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?