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private equity

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Topics for todayTopics for today

What is venture capital?

What do VCs look for?

VC process

VC value added process

VC terms

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What is Venture Capital? What is Venture Capital?

Investments in early stage small or medium sized, unlisted companies,

Can also consider investing in big projects and sometimes listed companies, if strategic- termed Private equity

Aim to increase the value of its investment without taking control by active participation in the management process

Exit by way of redemption,selling shares back to the promoters, to a third party in a private transaction, a trade sale or an IPO within a fixed time

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Venture / Private Equity Funding Venture / Private Equity Funding StagesStages

Seed

Start-Up / Early Stage

Expansion Stage

Mezzanine Financing

Buyout / Leverage or Management

More risk

More money

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What Do VCs Look For?What Do VCs Look For?

Management team

Market

Competitive Advantage

Capital Requirements

Exit Strategy

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Management TeamManagement Team

(People) 3

Managing a business, especially a start-up is not easy

We look to the founders to have the vision, drive, tenacity, conviction, experience, flexibility etc

Proven track record…serial entrepreneur

Chemistry is also important

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Potential market size is very important

VCs look for winners

Difficulties: Identifying change

Some products / services create the market

Some change the industry

Others are yet to be tested but has great potential

Large Growth MarketLarge Growth Market

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What is the Business Model?What is the Business Model?

Blinding Idea / Technology

Product / Service

Can it be commercialized?

Is it a Strong Value Proposition

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Does the firm have a clear Competitive Does the firm have a clear Competitive Advantage?Advantage?

What is your unfair advantage? Is it sustainable?

Do they know market & competitors intimately

What do they have that others don’t?

What do they do better than any other company?

What if they’re up against copycats, reverse-engineers, 800lb gorillas?

Need to answer the question

What do they do differently from their competitors that their clients value?

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Reasonable Valuation are importantReasonable Valuation are important

What is too expensive?

What is too cheap?

P/E, Revenue Multiple, NPV, EBITDA?

Exit Strategy?

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VC PROCESSVC PROCESS

Marketing- news articles, talks, networking Only meet people who cold call that have been recommended by

someone who the VC respects. Review business plans. The VC wants to check out the quality of

your thinking. This is a work in progress but it needs to be done by you.

Court the business man. Check out their management ability by reviewing what they done in the past.

If we agree to proceed we may do some preliminary due diligence. In our case we review market size and do some character references.

If agreed in principal we prepare a PIM- Preliminary Investment Memo.

If approved we may give a draft term sheet. This outlines the broad terms on which we invest.

Due Diligence. Technical Due Diligence maybe outsourced to a technical expert. Accounting due diligence by an accounting firm, legal due diligence by a legal firm. This should take one month.

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VC PROCESS (cont.)VC PROCESS (cont.)

Technical due diligence will include simple things like does it work? is it stable? competition analysis,- trying too understand the competitive edge in the technology.

Once due Diligence completed , move to agree term sheet. We go back to our investment committee to report our findings. No adverse findings then we move to contract.

Term sheet finalised move to completion. Go to documentation.Need to complete all the

conditions precedent. This process can take one month or more.

All the CP’s completed the deal becomes unconditional and money is released.

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VC’s Add Value by taking a active roleVC’s Add Value by taking a active role

Help management

Identify Business Opportunities

Strategic Planning

Develop Scalable Business Models

Raise Sufficient Capital to Execute Business Plan

Build World Class Management

Increase Market Share

Build Barriers to Dominate

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Examples of how VC’s can helpExamples of how VC’s can help

Network Countries, companies, people – Ajia Partners

Strategic & Business Advice Markets, trends, technology, financials, overseas Business courses

Executive Recruitment Top management: CEO, CTO, Marketing, etc Investment in JObstreet

Strategic Alliances Macro picture and contacts Help companies make contacts- use advisors

IPO & M&A Experience Timing, Valuation, Expertise

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Choosing the right VC is importantChoosing the right VC is important

VC’s are NOT money lenders or banks

Choosing a VC is NOT about money

Choose one: That you can work with That can help you take your company to the next

level That has a proven track record That share your views and aspirations That has network and connections That gives you a good valuation

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Different VC have very different Different VC have very different characteristicscharacteristics

Investment Size, Instruments, Time to Exit

Stage of Company Start-Up, Early Stage, Expansion, Mezzanine

Purpose of Funding

Industry Focus Broad-based vs. focused

Management Participation Active vs. laissez-faire

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VC TermsVC Terms

Typically use Redeemable Preference shares Right to redemption in 5 years Right to take over firm if not redeemed. Breach of reserve matters means prefs can be redeemed

Have rachet provisions in case of down round Value stays the same

Typically have board seat and reserve matters Regular meetings, monthly accounts

Valuation maybe dependent on future performance Based on future PE or sales multiple

Tranched release of money Based on milestones to reduce risk

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Evaluate thoroughlyEvaluate thoroughly

Be prepared – trends move fast

A business plan is a living thing – if its broke fix it!

Rejection & failure are NORMAL

Learn learn learn

Chase your dream

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Intelligent CapitalIntelligent Capital

Partnership of three partners and a analyst

All partners have industry experience

Have started and owned 30 companies between the partners

Manage $15m first fund. Made 5 investments to date.

Focus on early stage companies where we can add value

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Call Asgari Stephens

tel : +6-03-9281-6588

fax : +6-03-9281-6598

email : asgari@intelligentvc.com

Further Information

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Thank youThank you