HEC lecture about Venture Capital (introduction) topics : investment thesis, how do VC source and select deals.

1. INSIDE VENTURE CAPITAL
February 2016
Christophe Raynaud – Managing Partner & Cofounder

2. WHO AM I TO SPEAK ?
 HEC graduate (last millenium)
 Entrepreneur…
- Chateauonline
- Netboussole
- Samaris
 …Turned VC (dark side of the force)
- Saeed Amidi (Amidzad partner / plug&play tech center)
- Paris Business Angels
- ISAI
CONTACT : r a y n a u d @ i s a i . Fr / @chraynaud

3. WHAT WILL I BE TALKING ABOUT ?
 What is Venture Capital History ?
 What is an investment thesis ? What’s ISAI’s ?
 How do VC/ISAI source/screen opportunities ?
 What makes a great founder ?

5. WARNING
 NO BULLSHIT RULE
 NOT THE TRUTH, JUST MY OWN EXPERIENCE

6. INVESTMENT
THESIS

7. PEOPLE vs IDEA INVESTMENT CHOICE
 ARTHUR ROCK
« WHAT I AM INTERESTED IN IS INVESTING IN PEOPLE »
> BET ON THE JOCKEY NOT THE HORSE
EUGENE KLEINER
« MAKE SURE THE DOG EATS THE DOG FOOD »
« IN A HIGH WIND, EVEN TURKEYS CAN FLY »
> BET ON HUGE MARKET AND PROVEN TRACTION
T
E
A
M
M
A
R
K
E
T

8. DEAL FLOW vs THESIS DRIVEN
 DEAL FLOW CENTRIC INVESTMENT (PASSIVE)
- PAST BUYER’S MARKET
- 1980’s : 183 VC @ $42m
- THIN & SHALLOW
 THESIS DRIVEN INVESTING (ACTIVE)
- TODAY SELLER’S MARKET
- 2000’s : 3300 VC @ $280m
- WIDE & DEEP

9. DEMAND / SUPPLY INVERSION

10. WHAT’S AN INVESTMENT THESIS (example 1)
SOFT TECH VC
- 3 ASSES RULES

11. WHAT’S AN INVESTMENT THESIS (example 2)
 USV @AVC
- Thesis in one Tweet

12. WHAT’S THE MANDATE LPs GAVE GPs?
 WHAT IS YOUR STRATEGY TO PROVIDE RETURNS TO LPs
- SECTOR
- STAGE
- GEOGRAPHY
- PORTFOLIO SIZE / DEAL SIZE
- NUMBER OF DEALS / PARTNERS
- VALUE ADDED / BOARD SEATS
- FAILURE RATE / MULTIPLE TARGETED
- WHY IS THIS COMPELLING ? WHAT SECRET INGREDIENT ?
(Cycles ? Differientiators ?)

13. WHAT VCs DO TO SPOT A DEAL ?
> RISK / REWARD ANALYSIS

14. BUSINESS PLAN TOPIC COVERAGE 1/3
1. The Business:
- Company’s business
- Strategy
- Mission statement
2. The Market:
- Historic and projected sizes in
dollars
- Market trends
3. Product Offering:
- Product description
- Development schedule and
launch date(s)
- Product differentiation

15. 4. Distribution:
- Key customers
- Customer acquisition strategy
- Sales channels /Partnerships
5. Competition:
- Key competitors
- Competitive advantages
- Barrier to entry
6. Management Team:
- Roles and responsibilities
- Background of team members
- Board composition
BUSINESS PLAN TOPIC COVERAGE 2/3

16. 7. Financials:
- Revenue model, margin analysis
- Historic and forecasted P&L (first two years by quarters)
- Projected cash flow (first two years by quarters)
- Current balance sheet
- Projected head count by functional area (G&A, sales, marketing, product
development)
- Capitalization schedule
8. The Deal:
- Amount to be raised
- Anticipated valuation
- Use of proceeds
- Options plan
BUSINESS PLAN TOPIC COVERAGE 3/3

17. WHAT ELSE THAN BP DO VCs LOOK AT ?
 INVESTMENT STRATEGY COMPATIBILITY
- AMOUNT / STAGE / GEOGRAPHY / SECTOR
 PORTFOLIO COMPATIBILITY
 QUALITY OF THE SOURCE
 SHOPPED DEAL / AUCTION
 CO-INVESTORS (FIT/QUALITY)
 QUALITY OF LEGAL COUNSEL / INVESTMENT READINESS
 PERSONAL FIT

18. ISAI
BUSINESS CASE

19. ISAI
[isaj] n.f. (jap. name: different, remarkable)
Acronym : Internet Savvy Active Investors
VISION: RECYCLE $/EXP. OF SUCCESSFUL FOUNDERS
FOUNDERS WHO HAVE MADE IT
HELP OTHER FOUNDERS
TO MAKE IT

20. WHO ARE WE ?
 AN ENTREPRENEURS’ FUND
- 130 ENTREPRENEURS
- €150M UNDER MANAGEMENT
 INTERNET SECTOR SPECIALIZED
(MARKETPLACES/SAAS/MOBILE/ADTECH)
 EARLY STAGE FOCUSED
(SEED/POST SEED/SERIES A)
 FRANCE BASED
(OR ABROAD WITH FRENCH ANGLE)
> BORN 6 YEARS AGO

21. WHO ARE WE ?
 OUR TEAM
 OUR COFOUNDERS
 OUR PORTFOLIO

22. OUR ENTREPRENEURS’ FUND MODEL
 OUR LPs ENTREPRENEURS HELP US SOURCE DEALS
- GLOBALLY
- HIDDEN MARKET
 OUR LPs ENTREPRENEURS HELP US SCREEN DEALS
 OUR LPs ENTREPRENEURS ADD VALUE TO BOARD
MEETINGS

23. MISSION: HELP OTHERS SUCCEED

24. WHAT’S OUR (INITIAL) INVESTMENT THESIS ?
 TARGET USUAL SUSPECTS
TEAM/PRODUCT/MARKET/COMPETITIVE ADV.
 SELECT THOSE WITH ISAI CRITERIA
- CAPITAL EFFICIENCY
- PROVEN TRACTION
- PROGRESSIVE AMBITION
- VALUATION < 3/5M
- ETC…
> BUILD A WHITE PONEY IN 3/5 YEARS
EXIT > 15/30M€

25. WHERE’S THE TRICK IN OUR THESIS ?
 WE OPERATE ‘AVENUE DE LA GRANDE ARMEE’
 …NOT ON ‘SAND HILL ROAD’
- IPO (FR) = DEAD END
- SMALL M&A MARKET
- EXITS > $80M ARE VERY RARE
 WHITE PONEY CAN TURN INTO :
- CENTAURS (> $100m)
- UNICORNS (> $1Bn)
> FROM 2X (LOW FAILURE RATE) UP TO 4X (1/3 WINNERS)

26. ISAI’S « MAGNIFICENT SEVEN »
1. Oustanding TEAM
2. Proven Traction / Velocity
3. Low Capital Intensity
4. Defensible Position
5. Progressive Ambition
6. Fair Valuation
7. Value Added Board Position(s)

27. SOURCING &
SCREENING

28. TRADITIONAL DEAL FLOW SOURCING
 INBOUND
- BRAND / BLOG POST / PRESS / SOCIAL PRESENCE / WHITE PAPER
 INCUBATORS

29. TRADITIONAL DEAL FLOW SOURCING
 INBOUND
- BRAND / BLOG POST / PRESS / SOCIAL PRESENCE / WHITE PAPER
 INCUBATORS
 ACCELERATORS

30. TRADITIONAL DEAL FLOW SOURCING
 INBOUND
- BRAND / BLOG POST / PRESS / SOCIAL PRESENCE / WHITE PAPER
 INCUBATORS
 ACCELERATORS
 BOUTIQUES

31. TRADITIONAL DEAL FLOW SOURCING
 INBOUND
- BRAND / BLOG POST / PRESS / SOCIAL PRESENCE / WHITE PAPER
 INCUBATORS
 ACCELERATORS
 BOUTIQUES
 STARTUPS STUDIO

32. TRADITIONAL DEAL FLOW SOURCING
 INBOUND
- BRAND / BLOG POST / PRESS / SOCIAL PRESENCE / WHITE PAPER
 INCUBATORS
 ACCELERATORS
 BOUTIQUES
 STARTUPS STUDIO ANGEL GROUPS / SEED FUND
 LPs + ECOSYSTEM REFERALS
OTHER PRO-ACTIVE RESEARCH
- SPECIALIZED MEDIA / COMPETITIVE ANALYSIS / TECH EVENTS / STARTUP JURY

33. ISAI DEAL FLOW / CONVERSION FUNNEL

34. ISAI DEAL FLOW EVOLUTION
643
1105
1377
1529 1507 1505

35. ISAI DEAL FLOW COVERAGE
ISAI look at 4/5 opportunitiesISAI look at 2/3 opportunities
89 rounds
« Seed Stage »
145 rounds
« Post Seed » & « Series A »

36. ISAI DEAL FLOW SOURCING
Deal flow Step 0 Deal flow Step 3
BEST DEAL FLOW COMES FROM OUR 130 ENTREPRENEURS LPs NETWORK

37. Download slides on twitter/chraynaud