How to Approach Venture capital Dr Yuval Binur
How to Approach Venture capital? Dr. Yuval Binur Arsuf Global Partners
disclosure I have no relevant financial relationships
In One Word: Carefully
Changing the Title of this Talk: Should I approach Venture Capital at all? What are my financing alternatives?
Let’s understand Venture Capital • Funds are raised from institutions and high net worth family offices • Funds are based on 8 years cycle. At the end of the cycle, the managers need to liquidate the fund. • Investors in VC funds are interested on ROI (return on investment). VC is high risk investment so the expectation of its investors is at least 6 X to 8 X ROI. • As the return is averaged over all the Fund’s portfolio, and because the rate of success in approx. 30%, to cover losses a successful investment must produce well over 10 x return.
Let’s understand Device Company development phases • According to a recent Silicon Valley Bank report, the average time it take to a innovative device company (to separate from improvements), from inception to commercialization is 12. 5 years • The average amount it will burn to get to commercialization is $125 M done in multiple rounds, each with different value
So there is a built in gap between the company needs and the VC structure
The History Vs. Today’s Reality – the VC view • Historically, VC was geared for early, pre or minimal revenues IPOs to provide liquidity within the Fund window of time. • Today, no device company can get IPO at all unless it can show earnings, unless one goes to marginal exchanges where the stock most likely will dive after the IPO • In recent years, also the acquisitions path slowed down due to wall street pressure on corporations to increase earnings. Pre commercialization M&A happen only if there is strong IP that has strategic value to the buyer
The History Vs. Today’s Reality – the Company’s view • The highest cost of product development are the clinical studies towards market approval. • Studies to obtain reg. approvals became bigger, costlier and complex vs. those done in the history. Typically, VC cannot meet the financial needs of that phase and apply pressures via the Board on the Company. in many cases management change take place. • At the end, the early investors are the losers in this game as more rounds of financing are being raised with higher preferences.
This gap is Hard to Close
So what one can do? – Alternative Financing Sources • For seed financing, go to family and friends • For series A consider crowd financing. Make sure you arrive to at least a proof of concept with series A funding • For series B&C try private equity funds • For series D try strategic investor And Skip the Venture Capitalists
Additional points to pay attention to: • Invest early in comprehensive IP and cover also the new, emerging world • Select carefully your investors according to their level of toxicity. On a scale of 100, never go over 30 in toxicity level – do your DD. • Keep your burn rate as low as possible throughout the life of the Company. • Go for your idea if you are convinced that you can raise the necessary funds and that your investors will see at least 3 X returne within 4 -5 years. If you are not sure, go get a job and look for another idea.
- Slides: 13