3. Nexit Strategy Bridging Mobile Opportunities 2 The Nexit Bridge – connecting the mobile hot spots Bridging Nordic mobile companies to Silicon Valley markets and exit opportunities Providing US based mobile companies with a Nordic market insight, customer access, and technology resources Access to lead mobile operators and handset manufacturers in Asia Helsinki Stockholm Silicon Valley www.nexitventures.com
- 4. Strategy Execution Nexit Management Resources 3 Michel Wendell General Partner (US) - 25 years of international high-tech business, Silicon Valley resident since 1995 Artturi Tarjanne General Partner (FIN) - 25 years of entrepreneurial experience in Infocom Pekka Salonoja General Partner (FIN) - 21 years in communications industry, VP and GM of Server Products at Nokia Michael Mandahl Venture Partner (SWE) - over 20 years of high-tech, 12 in entrepreneurial roles Patrice Peyret Venture Partner (US) - Highly successful serial high-tech entrepreneur with 25 years operating experience David Aslin Venture Partner (US) - General Manager at HP, 3i GP in Silicon Valley Risto Yli-Tainio CFO (FIN) - 17 years of experience in financial management in Infocom and VC industries Sami Karppinen Investment Director (FIN) - 11 years of Infocom industry and investment research Helsinki Stockholm Silicon Valley www.nexitventures.com
- 5. Value of Innovation VC View 4 “Venture Capitalists are professionals seeking for high growth companies” Helsinki Stockholm Silicon Valley www.nexitventures.com
- 6. The VC target – Returning 10x or more 5 VC is a ’hits’ based business – the real success comes through very few but really great homeruns These homeruns can be achieved by – targeting aggressively to the world top – by investing only to the best companies – but plenty enough and early enough "The problem of European VC is the scale - too many companies invested in, with a little amount of money.“ Source: Summary of EVCA VC Conference, 2005 Helsinki Stockholm Silicon Valley www.nexitventures.com
- 7. Value of Innovation Making Business out of Innovation 6 EXIT IPO / TRADESALE 2. Entrepreneur 3. VC and other supporters 1. R&D Innovations Helsinki Stockholm Silicon Valley www.nexitventures.com
- 8. What Venture Capitalists Consider 7 1. Management 2. Market potential 3. Exit potential 4. Business model 5. Technology 6. Finance Helsinki Stockholm Silicon Valley www.nexitventures.com
- 9. 1. The Management Team 8 Most important single issue for VCs Entrepreneur vs. Inventor – Deep knowledge and network within the target market – Identification of an opportunity – Creation of an organization to pursue the opportunity – Unconstrained by lack of resources – Determination to succeed in the face of high risk – Ability to change course in the face of setbacks Teams win, Superstars loose – Diversity of the team – Who has worked together before? – What is the motivation of the team? Helsinki Stockholm Silicon Valley www.nexitventures.com
- 10. 2. Market potential 9 The size of the potential market Growth and/or internal dynamics of the market? The level of competition? Can it win in the marketplace? Access to the market? Is there a distribution channel in place? Timing is essential but difficult! Helsinki Stockholm Silicon Valley www.nexitventures.com
- 11. 3. Exit Potential and Path 10 IPO – not very common path – AIM, NASDAQ, OMX and others M&A – the most typical exit path – Is your business a lucrative M&A target for the leading international names in the business? – Why? Who are the potential buyers? – Have any of the potential buyers a clear track record of buying such entities? How much do they pay? What are the drivers for the price? – How to make yourself more interesting and visible for the right crowd? Helsinki Stockholm Silicon Valley www.nexitventures.com
- 12. Entry in EU – High Value Exit in US 11 USD $M The Nexit bridge 50 47 $M 45 Median entry valuations exit substantially lower in the EU 40 in all VC investment stages 35 30 Median M&A exit valuations substantially higher in the US 25 23 $M 20 Arbitrage: entering with low 15 $M 15 European valuations and exiting entry with high US valuations 10 5 $M 5 0 Median VC pre Median M&A money valuation Europe US valuation Source: DowJones VentureSource Reports, year 2005 Helsinki Stockholm Silicon Valley www.nexitventures.com
- 13. US Dominates the Tech Market 12 North America dominates the market cap of public technology companies (63%) – On IPO’s European VC funds yield returns similar to the US – In trade sales the European VC performance is significantly below US Strong US presence is important for creating high value M&A opportunities for European VC investments Market capitalization of public technology companies Europe $361B 9% Asia $421B 11 % North America $2,455B Japan $665B %63 %17 Source: Morgan Stanly GIT, 2006; VC Performance in Europe and US, Hege et al, 2006 Helsinki Stockholm Silicon Valley www.nexitventures.com
- 14. 4. Business model 13 Scalability – Can it be sold/ licensed in high numbers with reasonable sales and production costs? – Is it a global solution? Differentiation and protection – Compelling reason to buy? – Unique selling point? – Barrier of entry? – Unfair advantage? – First movers advantage? – Customer lock-in?... Helsinki Stockholm Silicon Valley www.nexitventures.com
- 15. 5. Technology View 14 Technology Team – Is there any real deep knowledge and expertise? – References, strengths, weaknesses IPR quality, protection – The quality of intellectual property rights – Protection of IPR’s: patents etc Optimal product – Minimum set of product requirements Technology risk – Alfa, beta or a market proven solution – Any serious unsolved problems? Helsinki Stockholm Silicon Valley www.nexitventures.com
- 16. 6. The Finance View 15 Use of funds – Developing new technology or scaling existing business? – Control: funding split in multiple stages with milestones Financing terms – Liquidation preferences etc. Financial risk – Future funding: when, how much, from who, any special risks? – Balance between total funding need and the market potential? – Is it possible to control the need of future funding by fine tuning the business model or growth rate? Helsinki Stockholm Silicon Valley www.nexitventures.com
- 17. Value Creation in High Tech Strategic Value vs. Financial Value 16 Strategic Value Curve value Value peak (“Big company needs it, little company has it”) Strategic value Big company starts internal development Competitors emerge Financial value Initial customers Meaningful revenue Initial development complete t=0 time Credit: Intelligent Capital Helsinki Stockholm Silicon Valley www.nexitventures.com
- 18. Exit – muutama huomio 17 Hyvän exitin salaisuus: yhtiöt ostetaan – niitä ei myydä! Yli puolet Eurooppalaisten VC-rahotteisten teknoyhtiöiden onnistuneista irtautumisista tehdään USA:han Lähes 2/3 maailman teknoyhtiöden markkina-arvosta on USA:ssa! Exit-markkina on hyvin syklinen – korreloi melko hyvin 6 kk:n viiveellä NASDAQ:in kanssa Ajoitus on muutenkin kaikki kaikessa, esim: – Konsolidaatioaallot – Suurten markkinavoimien teknologiaratkaisujen ajoitus – Markkina-alueen aukeaminen ja johtopaikan valtaaminen Helsinki Stockholm Silicon Valley www.nexitventures.com
- 19. Yhtiön arvosta ja arvon maksimoinnista 18 Tunne alueella toimivat markkinavoimat, niiden ostokäyttäytyminen – Ostajien todelliset road mapit, niihin liittyvät puutteet ja haasteet – Päätöksentekoprosessit ja päättäjät, pyri henkilökohtaiseen kontaktiin Tutki kaikki toteutuneet transaktiot toimintaympäristössäsi – Selvitä kaupan taustoja mahdollisimman syvällisesti – Yritä analysoida, mistä ostaja maksoi (liikevaihto, teknologia, asiakkuudet, häiritsevä kilpailija, time to market, toimialaosaaminen…) Kehitä edellisten pohjalta liiketoiminta, joka on mielekäs ostettava (Esim: Hybrid ja Nokia -> nVidia, Smartner ja EU+Symbian -> Seven) Mutta luo hyvä business, jolla on vaihtoehtoisia polkuja – Älä luo yhtiötä, jonka ainoa polku on tulla ostetuksi! Exit on pitkä prosessi ja neuvottelut eivät aina johda tulokseen – Kehitä liiketoimintaasi myös neuvottelujen aikana! Hyödynnä neuvonantajia ja ammattilaisia: pankkiirit, juristit etc. Helsinki Stockholm Silicon Valley www.nexitventures.com
- 20. End of Presentation 19 Bridging Wireless Opportunities Helsinki Stockholm Silicon Valley www.nexitventures.com
- 21. Additional Info on VC (1/2) 20 FVCA - Suomen pääomasijoitusyhdistys ry www.fvca.fi FVCA definition for VC: http://www.fvca.fi/paaomasijoittaminen/mita NVCA - National Venture Capital Association (USA) www.nvca.com NVCA Definition for VC: http://www.nvca.org/def.html EVCA- European Venture Capital Association www.evca.com EVCA Glossary for VC/PE jargon http://www.evca.com/html/PE_industry/glossary.asp Helsinki Stockholm Silicon Valley www.nexitventures.com
- 22. Additional Info on VC (2/2) 21 Pratt's Guide to Venture Capital, by Daniel Bokser & Ted Weissberg, ed. VCexperts Encyclopedia of VC and PE terminology http://vcexperts.com/vce/library/encyclopedia/ Practical notes from real life: Guy Kawasaki The Top Ten Lies of Venture Capitalists http://blog.guykawasaki.com/2006/01/the_top_ten_lie.html The Top Ten Lies of Entrepreneurs http://blog.guykawasaki.com/2006/01/the_top_ten_lie_1.html The Innovator's Dilemma: The Revolutionary Book that Will Change the Way You Do Business by Clayton M. Christensen Helsinki Stockholm Silicon Valley www.nexitventures.com