Venture Investing: How To Select, Structure, Minitor, and Exit Venture Financing Deals (Ten3 Mini-MBS Coach)

VENTURE INVESTING

- how to select, valuate, structure, monitor, and exit venture investments

MBS e-Coach by Ten3 East-West

Why MBS in Venture Investing?

Growing Market of Business Angels - Early Stage Private Investors

As investments of formal venture capital (VC) companies in early stage start-up companies have been decreasing since 1999, the role of private venture capital investors, such as business angels, has been increasing. In US, the average VC funding per deal grown from US$ 2.7 million in 1994 to US$ 13 million in 2000. These days, VC companies prefer to invest in larger deals at a later development stage. At the same time, the number of business angels in growing. In US, in 2000, business angels put US$ 40 billion behind 50,000 deals. The number of business angels in US is estimated to be 400,000. This number grows at an average rate of 20% per year. In Europe, the estimated potential of annual angel investment is as high as US$ 30 billion.

Though the investment potential of business angels is significant, the size of the angel market could potentially become 10 to 20 times larger. It is estimated that only 7% of potential business angels in US invest in start-up ventures. The remaining 93% are virgin angels who would like to invest but don't do it for a number of reasons. Main reasons why business angels do not do more investment are:

lack of proposals matching their investment criteria
lack of quality business proposals
lack of trust in the entrepreneur or management team
lack of experience in pricing deals, and
lack of experience in due diligence and monitoring.

Growing Corporate Venture Capital (see slide show)

In today's new entrepreneurial economy, the real shareholder value is created by companies whose corporate strategies include well-developed venture strategies. Partnership between small innovative firms and large corporation is mutually beneficial. While entrepreneurial companies can identify technology and market opportunities and move faster to capitalize on them, they can achieve enormous leverage through technology and distribution agreements with large global corporations.

In United States in 1994, only 2% of venture capital investments was corporate venture capital, but in 2000, corporate venture capital accounted for 17%, nearly $20 billion.

By 2000, spinouts, a new form of creating and financing a high-tech company has become more popular. This novel approach has a number of advantages over a merger or acquisition and it plays an increasingly high role for high-tech companies.