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Practicing with VC Money
May 2008
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ResultsGraduated top of classBNR here I come
Age – 48, SurveLive – HardPlay – HardWork – Hard
Dave’s résumé
Age – 19, high schoolLive – HardPlay – HardWork – Not so hard Age – 22 University
Live – HardPlay – HardWork – Not so hard
Age – 27, University againLive – HardPlay – HardWork – Hard
Resultskicked out of three high-schoolsA&P here I come
Building a serial entrepreneur?
ResultsForced to take a degreeMarried, divorcedFull-time A&PPart-time UWO
Age – 32, BNR NortelLive – HardPlay – HardWork – Hard
LTW
ResultsLed a team of 600 on 3 continentsCut team to 150Resigned
Age – 42, NakinaLive – HardPlay – HardWork – Hard
ResultsRaised millions in financingBrought in millions in revenuesFired OOPS
PlansNo VC financingNew business modelAngel investment opportunity
High tech
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Lessons learned
1. Live hard, play hard, work hard– Experience is the best teacher
• I may be a little slow to learn
2. Take advice with a grain of salt– Recommended readings – Business Philosophy
• The Prince – Machiavelli• The Art of War – Sun Tzu
3. Understand your risk tolerance– Only risk I worry about is the risk of stagnation
Know your strengths, weaknesses, and desire
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Sun Tzu – The Art of War
Knowing the other and knowing oneself,In one hundred battles no danger.Not knowing the other and knowing oneself,One victory for one loss.Not knowing the other and not knowing oneself,In every battle certain defeat
…and know the terrain
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Geographic Perceptions
The Bay Startup
Business acumen – A
Technology acumen – B
The Venture Capitalist
Top Quartile
Incentive to win
Go-to-market
Prototype the concept
Market the concept
Refine the product
The Ottawa Startup
Business acumen – B
Technology acumen – A
The Venture Capitalist
Novice and unproven
Incentive not to lose
Go-to-market
Develop the product
Test/refine the product
Introduce the product
True or false – perception is reality
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Canadian VC Performance
Canadian industry performance influenced by:– Industry is young and timing has been unfavorable– Selection process to direct the money to good managers not efficient– Many funds are (too) small– Capital allocation by stage is inefficient and financings are too small– Companies not driven to large exits –We need to build strong
companies by global standards Gilles Duruflé
Myth busting – VC money is smart money
•Canadian horizon returns are negative on all horizons•On a 10 year horizon, Canada lags the US by more than 30% and the EU by nearly 10%
•Canadian horizon returns are negative on all horizons•On a 10 year horizon, Canada lags the US by more than 30% and the EU by nearly 10%
1 YR 3 YR 5 YR 10 YR
Canada -3.9 -9.9 -11.5 -3.0
S&P TSX 15.9 11.5 -0.6 8.1
Canadian Horizon Returns
2006-07-02
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The Cost of Money
Time to ROITime to Market
Ret
urn
on In
vest
men
tC
ost o
f Mon
ey
PersonalFinances
VCSoprano'sLending
Services
Friends&
Family
Angel
Government
DebtFinancing
Costs as measured by:• Expected return• Control of the company
Find a better way– Change the business model
– Reduce the Time to Market
– Cut the “Proof of Concept” costs
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The Founder’s Dilemma
Company Maturity
Foun
der’s
Impo
rtan
ce
Financing commitments:– Build a product
– Build a team
– Build a customer base
– Build revenues
– Build a business
And if you are successful
…work yourself out of a jobInitial
financing secured
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VC Discussions
The OpportunityThe TechnologyThe TeamThe Plan
The EntrepreneurObjectivemaintain as much control as possible such
that you can build a company and realize a vision. Making some money along the way would be great too.
You should ask1. Do you have money to invest2. Do you invest in this area3. What is your average investment
The Venture CapitalistObjectivemake as much money as possible in as short
a time as possible with as little risk as possible
Common statements1. We invest in people2. You need more money3. We will leverage our connections4. Who else is interested
Know yourself, know the investor, you win