Venture Capital in Europe · 2019-01-14 · rs Venture Capital in Europe Jos B. Peeters - Marc Lambrechts Europe Inside Out: Summer course 2015 27 May 2015 Dr Jos B. Peeters Founder

Capricorn Venture Partners

Jos B. Peeters - Marc Lambrechts

Europe Inside Out: Summer course 2015

2015-05-27

http://creativecommons.org/licenses/by-nc-sa/3.0/ 1

Caprico

rn V

entu

re P

art

ners

Venture Capital in Europe



27 May 2015

Dr Jos B. Peeters Founder – Managing Partner

2

PhD in physics, engineering career at Bell

Telephone, consultancy at PA Technology

Around 30 years VC experience

European authority in venture capital: Past

Chairman of BVA and EVCA, Co-founder of

Easdaq (Nasdaq Europe)

The Capricorn in me There is less competition at the edge Risks focus the mind More visibility from the top

Introduction to Venture Capital




2015-05-27


Partners-owned

Experienced dedicated investment teams

Licensed asset manager – AIFMD compliant

> € 300 million under management,

> €180 million in Venture Capital


3 Introduction to Venture Capital

ICT € 33 million

CLEANTECH € 112 million

Quest for Growth € 124 million* * March 31, 2015

Quest Cleantech Fund € 31 million* * March 31, 2015

HEALTHTECH € 42 million

Head office, Leuven, Belgium

Our strengths

• Track record

• Focused, experienced investment teams

• Relevant deals done to date and deal flow

• Our reputation in the sectors we invest in and our experience in working with industrial partners

• Tradition of pro-active portfolio management

• Lead or co-lead all investments

• Active board representation and strategic involvement

• Supporting future rounds of financing

• International experience and orientation

• Have invested across Europe and in US

• Significant business exposure to South-East Asia

• Credible, established organisation

• Multiple, specialised funds with common back office

• AFIMD compliant and licensed by FSMA

Introduction to Venture Capital 4




2015-05-27


We build winning, high-growth and global companies

STRATEGY European roots

Early development

stage

Strong IP estate

Strong management

INVESTEE PROFILE

Focus on sectors with high growth potential

Significant minority stake at 1st investment

Lead investor during

entire investment cycle

Trade sale/IPO

Merger/Acquisition

STRATEGY RETURN


Quest for Growth Public Privak: Main characteristics


Undertaking for Collective Investments of Transferable Securities

Listed on NYSE Euronext Brussels

Favourable tax status

Dividend distribution of at least 90% of realised profits

Investing in private and quoted growth companies (target 50/50)

Sector focus on ICT, Health-tech and Cleantech




2015-05-27


Results since 01/01/2005


Quest Cleantech Fund Stock selection & portfolio construction

Quoted equity universe:

all listed companies

Cleantech universe:

approx. 300 companies

Europe: approx. 200

ROW: approx. 100

Portfolio:

20-30 companies

Valuation

Growth

Governance

Positioning

Financial Strength

Cleantech % of revenues sufficiently large and/or cleantech as main growth driver

Market cap > 50 m € for European companies or > 1 bn € for ROW companies





2015-05-27


Performance compared to indices (31/03/2008-31/03/2015)

9 Introduction to Venture Capital 9

10

Portfolio examples : all funds


http://www.orthovita.com/




2015-05-27


11





2015-05-27


Your speaker today

dr ir Marc Lambrechts • R&D in microsystems and PhD on biosensors @ KU Leuven

• industrial R&D experience @ Terumo Europe

• RTD programme management experience @ IWT

• + 15 years experience as senior investment manager

@ Capricorn Venture Partners

• technology fusion as special area of interest

digital healthcare, big data, IoT as current focus

• active on the board of directors of

• EpiGaN

• FEops

• Right Brain Interface

• Capricorn Cleantech Fund

• Leuven.Inc


The Venture Capital model

14

IP knowledge experience

+ proof of concept

business plan +

market customers ..

entrepreneurs team

investors

€ € € € € € € € € € € € € € € €

€





2015-05-27


…start a (spin-off) company?

• Why, a combination of :

• Entrepreneurial itches

• Strong IP, exclusive know-how or experience

• Unmet customer need identified

• Prospects of a sound & profitable business model

• Why not :

• End of research mandate and no academic career possible

• To become very rich ASAP

• It’s such a nice technology!!!

• All our licensing efforts failed


… and grow an innovative SMEs

• Consultancy company

• Start as a one-man band

• Self supporting

• Life style ventures

• Growth profile - 1 FTE per year

• knowledge and experience based, little IP

• 20 persons – a few million € in sales - profitable

• ‘High growth potential DNA’ ventures

• Technology as long term competitive advantage

• Capital intensive

• International ambition – substantial markets

• High growth - high value – high risk

• Exit orientation

16

SMEs

no/low tech companies

life style ventures





2015-05-27


Types of financing - simplified

• Loans

• have to be repaid

• carry interest

• require collateral

• used for equipment, work in progress, suppliers

• Equity

• owns part of the Company

• seeks capital gains

• no guaranties

• used for product development, marketing

• Quasi-Equity

• loan convertible in equity


Sources of capital/cash

• Personal assets

• 3 F’s : Friends, Family and Fools

• Crowd funding = 4th F - Fans

• Business Angels

• Government subsidies (IWT, EU, ESA, …)

• Cash flow from happy customers!

• Institutional investors

• Banks

• Private Equity

• Venture Capital

• Stock market

18

e.g.





2015-05-27



20




2015-05-27


Financing Life Cycle

• Knowledge-based Companies

21

CA

SH

-IN

TIME

VCs, Acquisitions/Mergers & Strategic Alliances

Angels, FFF

Seed Capital Early Stage

Later Stage

Mezzanine

3rd

2nd

1st

IPO

Public Market

Secondary Offerings

Valley of Death

Public

Company

Operating

Cash Flow

BioPharma example


Alternative assets

22

Private Equity

Real Estate Hedge Funds

MBO/I

LBO

Buy-out

Venture Capital Seed

Early-Stage Start-up

Spin-off / Spin-out

Expansion





2015-05-27


VC money remains available – € invested by stage


VC money remains available – # of companies





2015-05-27


Different type of VCs/investors

• University seed funds • Only invest if IP link with the university

• Business angels • Invest their own money

• More and more grouped or structured as a VC fund

• Closed end fund • Usually independent

• Invest money once

• Have to raise funds on a regular base from different sources

• Typical lifetime : 10 or 12 years + 2 years extension

• Open ended funds • Reinvest the gains

• Usually quoted

• Corporate venture capital • strategic + financial return

• Captive funds e.g. Banks


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





2015-05-27


Probability of Success

Technical Success 60 %

Commercial Success 55 %

Economic Success 40 %

Overall Probability 13 %


Focus with mutant potential & “pivoting”

28

Source : https://web.archive.org/web/20050428014715/http://www.youtube.com/





2015-05-27


Business model

• i.e. the architecture of revenue and profit

• The functions of a business model are to: • articulate the value proposition, that is, the value created for users by the

offering based on the technology;

• identify a market segment, that is, the users to whom the technology is useful and for what purpose;

• define the structure of the value chain within the firm required to create and distribute the offering and determine the complementary assets needed to support the firm’s position in this chain;

• to specify the revenue generation mechanism(s) for the firm and estimate the cost structure and target margins of producing the offering, given the value proposition and value chain structure chosen;

• describe the position of the firm within the value network linking suppliers and customers, including identification of potential complementary firms and competitors;

• formulate the competitive strategy by which the innovating firm will gain and hold advantage over rivals.

29

Based on : Open Innovation, Henry Chesbrough, HBS Press


Tools e.g. www.businessmodelgeneration.com/canvas

30




2015-05-27


Investment themes for the Capricorn ICT Fund


New business models in digital healthcare required

32

Who is likely to pay? For what? Consumers • Wellbeing, weight loss, physical condition

• Monitoring elderly (e.g. parents with dementia)

• Facilitating normal life for chronically ill

• Access to healthcare in remote areas Payors / insurers • Monitoring of chronic conditions if it reduces cost of

care Healthcare providers • Solutions to improve workflow in hospitals, labs, …

• Monitoring solutions that demonstrate a clear business case (e.g. reduce readmission rates)

Pharma, Biotech & Medtech companies

• Solutions that increase revenues (e.g. medication compliance solutions, remote monitoring solutions that drive incremental device sales, …) or provide real world evidence data

“How many businesses do you know that want to cut their revenue in half?

That’s why the healthcare system won’t change the healthcare system.” Rick Scott – Governor of Florida (as quoted by Vinod Khosla) – Rock Health Innovation Summit





2015-05-27



Digital Healthcare : ICT tools for improved healthcare at a lower cost

34

Today … tomorrow

• Ubiquitous wireless networks • Smartphones everywhere • Cloud computing • Big Data & Analytics • Sensor abundance • …





2015-05-27


Wearables everywhere in digital healthcare

35

Source : Medcity, Apple, imec, Scanadu,


36




2015-05-27


Digital healthcare and big data related business models

IP licensing = €’s for use of patents or copyright Consultancy = €’s for hours of thinking and writing reports Services = €’s for hours of hard work Hardware = €’s per system, device, component, … you sell Razor blade model = €’s per consumable for your device Software = €’s for the use of your code (one off or yearly fee) Software as a service = €’s for the use of your cloud service - freemium - transaction or usage based - yearly fee - monthly fee

Data access = €’s for the use/analytics on your (big) dataset

Medical care = €’s for performing a certain medical treatment = €’s for treating a disease = €’s for curing a disease = €’s to keep a person healthy

Social, mobile, web 2.0 = €’s per pair of eyeballs

.... + any combination of the above


What about the “Business Plan” ?

“If you don't know where you are going, you will wind-up

somewhere else”

“When you come to a fork in the road, take it”

"It is difficult to make predictions, especially about the future"

Yogi Berra

38

Source : www.gapingvoid.com





2015-05-27


The business plan as central element

• Approach

• “Elevator’s Pitch” and executive summary

• Presentation

• Business plan or PPM (private placement memorandum)

• Meetings with presentation(s)

• NDA (VC community is reluctant to sign NDA’s before initial presentation)

• Negotiation

• Letter of Intent/Interest (LOI)

• Term Sheet

• Verification and Validation

• Due diligence

• Closing & Financing

• Value Creation

• Exit


No rooftop without foundations

40

Tech

no

log

y

Inte

llect

ual

Pro

per

ty

Mar

ket

An

alys

is

Co

mp

etit

ive

An

alys

is

Sal

es a

nd

Dis

trib

uti

on

Team

Fin

anci

al

Pro

ject

ion

s

Detailed

Support/Foundation

Mission Statement 1 paragraph

Elevator Pitch 30 seconds

Executive Summary 2-5 pages

Investor Presentation 10-15 minutes

Full Business Plan

20-30 pages

Source : Joe Hadzima http://entrepreneurship.mit.edu/15975/


http://entrepreneurship.mit.edu/15975/




2015-05-27


Time to grow to $ 50 M

41

Source : T ableau Software

Hofstadter's Law?

Hofstadter's Law: It always takes longer than you expect, even when you take into account Hofstadter's Law.

Douglas Hofstadter, Gödel, Escher, Bach: An Eternal Golden Braid

42

Source : http://identidadgeek.com/la-ley-de-hofstadter/2012/04/m





2015-05-27


Valuation

• Discounted cash flow

• EV / earnings ratio (EV =Enterprise Value)

• EV / EBITDA ratio

• EV / sales ratio

• Peer comparison

• Comparable transactions

• Technology value

• Industry specific e.g. # users, health economics, m², m³, …

• “VC method” : post-money = expected exit value/expected multiple

• Pre-money versus post-money

• Target % in the company

• 1/3 sweat - 1/3 IP – 1/3 €’s

• Your value is 1 to 2 times the money you can raise

• The price a fool is prepared to pay


Evolution of ownership example

44

Source : http://www.startup-book.com


http://www.startup-book.com/






2015-05-27


A simple cap table example - exit

45

price per share investment shares series C + SOP exit multiple

€ € # €

founders 100.000 1.000.000 20% 15.709.091 157

seed investor 1 250.000 250.000 5% 3.927.273 15,7

Series A investors 2 2.000.000 1.000.000 20% 15.709.091 7,9

Series B investors 3 4.000.000 1.333.333 26% 20.945.455 5,2

Series C investors 4 4.000.000 1.000.000 20% 15.709.091 3,9

stock option plan 509.259 10% 8.000.000

pre money

post money 20.370.370 80.000.000

total 10.350.000 5.092.593 7,7

exit value 80.000.000

stock-options 10%


Capitalisation table LinkedIn @ IPO $45 then - last months +/- $200

46 Source : http://www.startup-book.com







2015-05-27


VC = Value Creation – make use of/require it!

• Via regular contacts and formally via seat on the Board of Directors/Supervisory Board

• Your VC(s) as sparring partner for :

• Financial reporting

• Company strategy

• Technology watch

• Competitive positioning

• Hiring of key personnel

• Business development

• Fine-tuning of business model

• Additional funding rounds

• Exit strategy and planning


Exits

• Model an investment/company for M&A as main exit and IPO as the exception

• Unsolicited offers so juicy nobody can refuse

• Controlled auction at the moment the company is performing well and benefits from synergies to grow further

• AIM – Alternext – Vrije Markt

• opportunity, threat or history

• Firing power required beyond IPO

• Capital efficiency is key

48

Source : www.gapingvoid.com





2015-05-27


VC Exits in Europe

49

Source: 2014 VC report WilmerHale


> $ 100 M exits in Europe – VC backed

50

Source: WS Printed Electronics - RBVC





2015-05-27


Unicorns are created in Europe

51

Source: GP Bullhound – June 2014


Dos and don’ts

Do

• Multidisciplinary teams

• Value based pricing

• Listen to your customers

• Manage expectation … under promise & over deliver?

• External validation of your technology/offering

Don’t

• Tell the world that the next version will be better

• Offer an incomplete solution

• Try to do everything yourselves

• Give away exclusivity too easy

• Run out of cash





2015-05-27


www.entrepreneurship.org/en/Founders-School.aspx

53

For more information

Contact:

Marc Lambrechts


[email protected]

Lei 19/1, B-3000 Leuven, Belgium

Tel. +32 16 28.41.00 Fax +32 16 28.41.08

http://www.capricorn.be

54

http://creativecommons.org/licenses/by-nc-sa/3.0/


http://www.entrepreneurship.org/en/Founders-School.aspx



http://www.capricorn.be/




2015-05-27


Back-up slides


FillFactory in a nutshell

• Custom design of active pixel CMOS image sensors

• IMEC spin-off

• Founded in December 1999

• Based in Mechelen, Belgium

• Focus on high end market

• high resolution professional cameras

• radiation hardness aerospace

• dynamic range machine vision

• high-speed motion analysis

• Moved from design house to specialised fabless image sensor producer





2015-05-27


Kodak project

57

14 million pixels full frame sensor in September 2002


FillFactory in a nutshell

• Customers : CreoScitex, Vision Research, ESA, Vector

International, Fastcom, Kodak, Teli, Redlake

• Excellent patent portfolio

• Raised € 3.8 million € in January 2000

• Bridge loan of € 1.8 million in April 2003 converted into

equity

• Trade sale to Cypress for USD 100 M in August 2004

• 10 x, IRR ~80% , Final payment January 2009





2015-05-27


Valuation @ exit : FillFactory

Source : Cypress annual report 2004


After the exit





2015-05-27


Hype curves – a problem or … opportunity?

61

Source : Gartner

Crossing the chasm

62

From http://en.wikipedia.org/wiki/Crossing_the_Chasm





2015-05-27


Why investments fail?

• Technology • The technology being developed by a startup 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/


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

• Hiring new 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

• Foresee “good leaver – bad leaver” conditions in shareholders agreement and stock option plans


http://www.greentechmedia.com/cleantech-investing/post/why-cleantech-venture-investments-fail/














2015-05-27


één haan op de mesthoop

65

Source of picture : jan.moesen.nu


Valuation

• Discounted cash flow

• EV / earnings ratio (EV =Enterprise Value)

• EV / EBITDA ratio

• EV / sales ratio

• Peer comparison

• Comparable transactions

• Technology value

• Industry specific e.g. # users, health economics, m², m³, …

• “VC method” : post-money = expected exit value/expected multiple

• Pre-money versus post-money

• Target % in the company

• 1/3 sweat - 1/3 IP – 1/3 €’s

• Your value is 1 to 2 times the money you can raise

• The price a fool is prepared to pay





2015-05-27


Evolution of ownership example

67

Source : http://www.startup-book.com


A simple cap table example

68

price per share investment shares seed series A

€ € #

founders 100.000 1.000.000 80% 44%

seed investor 1 250.000 250.000 20% 11%

Series A investors 2 2.000.000 1.000.000 44%

pre money 1.000.000 2.500.000

post money 1.250.000 4.500.000








2015-05-27


Valuation

• Always differentiate between pre-money and post-money • pre-money = value of the company before the transaction

• post-money = value of the company after the transaction

• post-money = pre-money + capital increase

• post-money = invested amount / percentage in the company

• post-money = total number of shares after the transaction x price per share

• Always differentiate between actual and fully diluted shareholding • fully diluted = including all shares resulting from conversion, stock

options, warrants, or any other rights related to securities of the company

• Use price per share and total number of shares fully diluted as the legally binding values

• Keep it simple


A simple cap table example

70

price per share investment shares seed series A series B series C series C + SOP

€ € #

founders 100.000 1.000.000 80% 44% 28% 22% 20%

seed investor 1 250.000 250.000 20% 11% 7% 5% 5%

Series A investors 2 2.000.000 1.000.000 44% 28% 22% 20%

Series B investors 3 4.000.000 1.333.333 37% 29% 26%

Series C investors 4 4.000.000 1.000.000 22% 20%

stock option plan 509.259 10%

pre money 1.000.000 2.500.000 6.750.000 14.333.333

post money 1.250.000 4.500.000 10.750.000 18.333.333 20.370.370

total 10.350.000 5.092.593





2015-05-27


A simple cap table example - exit

71

price per share investment shares series C + SOP exit multiple

€ € # €

founders 100.000 1.000.000 20% 15.709.091 157

seed investor 1 250.000 250.000 5% 3.927.273 15,7

Series A investors 2 2.000.000 1.000.000 20% 15.709.091 7,9

Series B investors 3 4.000.000 1.333.333 26% 20.945.455 5,2

Series C investors 4 4.000.000 1.000.000 20% 15.709.091 3,9

stock option plan 509.259 10% 8.000.000

pre money

post money 20.370.370 80.000.000

total 10.350.000 5.092.593 7,7

exit value 80.000.000

stock-options 10%


Documents

Venture Capital in Europe · 2019-01-14 · rs Venture Capital in Europe Jos B. Peeters - Marc Lambrechts Europe Inside Out: Summer course 2015 27 May 2015 Dr Jos B. Peeters Founder