background preloader

VCs & valuations

Facebook Twitter

The Importance of Proprietary Deal Flow in Early-Stage VC. When I was new at Venture Capital I was trying to figure out the business.

The Importance of Proprietary Deal Flow in Early-Stage VC

It was a fun period for me because everything was new and I was curious. What kind of deals should I be doing? What stage? What price? Is it a tech bubble? Every week a “we are in a tech bubble” article seems to come out in a major newspaper or blog.

Is it a tech bubble?

People who argue we aren’t in a bubble are casually dismissed as promoting their own interests. I’d argue the situation is far more nuanced and that people who engage in this debate should consider the following: 1) Public tech companies: Anyone with a basic understanding of finance would have trouble arguing many large public tech companies are trading at “bubble valuations” – e.g. Apple (14 P/E), Google (18 P/E), eBay (16 P/E), Yahoo (17 P/E). You could certainly debate other public tech stock valuations (there are a number of companies that recently IPOd that many reasonable people think are overvalued), but on a market-cap weighted average the tech sector is trading at a very reasonable 17 P/E.

Dave McClure's 10 tips for the perfect investment pitch. We’ve covered how to effectively pitch your startup to the tech press before, and at the Future of Web Apps conference in London this month, entrepreneur and angel investor Dave McClure was in attendance to give his advice on how best to pitch to a venture capitalist.

Dave McClure's 10 tips for the perfect investment pitch

It was interesting to note some of the similarities between pitching for money, and pitching for press. 10 tips for pitching to VCs Deviating from the topic in the conference programme which had been 10 Tips for Web App Success and Profitability, Dave started: “I don’t know shit about that. So I’m going to talk about this instead. Though if you want to make a profit, I think you should sell something – way too few people are trying to do that these days.” So the theme of the hour was how to build a presentation and pitch for VC money. As a general rule of thumb, the more time you spend speaking, the less time they spend listening.

With the formalities out of the way, McClure launched straight into the ten tips. The Tricks Investors Use Against Founders. Getting Founders To Sell For Less We investors often talk about the value gap.

The Tricks Investors Use Against Founders

The Value Gap is the difference between the price you’ll take and the price we’ll pay. Deals go ahead once the gap is small enough for one side to capitulate. Typically, the value gap is reduced by way of negotiation. But in private equity, the value gap is mostly reduced by (a finely crafted) perception. In a moment, I’ll explain exactly how private equity investors manipulate term sheets to create the value gap perception. What PE Investors Want We want to maximise our portfolio returns to increase our carried interest. Carried interest (carry) is like a performance fee, except it’s calculated on all positive returns.

Private Equity investors are firstly rewarded for protecting their capital. Misadventures in VC Funding: The $24 Million Moz Almost Raised. Some Thoughts on Communicating With Your Investors « ROBGO.ORG. Some Thoughts on Communicating With Your Investors July 25, 2011 Given that small institutional seed rounds are becoming more and more common, I thought I’d share a few of my thoughts on how to best communicate with investors.

Some Thoughts on Communicating With Your Investors « ROBGO.ORG

After raising this sort of round, it’s usually the first time an entrepreneur has to think about putting some structure of investor updates and communications. These aren’t set in stone, but some practices that I think make sense and have been effective. 1. The Key Differences In VC Financing Of IT Startups In The U.S., UK, Germany And France. Financing Options: Convertible Debt. MBA Mondays are back after a one week hiatus.

Financing Options: Convertible Debt

Today we are going to talk about convertible debt. Convertible debt can also be called convertible loans or convertible notes. For the purposes of this post, these three terms will be interchangeable. Convertible debt is when a company borrows money from an investor or a group of investors and the intention of both the investors and the company is to convert the debt to equity at some later date. Typically the way the debt will be converted into equity is specified at the time the loan is made. How Much Money To Raise. Image via Wikipedia I spent some time yesterday talking to an entrepreneur about this topic and I thought I'd share what I told him with everyone.

How Much Money To Raise

When your company is growing really fast, doubling employees year over year, adding users and customers at a very rapid rate, you don't want to raise too much money. If you raise three or four years of cash, there is a very good chance that by your second year, you will be sitting on cash that you raised when your company was worth considerably less. That's not a good thing. It's too dilutive to you and your co-founders and angels. I've got two basic rules of thumb. Second, raise 12-18 months of cash each time you raise money. These rules are most applicable in the early stages. But for the seed, Series A, and Series B rounds, I think 10-20% dilution and 12-18 months of cash are ideal. Chasing Returns. I've spent much of this long weekend curled up on the couch reading Too Big To Fail, Andrew Ross Sorkin's history of the financial crisis of 2008.

Chasing Returns

I've wanted to read this book since it came out last year but it took me a while to get to it. I'm enjoying it very much. As I read about bank after bank waking up and smelling the roses too late, I am reminded of the risks of chasing returns. In the case of the financial crisis of 2008, the banks were chasing returns in the mortgage markets and the related markets for CDOs and other exotic derivatives. The scary part of the whole thing is they were chasing returns in a market they did not fully understand. How A Russian Billionaire Is Changing The Way Startups Grow Up. Both Sides of the Table 2x Entrepreneur turned VC.