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October 2015
Venture Capital 5X
High-risk high return investing
Douglas Abrams
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Douglas Abrams
About the facilitator
• Wharton MBA
• JP Morgan – Vice PresidentIB Technology, GM Internet Marketing
• Parallax Capital Mgmt – Co-founder and MD Private Equity
• Extream Ventures – Co-founder and MDS$20 million seed fund
• Expara – Founder and MDIDM Ventures Incubator, advisory, training
• NUS – Adjunct Associate Professor, Business School, Entrepreneurship, Sasin – Visiting Professor, Venture Capital
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Expara timeline 2000-2015
3Overview of Expara
2000 20152000 2002 2004 2006 2008 2010 2012 2014
NUS
Expara
EIDMV I
Extream EIDMV II EV III
ParallaxBANSEA
KIMBA
Sasin
Expara Thailand
Expara Malaysia
Expara Vietnam
Expara Japan
I4-x
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VC mindset
• Risk and return are highly correlated
• You cannot increase return without taking more risk
Return
Risk
Potential outcomes
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Why invest in venture capital?
As of 31-Dec 2014 The Cambridge Associates LLC U.S. Venture Capital Index® is an end-to-end calculation based on data compiled from 1,569 U.S. venture capital funds (1,002 early stage, 175 late & expansion stage, 386 multi-stage and 6 venture debt funds), including fully liquidated partnerships, formed between 1981 and 2014.1Pooled end-to-end return, net of fees, expenses, and carried interest. Sources: Cambridge Associates LLC, Barclays, Dow Jones Indexes, Frank Russell Company, Standard & Poor's, Thomson Reuters Datastream, and Wilshire Associates, Inc. *Capital change only
Case Shiller Real Estate Index 4.1
Expara IDM Ventures (2) 43.03
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EIDMV I Extream Ventures EIDMV II Expara
Ventures III
2008 to 2013 2012 to present 20152007 to 2011
• Singapore;• Fund size: S$1M;• Investment size: S$55K;• Focus: IDM.
• Singapore;• Fund size: S$20M;• Investment size: S$1-3M • Focus: IDM, software,
IT.
• Singapore;• Fund size: S$4.55M;• Investment
size:S$255K • Focus: IDM.
Series A Seed Seed - Series A
• South East Asia• Fund size: S$30M;• Investment size:S$0.1-3MM• Focus: ICT, innovation.
Expara’s venture capital funds
Pre-seed
6Venture capital
• 17 investments• 4 > S$33MM in follow-on • Exit Oct-2013 at 36x ROI • Exit May 2014 at 250x ROI• Exit Oct 2014 at 26x ROI• Overall 5.39x on TIC
• 3 investments• 1 exit• Jun-2015 at 2.4x ROI
• 17 investments• 1 exit• Listing on NSX
• 7 investments to date
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Most fund returns are normally distributed
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VC returns follow a power law
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How does a VC fund work?
Fund Investors VC
8
$ 10 mm
2
$ 10 mm
$ 58 mm
25%
75%
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Case study VC returns - CoAssets
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Expara CoAssets investment
• 2014 – we invest S$105K
• Current market cap = A$54MM
• Our current holdings valued = A$6.9MM – 6600% increase since 2014
• Total fund ROI upon successful liquidation of our position would be = ~420% since 2012
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Why can some VC funds outperform?
• Most funds cannot outperform due to information symmetry
• VC invests in small, private companies
• Huge information assymitries
• Performance wholly dependent on: proprietary, high quality deal flow
• And effective pricing and structuring
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Impact of VC on a diversified portfolio
Private Equity and Strategic Asset Allocation. 2007 Ibbotson Associates
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How do VCs make money?
• Trade sale – sell to another company
• IPO – sell to the public through listing on an exchange
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SEA Exits 2015Company Country Acquiror Country_Acquiror Price Value YearAdplus Indonesia Yello Mobile South Korea Undisclosed 0 2015Bidstalk Singapore AppLift Germany Undisclosed 0 2015
BuyBitcoin.ph Philippines Satoshi Citadel Industries Philippines Undisclosed 0 2015
City Delivery Philippines Food Runner Singapore Undisclosed 0 2015Coin Republic Singapore meXBT Mexico Undisclosed 0 2015Computerlogy Thailand Yello Digital Marketing Group South Korea Undisclosed 0 2015Continuum Wind Energy Singapore SunEdison USA Undisclosed 0 2015Ctrlshift Singapore Undisclosed 0 2015Diadiemanuong.com Vietnam Chicilon Media Vietnam Undisclosed 0 2015eProperty Track Singapore PropertyGuru Singapore Undisclosed 0 2015Fabula Indonesia Kreavi Indonesia Undisclosed 0 2015Flocations Singapore Venture Republic Japan Undisclosed 0 2015Food by Phone Thailand FoodPanda Germany Undisclosed 0 2015FoodPanda Vietnam Vietnam Vietnammm Vietnam Undisclosed 0 2015Gushcloud Singapore Yello Mobile Korea Undisclosed 0 2015Hipwee Indonesia Migme Australia Undisclosed 0 2015I Logic Solutions Malaysia Galasys Plc Malaysia 1,970,000 2.8 2015iProperty Malaysia REA Group Australia 534,000,000 751 2015iTwin Singapore CloudDesk Singapore Undisclosed 0 2015JustCommodity Singapore Allegro Development Corporation USA 20,000,000 30 2015Kapanlagi Indonesia Mediacorp Singapore Undisclosed 0 2015Lamido Indonesia Lazada Singapore Undisclosed 0 2015Luxe Real Estate Singapore Squareyards India Undisclosed 0 2015Luxola Singapore Sephora France Undisclosed 0 2015
MetroDeal Philippines Transcosmos USA 30,000,000 42.7 2015MOXY Thailand WhatsNew Group Thailand Undisclosed 0 2015
MyProperty.ph Philippines Lamudi Germany Undisclosed 0 2015Nassion Systems Malaysia Ricoh (Malaysia) Sdn Bhd Malaysia Undisclosed 0 2015PayWhere Singapore PLDT Philippines 5,000,000 0 2015PropertyKita Indonesia Lamudi Germany Undisclosed 0 2015Propertytrack Singapore PropertyGuru Singapore Undisclosed 0 2015Room Service Singapore FoodPanda Germany Undisclosed 0 2015RumahDijual Indonesia PropertyGuru Singapore Undisclosed 0 2015Shopdeca Indonesia Migme Australia Undisclosed 0 2015Sieu Web Vietnam DKT (Bizweb.vn) Vietnam Undisclosed 0 2015Signetique IT Singapore Exabytes Network Sdn Bhd Malaysia Undisclosed 0 2015Singapore-Dine Singapore FoodPanda Germany Undisclosed 0 2015Sold.sg Singapore Migme Singapore Undisclosed 0 2015Spickify Singapore Helpling Germany Undisclosed 0 2015Tab a Doctor Singapore Global Health and Travel Singapore Undisclosed 0 2015Tappy Vietnam Weeby.co USA Undisclosed 0 2015The Pragmatic Lab Singapore Alphacamp Hongkong Undisclosed 0 2015ThinkOfLiving Thailand Iproperty Malaysia 4,600,000 0 2015Triibe Singapore Mobikon India Undisclosed 0 2015Voyagin Singapore Rakuten Japan Undisclosed 0 2015Wala Vietnam VIVAS Vietnam Undisclosed 0 2015
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SEA exit markets at an inflection point
Exit activity in SEA increasing exponentially• Increased investment in startups since 2007 is beginning to yield results
• Number of exits have doubled; value have increased by more than 15x
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Why VC in SEA now?
Historical challenges
• Exits• Enterprise ecosystem• Innovation• Legal and corporate
governance• Cultural attitudes
Mitigation
• Early stage valuations allow profitable local exits; regional focus allows larger exits
• Regional bridge and expertise in building local network
• Focus on innovative segments – new and traditional
• Changing environment• Channeling entrepreneurial
energy to scalability
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Companies founded with venture capital
www.nvca.org
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Key elements for success
• Solving a painful problem for customers – Value proposition
• Developing an innovative product – Innovation
• Customers and competitors – Market identification and analysis
• Reaching customers – Marketing, sales and distribution strategy
• Competing when others enter - Sustainable competitive advantage
• Make money – Business model and financial plan
• Team – A team or B team
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Key venture finance terms
Business model
Financial projections
Valuation
Funding required and equity offered
Use of Proceeds
Exit Strategy and ROI
Cap table
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Company valuation methods
• Price to earnings (p/e)
• Dividend yield
• Multiple of book value
• Comparables
• Discounted Cash Flow (DCF)
• VC method
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Stages and sources of funds
Founder’s Capital
Seed/Angel
Series A, B, C
Mezzanine Pre-IPO IPO
VC hurdle rates 60-100% 40-60% 20% Why are these rates so high?
OM F,F&F
Incubators corporations government
Customers, suppliers, strategic partnersVCs, Banks for VC loans
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Crowdfunding VC - Kickstarter
243,074
88,61363,000
110
Projects launched Successfullyfunded
Raised less than10K
Raised 1MM ormore
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Crowdfunding VC – equity crowdfunding in US
13,400
662 125 100
VC funding Equitycrowdfunding
Real estate Tech
US$MM
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Crowdfunding VC – equity crowdfunding in SEA
• May 2015 - Equity crowdfunding launched in Thailand
• Restrictions: total amount raised up to US$600K; each investment limited to US$1,500
• June 2015 - Malaysia SEC approved six equity crowdfunding sites
• Singapore – equity crowdfunding regulatory review underway
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Calculate investor’s ROI including dilution
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Cap table
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Key elements of a venture deal
Board of directors
Protective provisions
Drag-along agreement
Conversion
Control
Price-per-share
Valuation
Amount of financing
Liquidation preference
Vesting
Options pool
Anti-dilution
Pay-to-play
Economics
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Contact us
• Douglas Abrams
• Expara– dka@expara.com– www.expara.com
• You can also contact me on:– Facebook, Linked-In, Line,
Whatsapp, WeChat
• Singapore mobile: 65-9780-5381
Singapore HQBlock 71 Ayer Rajah Crescent#$02-10/11 S139951
Regional offices: Bangkok, KL, HCMC, Tokyo
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