Random Musings:

ConferenceThe Venture Capital Process and Angel Financing

Differentiating between Angel financing and Venture Capital

Angelo Santinelli, North Bridge, Chuck Powell, Haynes & Boone, David Verilli, Hub Angels

Carles Powell

Angels bridging to VC & corporate investors

What's an Angel?

Angels High Net Worth Individual - SEC Rule 501 (Reg D)

7 of 10 investments made within 50 miles of investor's home/office

9 of 10 investments are devoted to small, mostly startup firms with fewer than 20 employees

Higher acceptance ratio

Angel groups - Hub Angels - looking for investments that don't need a lot of total capital. Need to have a sufficient portion of the company.

Half for VC firm, half for founders, employees.

24 months ago Hub angels doing preferred. Now doing 1 common and 2 bridge note deals

Entrepreneurs now getting more leverage

Venture Capital and Emerging Companies - European VC Funding

Alistair Bird,

European Venture Capital is thriving

Deal Terms -

Dividend Rights - preferential cumulative dividends. Company will not be allowed to pay dividends to other shares.

An important element of the payback to

VCs have participation rights except in legal jurisdictions which prohibit it.

Dividend rights may increase annually, which may be a clumsy way of forcing an early exit.

in the UK, dividends only payable out of distributable profits. No so elsewhere.

Financial assistance.

prohibition on on giving financial assistance for the acquisition of its own shares

mostly affects debt financing as it prevents the giving of security an guarantees

financial assistance does not have to be given to the person providing the financing

Can "whitewash", but he directors must be confident that the company will survive for 12 months

Richard Corley, A Canadian VC Market and Deal Terms

Canadian VC market - info CVCA

CA GDP 10% of US Market.
$1.8B CDN invested last year
Investments concentrated in Ontario - 50%, rest Quebec, British Columbia

Canadians experienced a minibubble 99,00

Somewhat preponderance of telecom investments in CA.

Trends in investment track US, capital raising trends tend to lag US slightly.

Individuals currently account for 70% of capital raised by VC funds in Canada

Growing internationalization of CA venture investing.

Deal terms:

Canadian experience is general consistent with East Coast experience

Canadian venture investors are more likely to request upfront fees, tranching of investments, and valuation ratchets

 

 

 

 

Venture Capital and Emerging Companies

Blogging the Techlaw / Nutter conference on Venture Capital and Emerging Companies Friday (the 21st).

Typical VC Deal Terms, Richard Kimball, Nutter, Alistair Bird, Simmons & Simmons, Richard Corley, Blake, Cassels & Graydon

Richard Kimball

Preferred stock, 1:1 conversation ratio to common typical for early deals

Liquidation preferences: pay preferred investor their preference amount which includes dividends plus any some multiplier 1x, 2x, later rounds.

15% to 20% of have multiples greater than 1

3/4 of deals seen recently have participating preferred terms:

preference amount plus participation given the conversion ration to common

capped participating preferred.  usually a multiple of purchase price, 2x, 3x

incidence of participating preferred higher on west coast

Dividends: on east coast half have accruing dividends, on west 10%.

West coast terms tend to be more entrepreneur friendly than East coast terms

Anti-dilution protection

    A weighted average formula takes into account he number of shares issued relative to the number of shares outstanding and the difference between the prince the preferred stock was issued at and the price paid in the dilutive financing.

a ratchet formula only takes into account the price

less than 20% of deals in the US include full ratchet anti-dilution. somewhat more on East coast than West Coast.

East Coast financing 70% include redemption rights.

On west coast only 1/3rd of deals have redemption rights.

creates opportunity to renegotiate deal

pay to play provision.

punishes investor for failing to invest in later rounds

2 kinds of punishments

Shadow preferred

Direct conversion into common. Increasingly used.

Other terms
Board and/or Observer rights
Option pool on pre-money basis-no dilution for preferreds
Protective provisions - can't take certain actions without approval
Information rights - audited financials
Registration rights - public offering
Preemptive rights - maintain prorata share
Right of first refusal and co-sale - on shares that founders hold
Founder restriction agreements
Key man and D&O insurance

 

 

 

 

 

Venture Capital and Emerging Companies

Blogging the Techlaw / Nutter conference on Venture Capital and Emerging Companies Friday (the 21st).

Checking the Pulse of the Venture Capital Industry, Bryan Pearce, E&Y

Good news:
    Fund raising and investments by VCs on pace to meet or exceed 2004 levels
    Valuations are continuing upward

And some challenges:
    Few VC firms around
    Follow-on rounds are increasingly reliant upon "insiders only"

Fund raising environment
    New funds are getting somewhat larger - should help sustain follow-on financing
    67% of deals are B and late rounds
    83% of dollars directed to B and later rounds
    shorter length of time between later rounds

Sector allocations relatively unchanged

Majority of funds closed > $100M, sweet spot, $250M to $500M

Products and Services, Energy, Materials getting increased interest

$1M median seed, $5M median A round

Steady climb of valuations, 50% increase in 3 years.

IT investing and product and services firms declined in absolute numbers.

1% companies exited by IPO, 7% M&A, 5% failed-2004 numbers

Amount paid in M&As on pace to surpass 2004. cumulative deal value $23B 2004, 21B 2005 Y2Date

IPOs raising slightly less money prior to going public

Premoney valuations of companies doing IPOs this year is down this year $166m from $224M in 2004

What are we likely to see in the future?

• The focus on capital efficiency will continue
• The better VCs will continue to monitor the "Exit" environment and "reverse engineer" into the amount that can be invested and still earn an acceptable return
• Portfolio companies will become increasingly global at ever-earlier stages in their development
• Some VCs will look at ways to do (more) direct deals in emerging markets including China and India, and to be more proactive in assisting their US/ Domestic Portfolio Companies to better penetrate foreign markets
• The scope of technologies/industry sectors where VCs will invest will broaden to solve the "unmet needs" of the new millennium including energy, advanced materials
• M&A will continue to important in all sectors

 

 

 

4 Scenarios for the Future of HR Management

According to this press release, The Society for Human Resource Management (SHRM) has developed a report that looks at four scenarios for the workplace in the year 2015. Based on based on business competition and the availability of talent and organizational structure, SHRM believes that these scenarios may help prepare HR professionals for future business requirements and what key competencies in HR will be needed to help their companies succeed a decade from now. Snippets:

The Importance of Storytelling

Some believe in the theory of radical empiricism, namely, that "data speak for themselves." Not so. Data always need to be spoken for. Narrative is one important way of speaking for data and other information.

Complementing my earlier scribblings on the role of narrative (storytelling) in scenario planning, marketing ace Paige Arnof-Fenn has a useful article on the importance of storytelling in sales and marketing. Snippets: