Must-read for anyone who is looking for VC funding now or is planning to do in the future! This no-punches-pulled crash course on VC funding was delivered by two VCs, Patrick Polak of Newion Investments Management and Marc Lambrechts (Capricorn Venture Partners) at the Benelux Venture Forum. Inside you'll find explanation of why VCs do the things they do, as well as excellent tips on the content and structure of your business plan and execution plan, forming your team and overall wooing the next VC you come across.

1. Insight - the mind of a VC
Marc Lambrechts - Capricorn Venture Partners
Patrick Polak – Newion Investments Management
BVF Leuven – 2011-05-16

2. Or…
How many cliché's can you present
in 20 minutes…

3. Your speakers today
• Dr ir Marc Lambrechts • Ir Patrick H. Polak (1965)
– research in microsystems and PhD on – TU Delft, Aerospace Engineering (1984-
biosensors at KU Leuven 1992)
– industrial R&D experience at Terumo – Founder, COO IT company (1991-1996)
Europe
– RTD programme management experience – VC Investment manager (1997-2000)
at IWT – VC: Managing Partner Newion Investments
– + 10 years experience as senior investment (2001-….)
manager in early stage venture capital – 18 Relevant Board seats since 1997
– technology fusion as special area of • Newion Investments Management
interest
– Founded in 2000
– board member Boondoggle, fluXXion,
Neosens, Leuven.Inc – Independent and partners-owned
• Capricorn Venture Partners – Benelux Focus; located in Heerenveen and
– founded in 1993 Eindhoven, The Netherlands
– independent and partners-owned – Investing from Newion Investments II and
– pan-European activity, located in Leuven, Private Plus Fund
Belgium
– hands-on, early stage & technology focus
– investing out of Capricorn Cleantech Fund
and Capricorn Health-tech Fund
2011-05-16 Insight the mind of a VC 3

4. Portfolio examples
4 Insight the mind of a VC 2011-05-16

5. Portfolio examples

6. Differences between
Private Equity and Venture Capital
Private Equity invests in private Venture Capital invests in fast
companies growing and ambitious
companies
The invested amounts will go to
the old shareholders and, in The invested amounts will be
invested in the company to
general, bank loans are involved accelerate growth.
for the acquisition finance.
The investors concentrate on
Loans will be repaid by the cash rapid market penetration and
flow of the company. increase of market share, and
The investors concentrate primarily acceleration of product
on maximizing of cash flow, and development.
strategy

7. Who is the client of a VC?
• Is it the Company where the VC wants to invest in?
• Is it the “Exit partner” where the VC wants to sell it’s shares
to? – Strategic, Financial, Stock Market?
• The client of a VC are its Shareholders: Banks, Institutional
Investors, Pension Funds, Informal Investors.
– For Investors, VC’s are just a part of their investment mix:
a asset class with a high risk – high reward.
• They invest in: Private Equity for LBO’s, stock markets,
Hedge Funds, VC’s…

8. The Venture Capital model
€
IP
knowledge €€€€
experience
+ €€€€
proof of concept
business plan €€€€
+
market €€€€
customers ..
entrepreneurs and team
(TTO)
investors
8 Insight the mind of a VC 2011-05-16

9. Tech VC’s prefer to invest in…
• Entrepreneurs and a team
• Technology as sustainable competitive advantage
– strong and clean intellectual property/capital
– proof of concepts exists and mode of action is
understood
• A business model we understand and like
• Growing and huge markets
• ‘Need to have’ proposals with ‘identified
customer pain’
• Focus combined with mutant potential
• Well funded and capital efficient companies
• Exit perspective @ 5 to 10 x multiple
9 Insight the mind of a VC 2011-05-16

10. Probability of Success
• Technical Success 60 %
• Commercial Success 50 %
• Economic Success 40 %
Overall Probability 12 %
10 Insight the mind of a VC 2011-05-16

11. ….can a VC make a living?
• Track record Fund level: extreme good Returns: Net IRR >
20%! – after all costs, failures, etc…
• That is why VC’s look for IRR’s of >40%/company!
• No track record, no next fund!
Source: Evca-Thompson study july 2009
Top Quarter Net IRR Venture Funds 10 year 5,5%
Venture Funds 10 year Net IRR -1,4%
Newion Investments Net IRR 2001-2010 22%
Newion Investments DPI 2001-2010 2,5

12. Organization of a VC
Limited Partner 1 Limited Partner 2 Limited Partner 3 Limited Partner n Fund Management
Advisory Board
Investment Committee/Board
Newion Investments
Newion Investments Management
Managing partners
Investment Directors
Investment managers
Company 1 Company 2 Company 3 Company n
Analysts

13. Lifecycle of a VC...
• In general, VC’s are “closed-end Funds”
– Meaning that they have to close their
fund after a certain time.
– 5 years investing, 5 years ‘managing’
• This influences the way you and the VC
work together!
– Early stage company in the last year
FUND I of investing for a VC??..... How long
can the VC support your growth and
New companies Support companies
needs?
FUND II
New companies Support companies
FUND III
New companies Support companies

14. Process within a VC
Introduction Research stage and Exit
Value creation stage
stage negotiations stage
Elevator Pitch, Business plan, execution Building team and company M&A
Exec summary plan, multiple Partnerships, financial advisors,
Business plan discussions, references, reporting, execution plans Analysts,
third parties third party analysts and Due
involvement, due exposure, M&A if needed Diligence
diligence Lawyers
NDA Termsheet Shareholders Financing Share Purchase
agreement rounds Agreement
Investment
Investment
manager, analyst
Manager, Investment director, analyst
and investment
Analyst
directors
Go/no go Team Go/no go Team + Board Go/no go Team + Board

15. Prepare yourself
• Think the whole process through, just like you sell your products and services:
Fund raising is a complex sales cycle
• Always make sure the information you provide is consistent during the whole
process
• Make sure you prepare all the necessary data
• Prepare your references
• Work with professional Advisors especially Lawyers and Tax advisors
• Choose the right VC partner: it is a business marriage (same type of companies in
their portfolio, industry knowledge, experiences – no first timers -, money in the
bank). In a syndicate: make sure all VC’s are aligned with the same expectations,
investment philosophy and “mid term visions”.
• Ask references from the VC’s
• Keep momentum all the time
– For a VC it is “killing” if the project is stalled for weeks because the entrepreneur has to
deliver something…
• 1 VC can ask 1000 stupid questions, more then 10 wise entrepreneurs can
answer….

16. Elevator Pitch Example
Hello Mr. Green,
My name is Georges Leclanché, CEO of CleanStore, a French company active
in utility-scale electricity storage. We solve the problem of intermittent power
generation of wind or solar farms and experience increasing market traction
from utilities and operators active in renewable energy.
Our solution consists of modular battery-based units for load balancing and
energy storage. In comparison with other systems on the market, we have
demonstrated a 10% higher efficiency at half of the investment cost (well
below € 200k/MWh) and with minimal operational cost. Our systems are
based on an innovative patented cell chemistry using cheap, safe and
abundant materials.
We plan to raise a € 5 million series B round by the end of the year and would
like to present to Empedocles Ventures our investment case. Are you
interested in receiving more information in preparation of a meeting?
16 Insight the mind of a VC 2011-05-16

17. Business plans…strategy without execution is hallucination
Business Plan Execution plan: What will you do within the next
• Team 8 quarters
• Vision • Product development and road map
• Business model • Marketing
• Products and solutions • Organization
• Intellectual Property (if any) and strategy • Roll out plan:
• Market and Market developments – Partner strategy (if any) and actions/timing
– Internationalization (if any) and
• Product developments actions/timing
• Competition • Analyst strategy
• Clients (and future clients…) • Sales and account plans
• Business cases for your clients
• Organization and structure (incl The Execution plan is updated every quarter: on
shareholders) which items have been done, not done, changed
• History etc, and how this influences the next 8 quarters.
• Financials (P&L, Balance sheets, Cash flow
forecasts)
• Sales and pipeline
• Use of proceeds Make sure that all this is done and written
before you approach a VC. And make sure it
is “ready for due diligence”.
Preparation is key for a smooth process

18. Why investments fail?
• Technology
– The technology being developed by a start-up may just plain not work.
– The technology works in the lab, but takes too long to scale up to a point where the
economics work.
– The technology works, but something better comes along.
• Market
– The dogs won't eat the dog food.
– Existing solutions may be "sticky" because of existing infrastructure.
– The hoped-for market never materializes within the investment timeframe.
• People
– Gaps in the management team skill set.
– Management teams that don't know how to use their Board.
– Investors who push for a more capital-intensive growth path.
Source : Rob Day www.greentechmedia.com/cleantech-investing/post/why-cleantech-
venture-investments-fail/
18 Insight the mind of a VC 2011-05-16

19. Choosing the business model
Leo Baekeland on the IP license business model
"I firmly intended to escape the recurrence of business occupations, as in my
Velox days. So I planned, instead of manufacturing myself, to grant licenses to
established manufacturing concerns, especially experienced in plastics.
But I soon was confronted with a repetition of my former experience with
Velox: that it was very difficult to teach new methods to men who had
acquired routine in older processes. The preparation of the new resinoid and
its molding compositions, which to me seemed very simple, appeared either
very difficult or needlessly complicated to others.
Reluctantly I had to start manufacturing the raw materials in a sufficiently
advanced stage so that the users had only to complete the operation of
molding and polymerization.“
See also ”The Baekeland story - Lessons for today’s ventures in new materials”
http://be.linkedin.com/in/marclambrechts
Insight the mind of a VC 2011-05-16
19

20. Team formation
• Get business & entrepreneurial experience in the team
• Do not force researchers in a CEO role
• Build multidisciplinary teams (not all engineers!)
• International exposure and language skills
• Humans are not scalable
• Do not expect the same salary and goodies as in a corporate environment
• Key persons that you have to pay more as the founders?
• No function in a start-up company is forever
• Keep you friends as friends
• And keep your Cap Table clean…
• Foresee “good leaver – bad leaver” conditions in shareholders agreement
and stock option plans
20 Insight the mind of a VC 2011-05-16

21. ….Some lies….
• …Told by Entrepreneurs: • …Told by VC’s:
– The market is $2.5 billion – Our money is different!
today going to $ 7.5 – There is no need for
billion in 2014! signing a NDA! No one in
– BMW, GE and Phillips the industry does!
have selected our – We can recruit a team of
products. first- class of directors
– Cisco wants to become a – I will become your board
strategic partner member and will be your
full time advisor

22. Conclusion
“Strategy without Execution is Hallucination“ (Steve Ballmer CEO Microsoft)
Do not try to build castles in the sky…VC’s are still very cautious and
“there is no such thing as a free lunch”.
Choose the right partners!
It is a business marriage…
There is no “success guaranteed” recipe!
Prepare! Prepare!! Prepare!!!
Stay focused, have fun!

23. For further reading
• http://www.bva.be
• http://www.bvca.co.uk
• http://www.evca.eu
• http://www.brownrudnick.com/nr/request.asp?ID=3 (legal terms)
• http://www.mit100k.org
• http://entrepreneurship.mit.edu/15975/index.php
• http://www.enterprise.cam.ac.uk/uploads/File/BuildingBusiness/StartingA
TechnologyCompany.pdf
• http://www.openinnovation.eu
• http://www.venturebeat.com (silicon valley blog)
• http://www.redherring.com
• http://www.tornado-insider.com
• http://www.cleantech.com
23 Insight the mind of a VC 2011-05-16

24. For more information
Capricorn Venture Partners Newion Investments Management
Dr ir Marc Lambrechts ir Patrick Polak
Marc at capricorn dot be Polak at newion-investments dot com
Lei 19/1, B-3000 Businesspark Friesland West 27b 8466 SL
Leuven, Belgium Nijehaske, The Netherlands
Tel. +32 16 28.41.00 Tel: +31513640633
www.capricorn.be www.newion-investments.com
http://creativecommons.org/licenses/by-nc-sa/3.0/
2011-05-16 Insight the mind of a VC 24

25. Capricorn’s investment strategy
Companies meeting the following criteria:
Geography core activities in the heart of Europe and co-investments
in other areas alongside strong and return-driven local VC
partners
Financial instruments equity investments resulting in a significant minority stake
Technology stage minimum requirement: a proof of concept exists and the
mode of action is understood; with a strong preference
for defendable intellectual property
Company stage € 0.5 to 5 M initial investment in the first and second VC
rounds; reserve for follow-on investments
Exit perspective activities applicable to a growing market segment with an
exit window of 3 to 7 years after initial investment
25 Insight the mind of a VC 2011-05-16

26. Newion’s investment strategy
Companies meeting the following criteria:
Geography core activities in the Benelux-investments and in other areas
alongside strong and return-driven local VC partners as long as
there is a strong Benelux ‘angle’
Financial instruments equity investments resulting in a significant minority stake
(minimum 20%)
Company stage minimum requirement: First revenues, business model shows
traction. Market validation is there. Intellectual property is there
Technology focus Business to Business Software, innovation is an existing market
Company stage € 0.5 to € 2 mln initial investment in the first and second VC
rounds; reserve for follow-on investments up to max € 4 mln
Exit perspective activities applicable to a growing market segment with an exit
window of 3 to 7 years after initial investment
26 Insight the mind of a VC 2011-05-16