The venture capitalist’s view

Ben Holmes from Index Ventures spoke about the venture business. First some stats: in the States there was $25.7bn venture money in 2006, with 1,446 transactions with an average transaction size of $10.5m. In Europe the equivalent was €4.1bn with 867 transactions with an average values of €14m. Around 55% of investments are in IT with a rapid increase in web application development.

In Index’s case the mechanics are as follows: about half of all investments lose money, a third break even and a sixth make (lots) of money.

What a good VC will add: advice and strategy, hiring, partnerships, profile and PR, internationalisation, trusted service provider relationships and exit optimisation.

He outlined the basic deal terms, which he admits many entrepreneurs find offensive:

  • target 20-35% ownership (enough to make a difference)
  • board representation
  • liquidation preference (to make sure the exit is big enough)
  • participation rights (want to be able to maintain stake)
  • element of reverse vesting (owners lose equity if they bale out early)
  • certain control and veto right (to stop a low-value exit)
  • option pool
  • period of exclusivity to close legals

He says the main reasons for not raising VC money are: it’s a feature not an application; the market size is too small; the owner’s motivation isn’t financial. “We spend out time looking for teams which have done amazing things with no money.”

The pitch to the VC, he says, should ideally be a 20 page Powerpoint presentation covering:

  • product
  • market
  • business model
  • team
  • competition
  • product roadmap
  • technology overview
  • business development
  • financial status

Update: there’s a great mindmap of the whole presentation uploaded to Flickr.

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