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Venture Capital The Business of Innovation
Kellogg-Recanati International Executive MBATel Aviv, March 2017
Session 2
Izhar Shay
VC 101
Venture Capital
Returns
Investment
Year 1 Year 7
Limited Partners
Great VC (GVC) GP
L.P.
(Cayman Partnership)
“GP”
Management
Agreement
Great VC Management
(M.C.) Inc. (Delaware Company)
Portfolio Investments
Great VC (GVC)
(Cayman), L.P.(Cayman Partnership)
GP
LP
Manager1
40%Manager2
20%
LP
LPManager3
20%
Management
Agreement
Manager4
20%
LP
Venture Capital Org Structure
Venture Capital Org Structure: Limited Partners
Venture Capital Org Structure: Limited Partners
Who:• Private Equity funds• Fund of funds• Pension funds • Endowments• Corporates• Family offices• Individuals
Why:• Asset allocation / diversification• Access• Strategic investments
Venture Capital Org Structure: Limited Partners
Venture Capital Org Structure: Limited Partners
Limited Partners
Great VC (GVC) GP
L.P.
(Cayman Partnership)
“GP”
Management
Agreement
Great VC Management
(M.C.) Inc. (Delaware Company)
Portfolio Investments
Great VC (GVC)
(Cayman), L.P.(Cayman Partnership)
GP
LP
Manager1
25%Manager2
25%
LP
LPManager3
25%
Management
Agreement
Manager4
25%
LP
Venture Capital Org Structure
Venture Capital Org Structure: General Partners
Venture Capital Org Structure: General Partners
Who:• Financial background• Founder / CEOs of venture backed companies• Experienced professionals• Smart• Brave• Lucky?
Michael Moritz Marc Andreessen Fred Wilson
Venture Capital Org Structure: General Partners
What:• Manage Deal Flow• Make investment decisions• Manage investments• Board positions, support portfolio companies• Fund management• Limited Partners relationships
Mary Meeker Jim Goetz Jenny Lee
Venture Capital Org Structure: General Partners
Limited Partners
Great VC (GVC) GP
L.P.
(Cayman Partnership)
“GP”
Management
Agreement
Great VC Management
(M.C.) Inc. (Delaware Company)
Portfolio Investments
Great VC (GVC)
(Cayman), L.P.(Cayman Partnership)
GP
LP
Manager1
25%Manager2
25%
LP
LPManager3
25%
Management
Agreement
Manager4
25%
LP
Venture Capital Org Structure
Venture Capital Org Structure: Management Company
Who:• General Partners• Venture Partners• Finance, Backoffice• EIRs• Principals• Associates• Analysts• Deal Flow managers• Marketing / PR• HR• Business Development for portfolio companies• Administrative Staff
What:Day to day management and administration of fund’s activities
Limited Partners
Great VC (GVC) GP
L.P.
(Cayman Partnership)
“GP”
Management
Agreement
Great VC Management
(M.C.) Inc. (Delaware Company)
Portfolio Investments
Great VC (GVC)
(Cayman), L.P.(Cayman Partnership)
GP
LP
Manager1
25%Manager2
25%
LP
LPManager3
25%
Management
Agreement
Manager4
25%
LP
Venture Capital Org Structure: Capital Flows
Capital Calls
DistributionsC
arry
Inve
stm
ents
Venture Capital Org Structure: Capital Flows
Capital Calls• Called throughout the lifetime of the fund, up to commitment• Called as needed, for investment and fund management fees
Management Fees:• Used for day to day fund management and administration• Range between 15% ~ 25% of total commitment• Called periodically over the lifetime of the fund
Distributions:• Occur upon portfolio companies liquidity events (IPOs, M&A…)• Shares or cash
Carry:• Performance based upside for GPs• Ranges between 20% to 25% of profits• Various conditions, terms and limitations apply
Venture Capital
Returns
Investment
Year 1 Year 7
Venture Capital Org Structure: Timing
Year 3 Year 6
Venture Capital Org Structure: Timing
Year 1 Year 2 Year 4 Year 5 Year 7 Year 8 Year 9 Year 10
Follow On Investments
1st Investments Wind Down
Venture Capital Returns
Venture Capital Returns
Venture Capital Returns
Venture Capital Returns – Size Matters!
Venture Capital Returns – Size Matters
Venture Capital Returns
Venture Capital Returns – There is hope…
Source: Preqin Report, Nov. 2014
Venture Capital Returns – The “J Curve”
Source: Preqin Report, Nov. 2014
VC 101
Venture Capital
Returns
Investment
Year 1 Year 7
Thank You!
January 2016
Talent or luck, which one
is more important?
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