Presentation on Venture Capital

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Presentation on Venture Capital

• April 7 2003
• Tanya Roberts / Omar Ali

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What is Venture Capital?

• Generally investment in private (ie unquoted)
  companies.
• Specifically
• - Growth / Acquisition Funding (inc. start
  ups)
• - MBOs / MBIs / IBOs / LBOs / SBOs ..
• - Private Placement
• - (Turnarounds)
• General criteria are the same growth and the
  management to deliver the growth
• How do VCs make their money?
• - Profit Growth
• - Leverage
• - Selling well

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Market Trends

• Since Inception (European Point of View)
• More than 125 billion has been raised for
  investment in Europe's most promising growth
  companies since private equity emerged in Europe
  in the 1980s. In 1999 alone, 25.1 billion was
  poured into more than 11,000 investments.1
• The Last Couple of Years
• The European and American VC markets have
  witnessed a substantial decrease in fund raising,
  an increase in divestments, and a dry-up of the
  capital markets as an exit strategy. Nonetheless,
  large buyouts are fuelling the investment climate
  and keeping the market active. Essentially, an
  economic downturn is not necessarily a bad thing
  for the private equity market. It offers the
  opportunity to turn around bargain companies.

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So whats it like?

• Analysis so dont worry about the numbers!
  Its the management who matter.
• Fierce Competition Marketing, Marketing,
  Marketing...
• BUT its about long term relationships
• The Good Bits
• Variety / Responsibility / Long term view
• The Bad Bits
• Peaks and troughs / Tough decisions

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The UK VC Market (www.bvca.co.uk)

• Its tough
• LBOs Alchemy / CVC / Cinven
• Mid Market Private Equity
• UK Regional Specialists 3i / LDC / Bridgepoint.
• Sector Specialists Graphite / Apax
• The Best of the Rest ABN / HSBC / Permira..
• Venture Capital
• Small funds / specialist divisions within the
  main firms
• The European VC Market (www.evca.com)

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Types of PE/VC Funds

• Industries
• There are numerous industry focuses within
  venture capital and private equity. The largest
  sector investments over the last year in the US,
  for instance, have been the following1
• software
• telecommunications
• medical devices
• biotechnology
• network and equipment
• Geography
• Funds are often organized by having a specific
  geographic region constraint in regards to making
  investments.
• Size of Funds
• Funds vary in size anywhere from 50 million to
  5 billion. Nonetheless, originators of funds
  normally seek at a minimum 100 million.

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Structure of PE/VC Funds

• General Partners (GP)
• Are the managers and originators of a fund. It is
  rare that GPs put their own capital into the fund
  and thus, seek management fees and carried
  interest within the fund structure. The industry
  standard for carried interest is 20.
• Limited Partners (LP)
• Are the actual investors that commit capital to
  the fund. Investors tend to be mainly
  institutions (financial intermediaries) such as,
  Pension Funds, Insurance Companies, Investment
  Banks, etc. Since LPs actually supply the fund
  with money, they are usually rewarded with
  preferred returns and a catch-up clause
  (repayment of 100 capital before other dividends
  are to be distributed.)
• Time Periods
• Investment Period is the amount of years
  that the fund will utilize to make portfolio
  investments. The industry standard is between 3
  to 5 years.
• Fund Life is the amount of years that fund
  exists for. The industry standard is 10 years to
  12 years with maximums reaching 20 years.
• Note See Next Slide for Further Detail

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Industry standards for investment periods. Fund
lives are 3 and 10 years, respectively.
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Useful Websites

• European Venture Capital Association
  www.evca.com
• National Venture Capital Association
  www.nvca.org
• British Venture Capital Association
  www.bvca.co.uk
• Italian Private Equity and Venture Capital
  Association www.aifi.it
• Venture Economics (Thomson) www.ventureeconomics.
  com
• Private Equity Online www.privateequityonline.com
  
• PWC Money Tree www.pwcmoneytree.com
• The Journal of Private Equity www.iijpe.com/issue
  .asp