what investors look for

On What Investors Look For

Ziya G. Boyacigiller

This presentation was created and given by Ziya Boyacigiller who was leading Angel Investor and a loved mentor to many young entrepreneurs in Turkey. We have shared it on the web for everyone’s benefit. It is free to use but please cite Ziya Boyacigiller as the source when you use any part of this presentation. For more about Ziya Boyacigiller’s contributions to the start-up Ecosystem of Turkey, please go to www.ziyaboyacigiller.com

Copyright (c) 2003 Ziya G. Boyacigiller

What Investors Look For

Based on a Presentation by Andy Rachleff


Venture Capital Food Chain

INSTITUTIONAL INVESTORS

(Limited Partners – e.g.

Endowments, Pension Funds)

VENTURE CAPITALISTS

(Finding and Funding

Entrepreneurial Companies)

ENTREPRENEURS

(Starting and Building

Companies)


Asset Allocation for a Limited Partner


The Trade-off Between Risk & Return


In which of the following firms would you rather invest?

Each invests $1 million per company in 10 companies:

1. One gets 2x their money on all 10.

2. The other loses all their money in 8 and gets >20x their money on the remaining 2.


Summary of the Investment Business


How do you find Right/Non-Consensus?


How can you recognize vision?

•Early insight into technology inflection point (disruptive innovation)

•The Napkin test


Effect of Management Team

•When a great management team meets a lousy market market wins

•When a lousy management team meets a great market market wins

•When a great management team meets a great market something special happens


Capital Intensity

•Least Amount of Money = Most Attractive Business

•Minimize Capital Required by

High gross margins (Unfair advantage)

Rapid escape velocity (Product/Market fit)


Term SheetTERM SHEET

FOR SERIES A PREFERRED STOCK FINANCING OF[Insert Company Name], INC.

[ __, 200_]

This Term Sheet summarizes the principal terms of the Series A Preferred Stock

Financing of [___________], Inc., a [Delaware] corporation (the “Company”). In consideration of the time and expense devoted and to be devoted by the Investors with respect to this investment, the No Shop/Confidentiality and Counsel and Expenses provisions of this Term Sheet shall be binding obligations of the Company whether or not the financing is consummated. No other legally binding obligations will be created until definitive agreements are executed and delivered by all parties. This Term Sheet is not a commitment to invest, and is conditioned on the completion of due diligence, legal review and documentation that is satisfactory to the Investors. This Term Sheet shall be governed in all respects by the laws of the [State of Delaware].


How do Valuation & Terms get established?

•Look at milestones achieved

(aynasi istir kisinin, lafa bakilmaz…)

(credibility is doing what you promise…)

•Look at comparables

(It’s like buying a house)

•Then it’s up to supply & demand


Milestones Chart to CF+


It is all about the pie…

50%

10%


Who is the ideal funding source?

Potential Market Size

Ideal Funding Source

Small Bootstrap or Angel

Unclear Bootstrap or Angel then VC

Large Venture Capital


How should you choose among Venture Capitalists / Investors

•Industry experience / perspective

•Recruiting help (network)

•Partnering/Contacts

•Brand/Credibility

•Price/Stage

•Funding Required

•Location

•Chemistry


Who should you ask for advice?

•Successful Entrepreneurs

•Top deal lawyers

•Investment bankers

•Frequent advisors to the VCs

- Professors- Angel Investors

•Inovent

•Endeavor


What VCs Don’t Look For

•Another Microsoft!

•Do you think they care if you build a long term great company (beyond their holding period)?

- No benefit to IRR or distributions

- Impacts their reputation

what investors look for

Small Business & Entrepreneurship