Venture Capital

1. Venture Capital Phil Magnone Mike Kung Mike Bekier Ted Bizjack

2. Contents • What is venture capital? • History of venture capital • Why do you need venture capital? • Why not get a bank loan? • Angel investors • What do you give up? • Why do you care? • Where do you get venture capital? • Who do you contact? • How do you convince them? • The Elevator Pitch

3. What is venture capital? • Venture capital is a type of private equity typically provided to new companies in the interest of generating a financial return through a future Initial Public Offering (IPO) or sale of the company. • Venture capital (VC) firms are usually comprised of high net worth individuals • AKA: rich people

4. History of venture capital • The Small Business Investment Act of 1958 allowed for the creation of VC firms. • Initial VC interests were mostly related to electronic, medical, and/or data-processing technologies. • Hence, VC funding became synonymous with technology funding.

5. History of venture capital • Internet boom of the late ‘90s was a great time for VC firms. • The bursting of the Internet bubble in the early 2000s, not so much… NASDAQ Composite Index

6. History of venture capital • VC funding has since spread widely through the medical field • Many start-ups have begun in recent years after sequencing the human genome, centered around early disease detection and prevention

7. Why do you need venture capital? • Many new businesses are too small and/or inexperienced to raise enough money for expenses on their own. • Research & development • Employee salaries • Manufacturing and production costs

8. Why not get a bank loan? • New businesses can present a high risk for a large bank loan • A bank would loan you money, but have no say in how that money is spent. • VC firms don’t like that idea, so they do it differently.

9. Angel investors • Venture Capitalists and Angel Investors are more likely to approve loan for startup or emerging company • Angel Investors typically invest their own funds. • Venture capitalists manage the pooled money of others in a professionally-managed fund.

10. What do you give up? • VC firms take great risk to offer their money to your company, so they expect something in return • Significant control over company decisions • You may have started the company, but you often lose sole power over the company’s future • Significant ownership stake in the company and its future profits • Degree of control and ownership lost depends on VC firm

11. Why do you care? • VC’s value 2 primary things: • Equity • VC’s value Equity because unlike a bank loan, which pays back over a finite period, Equity holders receive a percentage of the company’s profit forever • Control • Just because you may have had a profitable idea, it doesn’t mean you can run a company. If VC’s are going to invest large sums of money into your idea, they want to ensure that you do not run your company into the ground

12. Where do you get venture capital? • VC firms invested nearly $7 billion in the first quarter of 2007 alone • Almost half of this was invested in California • Northwest Ohio not a “hot spot” for VC funding • Location can determine likelihood of finding funding • Some companies provide a type of internal VC funding for employee-based start-ups • Form a virtual company within the larger company • Virtual company enjoys benefits of larger company’s resources • Funding • Facilities • Brand name

13. Who do you contact? • Blogs are playing an increasingly important role in providing new companies an avenue to VC funding • http://www.ventureblogs.com provides a list of VC blogs • Some bloggers help get new companies VC funding simply by mentioning them on their blog • Bloggers essentially take care of initial research by filtering ideas and picking out the ones most deserving of funding • Blogs to contact often depend on nature of company

14. How do you convince them? • Even after you get a meeting with VC firms, you still need to convince them to give you money! • Process of “due diligence” determines if and how much money a VC firm is willing to invest • Due Diligence: An in depth look at a company’s accounting, profitability, market, management, and legal status. • To convince investors to meet with you, you need a quick, clear presentation that tells them what you’re doing and how they could benefit

15. The Elevator Pitch • The elevator pitch is a brief overview of your idea. • Should be delivered in the amount of time you would spend in the elevator with someone (30 seconds) • Tips for an elevator pitch • Use solid numbers and facts, not just assumptions • Avoid uncommon acronyms or unfamiliar language • Tailor presentation to the audience • Focus on why your idea is the best solution • Explain how investor will obtain a return on his investment, and how much funding you need

16. The Elevator Pitch • Useful websites for developing an elevator pitch: • Tech Crunch Elevator Pitches (http://pitches.techcrunch.com) • Submit videos of elevator pitches, which are voted and commented on by viewers • Twitpitch (www.stoweboyd.com/message/2008/04/twitpitch-is-th.html) • New idea that elevator pitch should be further shortened to a 10-second “escalator” pitch, consisting of 140 characters (the length of a Twitter post)

17. Questions?