BeWise lecture: Sven Illing "Introduction to Venture Capital" @ Estonian Business School 16 Oct 2014

Title

Introduction to

venture capitalSven Illing, iCapital

October 16, 2014 at Estonian Business School for JCI Tallinn BeWise

Background

2001 – 2003 co-founder of software company Vision Group

2006 – 2010 helped startups at Tartu Science Park Judge at Garage48.org, Brainhunt, Seed Forum

2009 - ... founder of iCapital investing + advising startups on business development & raising capital co-founder of GameFounders startup accelerator (2012) investment adviser at Buildit startup accelerator (2014)

Contacts:

[email protected]@contactsvenangel.co/contactsven

Topics today: broad & narrow

Some data about VC industry in the U.S. and Europe

Early stage financing options for start-ups

Practical steps in the capital raising process

3

How much did VC-s invest in the US in 2013?

$29.4B in 3,995 venture deals

4

nvca.org

How many VC-s in the US?

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NVCA Yearbook 2014 | www.nvca.org

Who are the top VC-s?

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How many VC firms in Europe?

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Venture capital in Europe - investments

Topics today

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Venture capital in Europe - exits

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2013 European Private Equity Activity, evca.eu

Venture capital in Europe – exits by route

How to fund your startup?

How to fund your startup Bootstrapping

Banks, credit cards

FFF

Grants and support

Crowdsourced donations/pre-orders: Kickstarter, Indiegogo etc

Crowdfunding: seedrs.com, crowdcube.com etc

Meet investors online: AngelList, Gust, F6s etc

Startup accelerators

Business angels

VC-s

Bootstrapping

„We made 500 of each (Obama O's and Cap'n McCains). They

were a numbered edition on the top of each box, and sold for

$40 each. The Obama O's sold out, netting the funds we needed

to keep Airbnb alive. The Cap'n McCains... they didn't sell quite

as well, and we ended up eating them to save money on food.“ 

Joe Gebbia, co-founder of Airbnb http://www.avc.com/a_vc/2011/03/airbnb.html

Airbnb in 2014

500,000 listings in 33,000 cities in 192 countries

What website?

http://www.crunchbase.com/organization/airbnb

Meet investors online: AngelList

Online service that matches early stage companies with angel investors. Syndicated investments platform.

36 000 startups (Oct 2014)

800 000 people (founders, advisors etc ), inc 34 000 investors

Thousands of startups on AngelList have gone on to raise big rounds.

AngelList

Latvia – 18 startups (2012) 127 (Oct 2014) http://angel.co/latvia

Avg valuation $2.5M

Estonia – 50 startups (2012) 195 (Oct 2014) http://angel.co/estonia

Avg valuation $3.7M

Startup accelerators

> 2000 globally (F6s.org); <200 major ones (seed-db.com); 20 top programs

These used to be usual terms: 3 months program full of mentoring and pitch training $20 000 for 8% equity ends with a demo day (pitching to investors)

Top programs: Y Combinator, TechStars, 500 Startups in the US Seedcamp, Startupbootcamp in Europe Vertically focused accelerators, e.g. Rockhealth, GameFounders

1ST STARTUP ACCELERATOR IN NORTHERN AND EASTERN EUROPE

FOCUSED ON HARDWARE

• Up to 20kEUR for 6-12% of equity EUR inve

• 3 months program program• 90+ mentors high-profile • prototyping facilities

Application round open until Dec 15

for Spring 2015 batch

Angel investing in the US (2013)

300 000 active angels

385 business angel networks with 10-15 000 acredited angels

Angels invested $24,8B into 70 730 ventures:

Software – 23% of the number of investments; Media – 16%;

Healthcare – 14%; Biotech -11%; Retail – 7%; Financial Services –

7%

Average angel deal size - $350k (syndicated)

Average equity received -12.5% with a deal valuation of $2.8M

Average individual investments - $83k

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http://paulcollege.unh.edu/research/center-venture-research

Angel investing in Europe (2013)

468 business angel networks

271 000 business angels

33 430 investments, 5.5B EUR in total

Average investment per startup 165kEUR

Average investment per business angel 20kEUR

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www.eban.org

Angels & FFF invest most

In the US:

VC-s invest <$1B in seed stage and <$10B in early stage

Business angels invested $20B into 62 000 companies in 2010

FFF-s invested $60B (mostly into non-tech)

462 active firms (2010)

300 000 angels

millions on FFFnvca.org

Fundraising process

Fundraising

Why fundraise?

How much?

When?

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Fundraising

From whom?

How to get a meeting with an investor?

Who can make the best intros?

Ranking from „Pitching Hacks“: • Entrepreneurs• Fellow-investor• Tech gurus, professors• Lawyers, accountants etc• Communists• Someone the investor met at a party once

http://venturehacks.com/pitching

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Introducing Airbnb

from: Paul Graham

to: Fred Wilson, AirBedAndBreakfast Founders

date: Fri, Jan 23, 2009 at 11:42 AM

subject: meet the airbeds

One of the startups from the batch that just started, AirbedAndBreakfast,

is in NYC right now meeting their users. (NYC is their biggest

market.) I'd recommend meeting them if your schedule allows.

I'd been thinking to myself that though these guys were going to

do really well, I should introduce them to angels, because VCs would

never go for it. But then I thought maybe I should give you more

credit. You'll certainly like meeting them. Be sure to ask about

how they funded themselves with breakfast cereal.

There's no reason this couldn't be as big as Ebay. And this team

is the right one to do it.

--pg http://www.paulgraham.com/airbnb.html

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Fundraising

How to prepare?

• research the angel / the firm and partner

• elevator pitch, 1-pager, deck

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Where to look up investors?

www.angellist.com

www.crunchbase.com

www.forbes.com/midas/list/

www.evca.eu/about-private-equity/for-entrepreneurs/find-an-

investor/#csearch

www.gust.com

www.angelcapitalassociation.org/directory/

www.eban.org/members/

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What do investors look for?

• Team

• Team

• Team

• Traction

• Market size

• Disruptive technology, patented/protected

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Team

Nieh * says that though he was excited to work with Fadell

again when it came time to invest in Nest, “…our excitement

went off the charts when we met Matt Rogers, Tony’s co-

founder, who was responsible at Apple for iPod software

development and one of the first engineers on the original

iPhone team.  We would have invested had they been looking

to start a food truck.”

http://techcrunch.com/2014/01/13/google-just-bought-connected-device-company-nest-for-3-2b-in-cash/

* Peter Nieh is a partner at Light Speed Venture Partners and investor in Nest Labs

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Size matters

from: Fred Wilson to: Paul Graham date: Fri, Feb 13, 2009 at 5:29 PM subject: Re: airbnb

I met them today

They have an interesting business

I'm just not sure how big it's going to be

fred

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http://www.paulgraham.com/airbnb.html

Fundraising

Valuation

Lead-investor

Termsheet

Due diligence

Closing

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Early stage investors in Estonia

Smartcap.ee (Early Fund II, 25M EUR)

estvca.ee – Estonian Venture Capital Association has 16 full members

new funds coming

estban.ee – 70+ business angels invested >3M EUR in 2013 average investment 68k EUR in 2013 9 pitching events annually; uses Gust.com syndication

Estonian startups with most capital raised (as of Oct 2014)

EUR

1. Transferwise.com 24 100 000

2. AdCash.com 20 000 000

3. GrabCAD.com 11 299 000

4. Fits.me 11 000 000

5. Fortumo.com 5 150 000

6. Realeyes.com 4 705 000

7. Zeroturnaround.com 4 360 000

8. Clifton.ee 3 925 000

9. Modesat 3 750 000

10. Erply.com 3 243 846

11. Pipedrive.com 2 383 000

12. Defendec.com 1 850 000

Source: As reported by media or people familiar with the matter. Crowdsourced by Estonian startup community

Finding capital

„Someone once told me that the probability of an

entrepreneur getting venture capital is the same as getting

struck by lightning while standing at the bottom of a

swimming pool on a sunny day. This may be too optimistic.“

Guy Kawasaki, partner at Garage Technology

Ventures

Thank you!

Red Bull Stratos jump by Felix Baumgartner