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BIOE 4410 – Senior Design. Venture Capital. K. Lang A. Pinkie. 04 Nov 2013. What is VENTURE CAPITAL?. Venture Capitalism is a way for businesses or individuals to obtain money and experience for a business via the private equity of Venture Capitalists - PowerPoint PPT Presentation
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BIOE 4410 – Senior DesignVenture Capital
K. LangA. Pinkie04 Nov 2013
Venture Capitalism is a way for businesses or individuals to obtain money and experience for a business via the private equity of Venture Capitalists
Venture Capitalists: individuals willing to invest in a start up
Looking for potential of high return, often technological companies
Raise money from institutional investors, wealthy individuals or private and public entities
Money raised put into a fund, $50 million $2 billionCan offer expertise with finances and management
What is VENTURE CAPITAL?
VENTURE CAPITAL
Some of the first Venture Capitalists include the following:
• Vanderbilts - Railroads• Whitneys - Thoroughbred horseracing• Rockefellers - Oil business• Warburgs - physics, arts, pharmacology, physiology,
finance, private equity, and philanthropy
The Small Business Investment Act of 1958 Officially allowed for the Small Business
Administration to license private "Small Business Investment Companies”
Allowed for creation of venture capital firms
History of Venture Capital
1960s and 1970s, VC firms focused their investment on starting and
expanding companies in electronic, medical and data-processing industries
1980s Companies post losses for first time The market for initial public offerings cooled in the
mid-1980s before collapsing after the stock market crash in 1987
The Small Business Innovation Development Act (1982) Established the SBIR/STTR programs
History of Venture Capital
VENTURE CAPITAL
The late 1990s were a boom time for VC, large returns with technology
Benefited from a surge of interest in the Internet and computer technologies
In the 2000s VC funding had spread widely through the medical field
Early disease detection and prevention
NASDAQ Composite Index
History of Venture Capital
2010 Investments in Industry (In Millions of Dollars)
Other
Healthcare Services
Electronic/Instrumentation
Consumer Products and Service
Networking and Equipment
Semiconductors
IT services
Software
Biotechnology
0 200 400 600 800 1000 1200 140011.337.945.3
93.8133141.4152.4171.1175.2205.7245.8
321.3413.9
755.41034.6
1282.21296.1
Berkeley Entrepreneurs Forum Shaking the MoneyTree presentation: http://entrepreneurship.berkeley.edu/main/index.html
Venture Capital: The Numbers
VENTURE CAPITAL
New companies are small with little experience and VC’s bring capital and financial expertise
Seed Funding Early prototypes and proof of concept
Start-up Funding (Often VC Funding) Making investments in future rounds
WHY VENTURE CAPITAL?
VENTURE CAPITAL
Availability Banks usually do not offer loans to startups
without strict provisions to reduce the risk Venture capital reduces overall risk of
investment because of the pool of funding Interest
Why Not a Bank Loan?
SOURCES
Of V.C.
Friends & Family
Angels
Venture Capital
Government Grants
Banks
Corporate Investment
Public Investors
Customers
• Members of your personal network
• Have adequate means to make an investment
Friends & Family
Angels
Venture Capital Corporate
• Experienced investors using own wealth
• Professional investment managers
• Fund profile set up with industry and horizon time
• Made by large companies for strategic reasons
1. Purchase equity supporting R&D or licensing agreement
2. Traditional venture investments
Sources of Venture Capital
Banks
Public Investors
Gov’t Grants
Customers
• Commericial/State institutes providing financial services
• Loans and such
• May be awarded to companies that meet the size standards established by the Small Business Administration (SBA)
• General public can invest by buying shares of the company
• For established companies
• Customers make direct investment in the R&D of new products or services
Sources of Venture Capital
SBIRSmall Business Innovation Research
• Funding given to small technology companies or individual innovators who form a company
Government Grants• $2+ billion available each
year to fund R&D at small companies (<500 employees)
• Higher rate of success for receiving funding (9-12%)
• 3 Stages for different steps of funding
STTRSmall Business Technology Transfer
• Funding given to small companies working in collaboration with a non-profit research institution (ie. university)
GOVERNMENT GRANTS
Zenios, Makower, and Yock. Biodesign: The Processing of Innovating Medical Technologies. Ann Arbor, Michigan: Edwards Brothers Inc., 2010.
SOURCE OF FUNDING ADVANTAGES DISADVANATGES
Family and Friends • Least expensive funding source• Flexible alternative for early-stage funding
• Limited expertise• Not able to participate in subsequent rounds of funding
Angel Investors • Moderately priced, early-stage funding source • Take on considerable risk• Exercise less control than venture capitalists and corporate money• Act more quickly than venture capitalists
• Limited expertise• Not able to invest in subsequent rounds• Negatively affect terms and level of control by company’s perspective• Multiple angels to meet funding needs
Venture Capitalists • Valuable experience to share with innovators• Provide access to vast network of contacts• Ablility to take on considerable risk• Participate in multiple rounds of funding
• Exercise considerable control over venture’s direction, management, and exit• Require considerable share of ownership in exchange for investment• Expect high returns or other terms not favorable to company
Corporate Investment
• Lead to meaningful product/project synergies• Provide accesss to valuable resources• Less expensive than venture capitalists funding• Lend to young company’s credibility• Provide company with a “built-in” exit strategy
• Limited value in return for building business• Conflicts with corporate investors• Issues with intellectual property ownership• Limit value realized from exit stragety if corporate investor has “right of first refusal”
Pros/Cons of Funding
Pros/Cons of Funding
SOURCE OF FUNDING ADVANTAGES DISADVANATGES
Customers • Extremely inexpensive funding• Potential for young company’s credibility• Provide valuable market-based insights revelant to product development
•Lead to conflicts if company seeks to sell the innovation to customer’s competitor• Customer seeks to limit way in which innovation is marketed to match its best interest
Government Grants • Inexpensive funding • Founders not require to part with any equity in the company• No influence over any business decisions• Strengthen a young company’s credibility
•Highly competitive• High expectations based on rigorousness of research performed• Lengthy funding review cycles• Funding capped at $850,000 per project
Banks • Access to funds usually does not require the company to share ownership• No influence over any business decisions• Interest payments are tax deductibles• Secured relatively quickly and used to help bridge short-term financing gaps
• Business assets can be used as collateral• Affect cash flow as regular payments of principal and interest must be made• Start-ups pay a premium on their loans• Start-ups may have difficuilty getting loans if no revenue or tradeable assests
Zenios, Makower, and Yock. Biodesign: The Processing of Innovating Medical Technologies. Ann Arbor, Michigan: Edwards Brothers Inc., 2010.
VENTURE CAPITAL
Does your company fit the VC fund profile?
Research & find your target Best firm partner for your idea • Do they have a history of supporting
ideas like yours?
What to do: Have someone introduce you (e.g.
LinkedIn) Set up a meeting with the investors NOT send a “cold” email
How to Obtain VC
Concise
Know
Who
Ret
urn W
hy
$$ Needs
Potential RewardsHow do investors get their reward?
Tailor Your SpeechWho are you speaking to? Know your audience.
30 secMake them want to hear more.
BetterWhat does your idea/product fulfill?
How Much?How much capital do you need?
The ‘Elevator Pitch’
VENTURE CAPITAL
Once Elevator Pitch worked, business plan is used to provide the detailed planInvestors often check financials first and then assumptions page
The business plan answers all the questions VCs have before an investment is made
The BUSINESS PLAN
VENTURE CAPITAL
PartneringTwo entities share responsibility for the development or commercialization of an idea or invention
LicensingTransfer of an idea or invention from the innovator to a licensee in exchange for ongoing royalties and/or other payments
Sale/AcquisitionInnovator chooses to sell an idea outright, completely relinquishing control to acquirer [2]
ALTERNATIVE PATHWAYS
THANK YOU!!!