THE POWER OF VENTURE CAPITAL. WHAT IS VENTURE CAPITAL? Venture Capital is capital provided to fast growing companies It is typically an investment activity

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  • THE POWER OF VENTURE CAPITAL
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  • WHAT IS VENTURE CAPITAL? Venture Capital is capital provided to fast growing companies It is typically an investment activity regarding the acquisition of stakes in equity of unlisted companies The goal is to increase the value of target companies for the purpose of divestiture in the medium to long term
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  • WHAT IS VENTURE CAPITAL? In addition to financial resources Venture Capital investors offer professional and managerial skills (smart money) as well as a network within the financial, corporate, business angel and start-up communities.
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  • Venture Capital serves as a countrys engine of entrepreneurship development for several reasons: It supports new ideas VC operators assume risks that other players are not willing to take VC is often faster to identify new market trends in industry and technology Thanks to its intervention, VC creates many jobs VCs IMPACT ON THE ECONOMIC SYSTEM
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  • WHY IS VC IMPORTANT? - Impact on economic growth - Increased profitability of backed companies - Employment growth - Support for the innovation process - Increased skill premium
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  • THE ECONOMIC IMPACT OF VENTURE CAPITAL - From 1970 to 2008 every dollar invested in venture capital in the US created 6.36 dollars of revenue - Venture backed companies generate 21% of GDP and contribute 11% of total private sector employment - Top 1% high growth companies created 40% of the new jobs in the American economy www.kauffman.org
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  • THE ECONOMIC IMPACT OF VENTURE CAPITAL Positive effects associated with investments in venture capital: - Employment Growth - Revenue Growth
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  • VCs IMPACT IN EUROPE - Approximately 5-6 billion Euros invested every year - More than 1 million people employed in VC backed companies - Compounded growth of employment, from 1997 to 2004, in European VC backed companies reached 2,4%, compared to 0,7% for other companies
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  • BENEFITS TO STARTUPS STARTUP Improved managerial culture View of entrepreneurial landscape Visibility Improved relationship with stakeholders
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  • OBJECTIVES OF VCs OPERATIONS Development of new products / services Support during market launch Financing of working capital Financing of corporate financial transactions Support and delivery to IPO or other exit
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  • Startup funding cycle
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  • INVESTMENT STAGE VC Operators can be classified according to the stage of development of the target companies they deal with: Micro seed (families & friends): Financing of the idea - the "seed" (pre- prototype) Seed (accelerator e business angels): financing firms pre-revenues Start-up Financing (Venture Capital): financing the market launch phase Expansion Financing (Venture capital): financing the expansion phase
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  • ACCELERATOR They are structures that provide a 360 range of services to startup to facilitate company acceleration, such as: Space and logistics Management Consulting Training Mentorship Network inside the incubator External Network Financial contributions
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  • INCUBATORS The U.S. counts 8.3 incubators for State on average
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  • BUSINESS ANGELS Informal investors: individuals who invest in startups Deep knowledge of the areas in which they invest Strong relationships / contacts with the target market Business Angels bridge the financing gap existing in the early stages of financing
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  • BUSINESS ANGELS What they look for A brilliant Management Team An innovative idea Scalable business Economic return in 3-5 years
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  • BUSINESS ANGELS What they do not seek Teams they do not trust Teams working part time Statements such as: "we have no competitors" "the market is so vast that competition is not an issue Teams that do not have a clear direction
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  • BUSINESS ANGELS Italian Angels for Growth (IAG), the largest group of business angels in Italy, was founded in 2007 as a nonprofit association by nine Founding Members. IAG now has approximately 100 members. The activities are promoted and managed exclusively by individual investors. The ultimate goal of IAG is to offer its members the opportunity to invest in the best startup companies.
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  • Pre-Seed/Incubator Seed /BA VC 100 50 10 ENLABS H-FARM M31 IL CLUB DEGLI INVESTITORI IAG ANNAPURNA VENTURES 360 CAPITAL PARTNERS ATLANTE VENTURES INNOGEST SGR VERTIS SGR PRINCIPIA SGR FONDAMENTA SGR 5 DPIXEL WORKING CAPITAL NINE POINT CAPITAL EARLYBIRD MIND THE BRIDGE CONNECT VENTURES WHO DOES VC IN ITALY?
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  • VC: PROJECT SELECTION CRITERIA Management Team Quality Product and target market Technology and competitive advantage Potential sales and expected returns
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  • MANAGEMENT TEAM QUALITY The quality of the Team is the key determinant for a Startup: Industry Experience Entrepreneurial skills (track record, determination in the conduct of the project, etc...) PRODUCT & TARGET MARKET The company should aim to become an actor of reference in its field The market must be scalable and global VC SELECTION CRITERIA
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  • Technology is a major source of competitive advantage for startups: innovation sustainability defensibility TECHNOLOGY POTENTIAL SALES & EXPECTED RETURNS IRR (internal rate of return): 50% - 100% per year Exit timing commensurate with investors horizon Potential buyers (number of operators and their positioning in the market)
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  • VENTURE CAPITAL INVESTMENT PROCESS: STRUCTURING & EXECUTION A VENTURE CAPITAL INVESTMENT
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  • WHAT VENTURE CAPITAL INVESTOR ARE LOOKING FOR -Team -Product / Service -Market - growing markets - emerging markets - market share, size -Return -Balance of risks and chances (risk /rewards) -Innovation rather than imitation -Trust
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  • VENTURE CAPITAL PROCESS There are a number of myths & thruths about the venture capital industry and the process of securing investment from a venture capitalist that are important to understand
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  • ITS A NUMBERS GAME VCs assess a very large number of new prospects, his highest priority is his own time management This means that his work is mostly focused on eliminating 99% of the business plan received as quickly as he can The game becomes looking for reasons why not to invest Due diligence proceeds only when a VC feels strongly that an investment might make sense Due diligence is usually a late phase in the process
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  • WHAT TO DO AND NOT TO DO? DODONT Make your approach and presentation as friendly and easy to understand Assume anything from a VC beyond normal. Waste no ones time Even technically VCs want to start with a quick appreciation of why you believe your company deserves funding Save the technology details for responding to question Demonstrate the uniqueness and credibility of the business
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  • WHAT TO DO AND NOT TO DO? SUGGESTIONS Get to the point as quickly as possible: a successful elevator pitch must describe the companys value clearly, in no more than 1 minute. A typical VCs attention span is less than 2 minute
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  • RISK / REWARD PROFILE Many entrepreneurs believe that VCs like to take big risk in making their investments. Most VC investors are actually very risk-averse, which makes sense when you perceive the environment to be full of uncertainty and unknow factors The major categories of risk are: -people (team, investors) -technology (products) -market opportunities (emerging or established) -stage of growth (includes financial history) -valuation
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  • WHAT TO DO AND NOT TO DO? DODONT Support your aggressive projections with a credible plan for execution Emphasize how conservative your projections are Present an honest, realisitc, and complete assesment of challenges Understimate or downplay any risk
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  • INVESTMENT IS ABOUT THE PEOPLE Most VC today understand that really investing in people, in the company management, directors, investors, partners, etc. They comfort level increases proportionately to their familiarity with the people achieve directly or indirectly by reputation Venture Capital firms first preference is to invest in companies run by people they have backed before, especially in successful companies The next level of preference is to invest alongside the best VC firms
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  • WHAT TO DO AND NOT TO DO? DODONT Hire the best people you can findCompromise on the quality of your people Network costantly, to establish a pesonal contact Develop relationships through your corporate legal counsel, accounting firms, bank, investors, advisors, and all employees (you never knows where the most useful introductions will come from)
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  • BIG MARKET OPPORTUNITY The ideal proposed market for the products or services should be already identified, rapidly growing (more than 25% per year), and not dominated by any other company. The products should have a significant barrier to entry by possible future competitors The company management and growth strategies should be