ENTRE 459 (Venture Investing)

Winter 2024, Vani Rao

Lecture 1 - Jan 4

• We have a final paper where we evaluate a startup
• Venture stats:
  • ~1% of venture companies become unicorns
  • 80% of venture-backed firms fail
  • 16% break even
  • 4% return >=3x

Lecture 2 - Jan 9

• Access to VC funds:
  • Firms often require large fund size
  • You must be an accredited investor
• Accredited investors (per SEC):
  • Net worth over $1,000,000 excluding home
  • Income over $200,000 individually or $300,000 with spouse
• Goal of a VC:
  • Capturing value between the startup phase and public company phase
• Functions of a VC:
  1. Fundraise
  2. Source
  3. Evaluate
  4. Deploy
  5. Manage
• People in the fund:
  • General Partner:
    • Manages the money and operations
    • Must make a commitment of 1-2 percent
  • Limited Partners:
    • Commit the vast majority of the money
    • Are not involved in decision making processes
  • Managing Partners:
    • Manage organization as well as money
  • Venture partners:
    • Help with sourcing and evaluating investments
• How do VC funds generate return?
  • To breakeven at 10% success, they need to return 10x
  • To get 3x return on fund, companies need a 30x return
• VC fees:
  • Management fee: annual percentage of assets under management
  • Performance fee: percentage of return of fund
• VC differentiation:
  • Different areas of investment
  • Different fund parameters (e.g. timing or size)
  • Competitive edge: what do I have that makes companies want to work with me?

Lecture 3 - Jan 11

• Quick assesment of an opportunity:
  • What is this?
  • Why should I pay attention?
  • Not should I invest in this company?
• Venture funds are full of bias
• Naming a company:
  • Is it taken?
  • Is there a website?
  • Any trademark issues?
• Age of a company:
  • Date of incorporation
  • Has it raised capital?
  • Is it generating revenue/profit?
• Company stages:
  • Early stage: has revenue
    1. Pre-seed
    2. Seed
    3. Series A
  • Late state: has valuation
    1. Series B
    2. Series C
    3. Series D
    4. Series E
  • Public:
    • IPO
• Where are companies?
  • Where was it incorporated? (often Delware)
  • Where are the founders?
  • Where are the customers?
• Who is building the company?
  • Are they qualified?
  • Can they get and retain talent?
  • Can they communicate?
• Considerations for pitching:
  • What are three things…
    • people should remember about the company?
    • you want in the investment memo?
    • you want to be talked about in the investment committee meeting?