how private equity funds raise capital and source deals with social media

© 2014 David Teten. More at ffvc.com and teten.com http://www.flickr.com/photos/roblee/133498854/

David Teten Partner, ff Venture Capital ffvc.com // @ffvc teten.com // @dteten November 20, 2014

The Virtual Handshake: You Found Your Spouse Online, Why Aren’t You Finding Your Investments and LPs Online?

http://www.flickr.com/photos/23905174@N00/2438005410/

Intro Social Media Network Next Steps

© 2014 David Teten. More at ffvc.com and teten.com

One-to-One

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One-to-One

David Teten (teten.com) • Partner, ff Venture Capital, early-stage technology venture capital fund • Lead author, first-ever research study on best practices in private equity/

venture capital deal origination • Lead author, first-ever research study on best practices of venture capitalists

in increasing portfolio company value through operational support • Lead author, The Virtual Handshake: Opening Doors and

Closing Deals Online • Harvard MBA 1998, Yale BA, both with honors. • @dteten



One-to-One

•  Introduction

•  One-to-One Media

•  Social Media

•  Capital and Deal Network

•  Next Steps




One-to-One

Study of 2,501 portfolio managers of 1,648 actively managed equity funds that specialized in aggressive growth, growth, or growth and income stocks between January 1990 and December 2006 Source: The Small World of Investing: Board Connections and Mutual Fund Returns; Lauren Cohen, Andrea Frazzini, and Christopher Malloy, 2008

Connected Holdings=Stocks for which managers had the strongest connection to senior officials (same school at same time with same degree) Excess return=total gain minus the Treasury bill return

Investors earn higher returns by investing in people they know. Mutual Fund Managers’ Excess Returns in Companies Run by College/Graduate School Classmates vs. All Other Companies



One-to-One

Social media technologies are pertinent throughout the investing cycle.

Investing Cycle Use of Social Media Raise capital •  Identify potential investors and get introduced

•  Solicit past investors in comparable funds

Originate investments

•  Identify and reach out to relevant people •  Become a magnet for relevant opportunities

Due diligence •  Review professional and personal lives of management •  Talk with firm’s network: customers, competitors, suppliers

Negotiate Deal •  Gain insight into counterparty’s negotiating style, motivations

Improve operations

•  Recruit “A” performers •  Accelerate sales and marketing

Exit investment •  Identify and more effectively negotiate with acquirers

How Investors Are Using Social Media



One-to-One

ff Venture Capital (ffvc.com)

•  Institutional angel-stage technology fund, based in NYC •  Extensive resources to support portfolio companies’ growth, with 24

employees •  Invested in over 70 companies out of 4 funds since 2008 •  First investments typically $100-$500K at valuations of <$5m pre-money •  Prominent investments include:

Cornerstone OnDemand (IPO); Quigo Technologies (sold to AOL for reported $340m); Klout (sold to Lithium); Indiegogo; Interaxon; 500px; Plated



One-to-One

→ Invested Amount

→ Grey = amount invested

→ Green = valuation in excess of amount invested

→ $1.5mm

Select Emerging Growth $50mm + Valuation Acquired/IPO

→ acquired by

ffVC companies create new industries

Network Next Steps Intro Social Media One-to-One


•  Introduction


•  Social Media


•  Next Steps



© 2014 David Teten. More at ffvc.com and teten.com Sourcing the Deal, Merrill Corp./The Deal, May 2010

Professional relationships drive the great majority of deal flow. What is the most important process your company's internal group uses to

locate possible deals?



Firms typically fail to exploit their internal and external networks.

Forrester Research/David Teten and Scott Allen, The Virtual Handshake: Opening Doors and Closing Deals Online (www.TheVirtualHandshake.com)

•  Knowledge not readily searchable •  Knowledge not retained when employees leave •  Relationships not visible •  Relationships primarily tied to colocated people; people

in other offices can’t leverage that knowledge and those relationships

•  Millennials expect and embrace social technologies, and are disappointed and less productive when they are missing

Failures of Existing Corporate Networks



•  Searchable

•  Crosses boundaries of time and space

•  Passive presence

•  Ease of forming groups

•  Reduced time and expense

•  Greater visibility

Benefits of Online Networks

http://www.flickr.com/photos/uaeincredible/3333223048/sizes/o/

Online networks are a more efficient way to get business done.



•  Introduction


•  Social Media


•  Next Steps



© 2014 David Teten. More at ffvc.com and teten.com http://www.flickr.com/photos/23439761@N03/3258313816/sizes/l/

Social media allows you to convert cold calls to warm calls.



“Social media is a communications

medium that relies on its audience to create, modify, or

distribute the medium’s content

- Nick Gonzalez, SocialMedia.com

http://www.flickr.com/photos/briansolis/2735401175/sizes/l/, http://blog.socialmedia.com/how-should-we-define-social-media/. /



Why should I care about social media in private equity?

•  Because 3 out of 4 Americans use social technology. (Forrester, The Growth Of Social Technology Adoption, 2008)

•  2/3 of global internet population visit social networks (Nielsen, Global Faces & Networked Places, 2009)

•  Visiting social sites is now the 4th most popular online activity—ahead of personal email.

(Nielsen, Global Faces & Networked Places, 2009)

•  Visitors spend 5 million minutes per day on Facebook. (Facebook)

http://www.slideshare.net/mzkagan/what-is-social-media-2005829 . http://www.flickr.com/photos/sreejithk2000/2385193167/sizes/l/



But I don’t use social media, and neither do (most of) my LPs, investment bankers, and portfolio executives!

•  The reality: you and your target investors are in the social media matrix whether you like it or not.

•  Your candidates search for you on Google before doing business with you. •  You are already a member of gated online communities, which you may or

may not be fully leveraging: your alumni network, your local “Moms” or “Dads” mailing list, your church/synagogue/mosque.

http://www.slideshare.net/mzkagan/what-is-social-media-2005829 . http://www.flickr.com/photos/juggernautco/6440075075/lightbox/



10-15% of the active VC population of 1,000 blog and tweet; some individual bloggers are as influential as entire groups of journalists.

* Individual VC blogs http://www.blogmetrics.org/venture_capital

Jeff Bussgang, Flybridge Capital Partners http://techcrunch.com/2011/01/19/top-20-vc-bloggers/

Top VC Blogs (BlogRank), November 2014

Blog Title # Incoming Links

(rank) Google PageRank VentureBeat 1 7 Paul Kedroskys Infec8ous Greed* 2 6 Redeye VC* 4 5 VC Café* 13 5 Xconomy Venture Capital Feed 1 6 India Business Blog 13 5 Web Strategy by Jeremiah 2 5 PEHub Blog 21 7 VC and Angel Investor Profiles 12 6 Union Square Ventures*

8

6



Private equity funds are mostly unsophisticated in their use of the internet; MCM Capital is an exception.

• Tools -  Tools: website, Facebook, LinkedIn, weekly blog, RSS feed,

email newsletter, email archive page, email signature -  CRM system (Goldmine), which automatically pulls in contact inquiries from

site -  Target terms for search engine optimization: micro-cap private equity fund,

leverage buyout, Cleveland based private equity, lower middle market, leverage buyout firm, management buyout

• Cost: -  New website -  Four professionals collectively spend 15-20 hours / week on social media

outreach

MCM Capital, a MicroCap PE Fund in Cleveland, OH

→ http://www.teten.com/blog/2010/12/05/how-a-small-private-equity-fund-uses-social-media-for-building-its-investment-pipeline-and-raising-capital/



MCM Capital has significantly increased sourcing via their social media presence.

• Traffic -  Overall traffic increased 14% on average each month -  Referral traffic (traffic coming from other websites including blog, LinkedIn,

Facebook, and email newsletter) increased 119% over the quarter -  Visitor's average time on site has doubled from 1:32 minutes to 3:05

minutes • Deals

-  Deal flow increased by 150% in total over the quarter, although this cannot be solely attributed to social media.

• Investors -  Two inquires from LP's, vs. a base of zero

MCM Capital Social Media Results

July - October 2010 . http://www.teten.com/blog/2010/12/05/how-a-small-private-equity-fund-uses-social-media-for-building-its-investment-pipeline-and-raising-capital/



Healthpoint Capital is a much larger fund investing significant resources into their social media presence.

• $750m fund for the musculoskeletal sector — specifically orthopedics and dental

• Weekly email to 14,000 people

• Publish a small percentage of content that 5-person research team generates

• Agenda: “make our website into the virtual Silicon Valley for our industry”

Healthpoint Capital Blog, a Rare Private Equity Blog



Best Practices in VC Blogging (written humorously, but still good advice)

• Hi, I’m a tech VC on Twitter. I’m @xyzvc • My icon is cool. It’s a painting/cartoon/wacky photo. Shows that I’m hip and approachable. But when I meet with you,

I’ll still crush your dreams. •  I tweet about technology, but occasionally post personal stuff. Important to show I have a sensitive side and care about

more than just making tons of dough. •  I use # tags, sometimes as a funny form of emphasis. Kind of like a wink and a smile ;) #donttakethisposttooseriously •  I love Twitter because I can broadcast my blog posts. Otherwise, no one would read them! I blog at xyzvc.com! •  I tweet blog posts with advice on fundraising, customer acquisition, and company building. Usually, someone really

smart has said it before and said it better. But I haven’t been in Hacker News for a while, so I figured there is no harm reinventing the wheel.

• Retweeting is fun. It’s like a virtual high-five. I retweet the posts of my partners, coinvestors, and entrepreneurs I’ve backed. Oh, I also retweet posts from guys whose butts I’m currently kissing so that they will like me. I really hope @fredwilson retweets this… I’d get so many new followers!

• My portfolio companies are the best. I will share so much of their good news with you it will make you want to unfollow me (unless you are a co-investor, in which case you will probably RT and add a #)

•  If a portfolio company is doing bad, no Twitter love. It’s like going to Disneyworld and trying to find Hercules or Mulan. It’s like they never existed.

•  I also tweet about the cool places I’ve been (via Foursquare and Gowalla), things I buy (via Swipely and Blippy), and the cool places I’m going to go (via Plancast).

• Wow, that’s a lot of tweeting! That’s why I also tweet about how busy I’ve been and how little I’ve slept. It’s a tough life. • Full disclosure, I’ve been a tech VC and I’ve done most of these things.

Hi, I’m a tech VC on Twitter (by Rob Go, NextView Ventures)

http://www.robgo.org/post/890368565/hi-im-a-tech-vc-on-twitter


© 2014 David Teten. More at ffvc.com and teten.com → David Teten and Scott Allen, The Virtual Handshake: Opening Doors and Closing Deals Online (www.TheVirtualHandshake.com)

Case Study: Lower mid-market PE fund sourced an industrial deal via an online job board. •  Hamilton Robinson, PE fund;

invested in 40 companies worth over $1b cumulatively

•  July 2002: Mark Riser (Darden 1994) placed ad in Darden Alumni site seeking C-level managers to back in MBOs

•  Riser’s classmate forwarded ad to Mark Ponozzo, President, Black Clawson Converting Machinery, $35m firm

•  May 2003: closed MBO of Black Clawson



Search engine optimize both your firm site and the internet presence of your team.

•  Scan targets’ sites to understand the language that they use when searching.

•  Use keywords Inconsistently.

•  Name what you’re selling.

•  Optimize top of the page.

•  Accuracy matters.

•  https://adwords.google.com/select/KeywordToolExternal

http://flickr.com/photos/neilt/2517652/sizes/o/

Search Engine Optimization 101

Network Next Steps Character – Competence – Relevance – Strength – Information – Number – Diversity

Intro Social Media One-to-One


•  Introduction


•  Social Media


•  Next Steps





Investor Network Valuation Formula

David Teten and Scott Allen, The Virtual Handshake: Opening Doors and Closing Deals Online (www.TheVirtualHandshake.com)

Ch = Character Co = Your Firm’s Competence R = Relevance of the contact S = Strength of your relationship I = Information N = Number of people D = Diversity

= D * ∑ (Chn*Con *Rn* Sn*In) N

n=1




Always Be Closing

Alec Baldwin in Glengarry Glen Ross

http://www.onlygoodmovies.com/blog/thoughts-on-film/glengarry-glen-ross-my-favorite-movie-scenes/




Balance Strength vs. Number

Average Strength = Minutes Available / Person Number = # People therefore…

Average Strength * Number = Total Minutes Available

vs.




•  Build personal relationships with journalists

•  Have a clear point of view and area of expertise

•  Develop and publicize quotable white papers and other thought leadership pieces

The best reason for deals to come to you is reputation. However, of 109 journalists surveyed, zero rated private equity firms “excellent” in communication.

Haynes, Bill. “Making Media Count”. PrivateEquityOnline, April 7, 2009.

Recommendations: Journalists’ Evaluation of PE Funds’ Communication Skills




Biography analysis software allows you to search by common affinity and more effective subsequent outreach.

•  Boardex •  Identified* •  Klout* •  LinkedIn •  Pipl •  Relationship Science •  ZoomInfo

Leading Providers of Biography Analysis Data

* ff VC portfolio company




•  Daniel Zumino, founder of BCG Paris and angel investor, had made a small investment in a startup

•  November 1999: He sent email to Stanford GSB alumni list seeking capital for the startup

•  March 2000: Raised $8m through referral from alumni, via this listserv

David Teten and Scott Allen, The Virtual Handshake: Opening Doors and Closing Deals Online (www.TheVirtualHandshake.com)

Case study: Entrepreneur raised $8m from an alumni email list




Corporate analysis software provides an insider view of the org chart, compensation, and customer views of a company.

Leading Providers of Corporate Analysis Data

•  Capital IQ •  CogMap •  LexisNexis Corporate

Affiliations •  Salesforce Data.com •  Glassdoor •  TheOfficialBoard •  ReferenceUSA




Angel Group Platforms

Angel Communities

Consumer Loans Private Equity Public

Gust

AngelList

CircleBack Lending

Assoc. for Corporate Growth

Albourne Village

Proseeder

CircleUp LendingClub Axial FT Alphaville Long Room

FundersClub Prosper

Intralinks Deal Nexus

Sum Zero

OurCrowd MergerMarket Value Investors Club

SeedInvest

Major Gated Communities for Investors

Identify co-investors and potential investments with online gated communities.




A number of companies are working to create online communities where LPs and GPs can meet; this model is not yet proven.

Retail LPs Marketing Services for GPs

Community Tools for Institutional

LPs Artivest

Meyler Capital

Palico

Brighton House

iCapital Network

Trusted Insight CAIS Group

Next Generation LP/GP Platforms by Target Market




Successful crowdfunding campaigns are a sign of an investable company or space.


Interaxon* Campaign on Indiegogo*




•  Phone •  Email • Web conferencing •  Instant messaging •  Internet telephony

(e.g., Skype) •  SMS •  Twitter

Using multiple media channels promotes stronger trust-building

Caroline Haythornthwaite, “Strong, Weak, and Latent Ties and the Impact of New Media,” The Information Society, 18 ( 2002) 385–401. http://flickr.com/photos/re-ality/41676755/sizes/o/

Major Media Channels for Origination (descending order of importance)




CRM Applications Used by Private Equity Funds

EquityTouch. ACG Events Survey Analysis, 2009. Available at www.touchahead.com/news.html

36% of PE Funds are using Microsoft applications for CRM which are not designed for CRM (primarily Excel and Outlook).




Effective capital-raisers are data hounds

Tools for Assimilating Data into Your Contact Relationship Management (CRM) System

Data source Selected technology for inserting data into CRM Business Cards

FullContact

Emails Evercontact, FullContact, RelateIQ Cloud LinkedIn, Plaxo CRM Act, Salesforce, RelateIQ




Well managed pipelines allow for use of a wide range of analytics to track dealflow.

•  Activity Measures: # Phone calls made; # Phone connects with management/board members; # Meetings; # Deals brought to Monday morning meeting; # Memos with approved budget for due diligence; # Indications of Interest; # Letters of Intent sent; #Letters of Intent signed; # closed transactions

•  Deal flow by source •  Pipeline analytics: Conversion ratios (from each stage of the pipeline to

the next); Proprietary vs. non-proprietary deals; Response time •  Industry benchmarking measures: Percentage of deals seen completed by

any firm; % of all deals consummated across the industry that fund would have considered which the fund saw

Selected Dealflow Analytics




A CRM system is useless without compliance.

•  Senior management role modeling. •  Ensure CRM generates direct value to users, e.g., by providing annual

updating of information by admin staff. •  Base part of compensation on compliance. •  Tie compensation to firm performance, not individual performance. •  Make data entry easy, e.g., by enabling sync to mobile devices. •  Allow easy data export (controversial but not unheard of.)

How to Ensure Use of CRM




Selected Searchable Databases of Private Equity and VC Funds

You can identify potential co-investors through any of multiple online databases.

All Investors Private Equity Venture Capital •  Bison.co •  Galantes •  Grey House •  LP Source •  Pratt’s Guide •  VentureXpert

•  Asia PE Research •  Eurekahedge •  Pitchbook •  PrivateEquityFirms.com •  ThompsonOne PE Module

•  Angel List •  CB Insights •  CrunchBase * •  PWC MoneyTree •  LinkedIn * •  TheFunded * •  VentureDeal •  Asian VC Journal •  Venture Source

* Has the most data for free




Monitor social media activity around your fund and its companies with Bottlenose*.





Identify thought leaders in your sector with Klout*.

*ffVC portfolio company




Use Copromote* to amplify your message via Facebook, Twitter, and Tumblr to millions of new people.





Senior executives prefer to interact online behind barriers, just as they do in face-to-face networks

Sample Gated Communities for Executives

•  IERG Online •  Executive Forum •  INMobile •  Sermo

•  Some LinkedIn groups




•  Yahoo Groups

•  Google Groups

•  LinkedIn

Online Community Platforms •  Ning

•  Xing

Every special interest group has an online community




Target investors who are one step removed from you

•  By geography •  By industry •  By personal

characteristics

http://500px.com/photo/514237



•  Introduction


•  Social Media


•  Next Steps




Social media is a better platform for starting and researching transactions.

Parameters Face-to-Face Social Media Character Judge by a handshake SEC filings Competence Personal resources Enterprise resources Relevance Semi-random Focused, searchable Strength Limited channels Multi-media Information Poor visibility Detailed, current data Number Small Large

Diversity Restricted by time, space Crosses time & space

Moving Deals Forward Face-to-Face vs. Online



Any questions ? Slides at teten.com/PE-social Sign up for updates at ffvc.com and teten.com @ffvc @dteten



Disclaimer and Forward Looking Statements This presentation is being provided solely for informational purposes. By accepting this presentation, the recipient (i) acknowledges and agrees that it will keep all of the information

contained herein confidential and (ii) shall be deemed to have agreed to the following: These materials are being furnished on a confidential basis to a limited number of qualified investors for the purpose of providing certain information about a potential investment in

ff Sapphire (IV) Venture Capital Fund, L.P. or a parallel fund thereof (collectively, the “Fund”). These materials contain preliminary information that is subject to change and that is not intended to be complete or to constitute all the information necessary to adequately evaluate the consequences of investing in the Fund. The information contained in these materials related to the terms and conditions of the Fund will be superseded, and is qualified in its entirety, by reference to the amended and restated limited partnership agreement and subscription agreement of the Fund, and the Confidential Private Placement Memorandum in respect of the Fund, which will be furnished to qualified investors on a confidential basis at their request and which should be reviewed for complete information concerning the rights, privileges and obligations of investors in the Fund. ffVC makes no representation or warranty (express or implied) with respect to the information contained herein (including, without limitation, information obtained from third parties) and expressly disclaims any liability based on or relating to the information contained in, or errors or omissions from, these materials; or based on or relating to the recipient’s use (or the use by any of its affiliates or representatives or any other person) of these materials; or based on any other written or oral communications transmitted to the recipient or any of its affiliates or representatives in the course of its evaluation of ffVC or the Fund. ffVC undertakes no duty or obligation to update or revise the information contained in these materials. The recipient should conduct its own investigations and analyses of ffVC and the Fund and the information set forth in these materials. Nothing in these materials should be construed as a recommendation to invest in any securities that may be issued by the Fund or as legal, accounting or tax advice. Before making a decision to invest in the Fund, a prospective investor should carefully review information in respect of ffVC and the Fund and consult with its own legal, accounting, tax and other advisors in order to independently assess the merits of such an investment.

These materials may contain “forward‐looking” information that is not purely historical in nature, and such information may include, among other things, projections, forecasts or estimates of cash flows, yields or returns, scenario analyses and proposed or expected portfolio composition. The forward‐looking information contained herein is based upon certain assumptions about future events or conditions and is intended only to illustrate hypothetical results under those assumptions (not all of which will be specified herein). Not all relevant events or conditions may have been considered in developing such assumptions. The success or achievement of various results and objectives is dependent upon a multitude of factors, many of which are beyond the control of ffVC. No representations are made as to the accuracy of such estimates or projections or that such projections will be realized. Actual events or conditions are unlikely to be consistent with, and may differ materially from, those assumed. Prospective investors should not view the past performance of ffVC as indicative of future results. These materials also contain certain performance information respecting one or more investment programs that, while somewhat analogous to those of the proposed Fund, should be understood to involve differing circumstances.

These materials also contain information about ffVC and certain of its personnel and affiliates and the historical performance of other investment vehicles whose portfolios are managed by ffVC. This information has been supplied by ffVC to provide prospective investors with information as to its general portfolio management experience. In addition, an investment in any other ffVC investment vehicle will be discrete from an investment in the Fund. As such, neither the realized returns nor the unrealized values attributable to any other ffVC investment vehicle are directly applicable to an investment in the Fund. Any investment in the Fund will be illiquid and its value will be volatile and may suffer from adverse or unexpected market moves or other adverse events. Investors may suffer the loss of their entire investment.

Internal rates of return that are presented net of fees and expenses (Net IRR) reflect deductions for management fees, expenses and carried interest paid by fund investors at time of exit, but do not reflect carried interest which may be payable on portfolio companies which have not yet had an exit. Gross internal rates of return do not reflect deductions for fees, expenses and carried interest that would be paid by fund investors. Internal rates of return are calculated based on the appreciation of both realized and unrealized investments. There can be no assurance that the existing investments of the ffVC investment funds will be realized at a valuation that is comparable to the valuations described in this presentation, and any subsequent diminution of value at which any such investments ultimately will be realized (or any incorrect estimates underlying ffVC’s valuation methodology) could materially and adversely affect the performance figures described herein.

The interests have not been registered under the Securities Act of 1933, as amended, or applicable state or foreign securities laws, nor has the Securities and Exchange Commission or any state or foreign regulatory authority passed upon the accuracy or adequacy of this presentation or endorsed the merits of any offering of interests in the Fund. The Fund will not be subject to the protections of the Investment Company Act of 1940, as amended.



Appendix




Track your peers (a lagging indicator of where to focus energy) •  CB Insights •  Crunchbase •  Techcrunch •  Mashable •  Mercurynews.com/vc •  Venturebeat



Meetup creates opportunities to meet face-to-face.



Manage your audience with Livefyre*.




Optimize your website for readership with Parsely.*




Step 1: Google Yourself



Step 2: Be a Data Hound

http://www.flickr.com/photos/sookie/94778946/



Step 3: Reduce Email Use



Step 4: Join the Right Club



Step 5: Find People to Meet Online