CAreers in Venture CApital

DEEPAK NATRAJ, B COM (HONS), ACA

6 October 2014, Prepared for the ICAI - Bangalore Branch

Purpose of the Presentation• Provide an overview to help you take a learned decision on pursuing a career in

venture capital

• Provide leads to help you seek out your journey into venture capital, should you so decide

A FEW CAVEATS BEFORE WE BEGIN …

• This presentation is not complete without the speaker’s commentary, which is not included is part of this slide-deck - reach out to the presenter for any clarifications

• The presentation does not make any representations of any kind

• The views expressed are purely the personal opinions of the presenter

• All original content and analysis in “CAreers in Venture CApital" is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License

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Covered…

• What is Venture Capital (or “VC”) ?

• A Typical VC Firm - “Into the Matrix”

• Some Leads & Sources of Data

• Contacts of the Presenter

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Venture Capital Investments• Total VC investments in 2013 was $48.50b in 5,752 rounds, of

which 68.2% was in the US across 3,480 rounds1

• In the same period, the amount invested in India was $1.8b across 222 rounds (of which angel rounds were 19 and incubator rounds were 18) accounting for 3.7% (in $ terms) of global VC investments

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• Since 2006, total venture funding in India is ~$10.0b1

• The aggregate private equity invested in India is expected to be $12.0b as of 20142

• Bangalore accounts for over 41% of the estimated ~3,400 start-ups in India3

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Venture Capital…

• Funds • Expertise • Credibility • Exit Assistance

VC Inputs

• Long-term• Emphasis on Value• Focus•Risk & Governance

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What is Venture Capital?• Funds given by investors to businesses based on a perception of long-term

growth potential

• Bring expertise in terms of knowledge and networks to facilitate optimum use business resources. Examples include recruitment assistance, access to marketing & vendor networks, technical knowledge and experienced managerial talent through entrepreneurs-in-residence

• Businesses need long-term funds with little on-going overhead such as interest payments and covenant management

• Bring focus on core business drivers that create sustainable value for all investors including founders and employees

• Institute risk mitigation and governance to ensure value capture in the business

• Help realise the value created in the business by facilitating “exits” 6

Where To Deploy Venture Capital?

• Education

• Life Sciences

• Artificial Intelligence

• Robotics and UAVs

• Nanotechnology

• Entertainment

• Technology7

• Innovation & disruption

• Business model disruption

• Performance optimisation

• Behavioural change

• Brands & image creation

A Typical Venture Capital Firm

Limited Partner (“LP”) 1

LP 2 LP 3 LP 4 LP …

LP n

Venture Capital Fund [pool of investor (LP) funds]General Partners,

Investment & Governance

Teams

Investee 1

Investee 2 Investee 3

Investee n

Investee 4 Investee …

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Why Should VC Succeed?

• Disbursed investment de-risks using a portfolio approach

• Win disproportionately on multiple small bets absorbing failures

• Top-of-food chain so attracts the best talent

• Strong ability to catch trends and enter them early

• Hands-on approach to investing/active approach

• Interests better aligned to create value upside for investors

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A Skill Profile of a VC FirmThe typical skills requirements in a VC firm :

Industry &/ Technical Expertise

Deal Sourcing &/ Engagement

Operational Expertise

Investment Exposure

Deployable Capital

Investor Engagement

Limited Partner ☑️ ☑️

General Partner ☑️ ☑️ ☑️ ☑️ ☑️ ☑️

Execution Team ☑️ ☑️ ☑️ ☑️

Governance & Reporting Team ☑️ ☑️ ☑️ ☑️ ☑️

Entrepreneurs In Residence ☑️ ☑️ ☑️

Venture Partner ☑️ ☑️

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Alternate Approaches to VC Investing

Not all VC investing happens only in VC firms

• Venture/Investment arms of companies

• M&A Teams in large companies

• Family offices

• Proprietary investing

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Alternate Paths into a Career in VC

Different paths, one goal …

• Corporate exposure : strong technical skills and operating experience at various levels of management

• Consulting firms : transaction advisory and support services

• Investment banks : deal management skills

• Analyst firms : deep research skills

• Accounting, legal and compliance firms : deal execution and on-going fund management capabilities

• Start-up exposure : doing your own or working from an early stage in a start-up - “the battle from the trenches”

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Operational experience is increasingly

considered as essential

Regulatory Framework for VC Investing

Regulatory framework set out by SEBI closely oversees VC firm activities4

• Raising capital - how much, from whom and where from

• Deploying funds - when & where to invest and the limitations

• Providing returns on capital - taxation, fees and profit share (Carried Interest)

• Engaging with investors - reporting and governance & “taxes”

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Q & A

Some Interesting Leads• http://www.investopedia.com/terms/v/venturecapital.asp - what is venture capital ?

• http://www.forbes.com/sites/johngreathouse/2012/09/18/pssst-heres-how-to-become-a-venture-capitalist/ - tips on getting into the industry

• http://venturebeat.com/2013/08/13/so-you-want-to-be-a-venture-capitalist/ - more tips on how to enter the VC industry

• http://www.slideshare.net/mashable/startup-success-by-the-numbers - data on start-up success

• http://pando.com/ - interviews with leading valley based VCs and founders of start-ups

• http://money.howstuffworks.com/question398.htm - how does venture capital work ?

• http://indiavca.org - Indian Private Equity & Venture Capital Association

• http://www.dealcurry.com - focus on deals done in India - M&A, VC, PE etc.

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Some Interesting Leads• http://www.indianmba.com/faculty_column/fc159/fc159.html - article on VC in India

• http://www.slideshare.net/NeerajChaturvedi2/current-scenario-of-venture-capital - well written and researched paper on VC firms in India - EXCELLENT TEST PREPARATION MATERIAL

• VC firm websites - Accel, Andreesen Horowitz, Aarin Capital, Sequoia, Bessemer Ventures etc.

• Read the papers - Economic Times, Financial Times, The Wall Street Journal, Business Insider, Tech Crunch

• Gather expertise on the subject in which you want to specialise - read, read, read (does not preclude working in that sector too)

• Other suggested reading :

• Think Fast, Think Slow - Daniel Kahneman

• Signal and Noise - Nate SIlver

• Future Files - Richard Watson

• and so much more…16

Sources1. Ernst & Young : Global Venture Capital Insights and Trends 2014

2. http://articles.economictimes.indiatimes.com/2014-09-28/news/54400438_1_equity-ivca-mauritius

3. http://articles.economictimes.indiatimes.com/2013-03-29/news/38125651_1_bowei-gai-mohandas-pai-sundi-natarajan and India Start-Up Report, Commerce & Industries Department - Government of Karnataka, India

4. Securities Exchange Board of India (“SEBI”) : Securities And Exchange Board Of India (Alternative Investment Funds) Regulations, 2012 and other related directives

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Best Wishes

Thank You

• Deepak Natraj, B.Com(Hons), Chartered Accountant

email : (o) deepak@aarincapital.com & (p) dn.datum@gmail.com

also available at

(o) http://aarincapital.com/deepak.html &

(p) http://in.linkedin.com/in/deepaknatraj