Ba Core 6 Pmodule 9

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COURSE TITLE: BA CORE 6

INTERNATIONAL BUSINESS
LESSON 9
LEARNING OVERVIEW
This lesson explains venture capitalists, their portfolio and motivations. It also discusses
how venture capitalists operate successfully.
LEARNING OBJECTIVES
At the end of the lesson, the students will be able to:
1. Explain how to deal with venture capitalists.
2. Describe venture capitalist’s portfolio.
3. Describe venture capitalist’s motivations.
LESSON PROPER
Engagement
Is Bill Gates a venture capitalist?
Exploration
This Photo by Unknown Author is licensed under CC BY-NC-

ND
Venture capitalist
❖ They are basically fund managers looking for high returns for their investors.
o Understand the VC’s portfolio’s mission and goals.
o Most have multiple funds in their portfolio each with different investment
parameters based in part on the various investors.
❖ VC is an industry, and the VCs are your “customer.”
Reference: Saylor URL: http://www.saylor.org/books

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o You need to understand how the industry operates, how to get your
“product” (i.e., your company) noticed, and how to close the sale (i.e. get
your funding).
o While there are certainly nuances, treat it like a sales process from start to
finish.
❖ Remember that VCs run a business, one that they are held accountable to by their
investors.
o More often than not, the people you meet at a VC firm are not the actual
investors (although the senior principals may have some of their own money
in the fund); they just work for the VC firm.
❖ VCs focus on market trends, whether it’s green technology, social networking
websites, or the current perceived “hot” industry.
o While it’s still possible to get funding if you are not in a current trend, it’s
certainly harder.
❖ VCs typically look at groups of investments and generally like to have funds with
three or four companies out of ten providing exceptional returns.
o They expect the rest of the businesses in the portfolio to either be weak
performers or to fail.
o It’s important to ask VCs about their expected returns.
▪ Control the interview.
▪ Ask the VC about their mission and goals.
▪ Learn about the VC’s investment style.
❖ If the VC is a strategic investor, understand the motivations for their interest in your
product, service, or market.
o Act the part.
o Be prepared.
o Conduct yourself professionally at all times.
o Dress and act like you’re going to a job interview—it’s quite similar.
o Don’t drop names or promise too much.
o Don’t make claims about your product or service that can’t be substantiated.

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o Examine the VCs network/expertise.
❖ Look at the companies in the VC’s portfolio to see if there’s a synergy across the
portfolio.
o It’s helpful if the VC is willing to facilitate interaction with key strategic
investors in the fund as well as other complementary portfolio companies.
❖ An important issue for most investors and VCs is the exit strategy.
❖ It’s great if a company does well, but the VC wants to know how and when they’re
going to get their money out.
This Photo by Unknown Author is licensed under CC BY-NC-

ND
❖ The ten advantages of raising venture capital for a startup are:

➢ Large Amounts of Capital Can Be Raised
o Many small business loans for startups are limited to $5 million and
qualifying can be difficult. However, venture capital is available in
amounts as small as $100,000 for a seed stage and more than $25
million for more mature startups in large markets. There is also a
tendency for startups to raise venture capital several times, allowing
companies to access a large amount of capital that would otherwise be
impossible.
➢ Help Managing Risk Is Provided

o Bringing on venture capital helps startup founders manage the risk
inherent in most startups. By having an experienced team oversee
growth and operations, startups are more likely to avoid major issues.
The rate of failure for startups is still 20% in the first year, but having
someone to turn to for advice when a complex situation arises can
improve the odds of making a good decision.

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➢ Monthly Payments Are Not Required

o When a venture capital firm invests in your business, it will do so for
equity in the company. This means that unlike small business and
personal loans, there are no regular payments for your business to
make. This frees up capital for your business, allowing you to reinvest
by improving products, hiring a larger team, or further expanding
operations instead of making interest payments.
➢ Personal Assets Don’t Need to Be Pledged

o In most cases, you will not have to contribute additional personal assets
to the growth of your business. While many startup funding options will
require founders to pledge their homes as collateral or use their 401(k)
for startup costs, most venture capital agreements will leave the
founder’s personal assets outside of the discussion.
➢ Experienced Leadership & Advice Is Available

o Many successful startup founders become partners at venture capital
firms after they exit their businesses. They often have experience
scaling a company, solving day-to-day and larger problems, and
monitoring financial performance. Even if they don’t have a startup
background, they are often experienced at assisting startups and sit on
the boards of as many as ten at a time. This can make them valuable
leadership resources for the companies in which they are invested.
➢ Networking Opportunities Are Provided

o When you’re focused on your business, there often isn’t time to network
with people who can help your business grow. Partners at a venture
capital firm spend as much as 50% of their time building their network to
assist the companies they invest in. Having access to this network can
help you forge new partnerships, build out your clients, hire key
employees, and raise future rounds of funding.
➢ Collaboration Opportunities With Industry Experts & Other Startups Are

Available
o When you get venture capital funding, you are getting what is often
referred to as smart money. This means the money you get comes with
the added benefit of the expertise the venture capital firm can offer. You
will often work with partners from the firm, other startup founders who
have received funding, and experts from both of their networks to get
your company on the right path to growth and success.

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➢ Assistance With Hiring & Building a Team Is Available

o The team you need to start a company and the team you need to scale
are not the same, and venture capital firms can help get key people in
place at the company to help you grow. Also, many potential employees
may consider a venture-backed startup less risky than a traditional
startup with no funding, making it easier to recruit a talented and well-
rounded team.
➢ Increased Publicity & Exposure Are Likely

o Most venture capital firms have a PR group and media contacts, and it’s
in their best interest to get exposure for your startup. Often being
associated can add a great deal of credibility to a startup, especially for
founders who haven’t built other successful companies. The increased
publicity can lead to getting noticed by potential employees, customers,
partners, and other venture capital firms interested in raising funding.
➢ Help Raising Subsequent Rounds of Funding Is Available

o Venture capital firms are interested in seeing your company raise
additional funding at a higher valuation. They can introduce you to
additional venture capital firms that can better assist you at later stages
and provide additional funding. Venture capital firms often reserve the
right to invest in future rounds of funding and often contribute additional
capital as the startup grows.
Explanation
Name ___________________________ Score __________
Internet search – search one (1) venture capitalist and discuss how he/she succeeds.
(5 pts.)
Extension
Name ___________________________ Score __________
Enumerate venture capitalist’s motivations. (5 pts.)

6
Evaluation
Name ______________________________ Score __________
In 1983, Accel was founded by Arthur Patterson and Jim Swartz. The co-founders
developed the firm's "Prepared Mind" investment philosophy based on the Louis Pasteur
quote "Chance favors the prepared mind.", which requires "deep focus" and a disciplined
and informed approach to investing. In 2000, Accel entered a joint-venture with Kohlberg
Kravis Roberts to form Accel-KKR a technology-focused private equity investment firm
focused on control investments in middle-market companies. In 2001, Accel opened its
London office as a separate fund, to invest in European technology companies, focusing
on Series A and Series B investments. Its European investments include Avito (acquired
by Naspers for $1.2 billion), BlaBlaCar,[36] Deliveroo, Spotify and Supercell (acquired by
Tencent for $8.6 billion), among others.
In addition to Accel's continued investments in early-stage startups from the Accel early
stage fund, the firm announced a $480 million growth fund in December 2008, focused
on growth equity opportunities in information technology, the internet, digital media,
mobile, networking, software, and services. In May 2019 Accel closed a $575 million fund,
which led to financing Series A of European and Israel startups. The round was the largest
in the region and the total amount of funds managed by Accel reached $3 billion.
The biggest number of portfolio companies are American startups, but they also have
startups from 25 other countries in their portfolio. Accel works with seed, early and growth-
stage investments. Its seed and early stage investments include Cloudera, Dropbox,
Dropcam, Facebook, Flipkart, Jet.com, Podium, Webflow and Slack. The firm’s growth
capital investments focus on more developed companies that require a larger amount of
capital to expand their business. Examples include Atlassian, DJI and Qualtrics.
Question: What are the characteristics of a venture capitalist? (10 pts.)

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1

COURSE TITLE: BA CORE 6

This Photo by Unknown Author is licensed under CC BY-NC-

❖ VC is an industry, and the VCs are your “customer.”

Reference: Saylor URL: http://www.saylor.org/books

Reference: Saylor URL: http://www.saylor.org/books

o Examine the VCs network/expertise.

This Photo by Unknown Author is licensed under CC BY-NC-

❖ The ten advantages of raising venture capital for a startup are:

➢ Help Managing Risk Is Provided

Reference: Saylor URL: http://www.saylor.org/books

➢ Monthly Payments Are Not Required

➢ Personal Assets Don’t Need to Be Pledged

➢ Experienced Leadership & Advice Is Available

➢ Networking Opportunities Are Provided

➢ Collaboration Opportunities With Industry Experts & Other Startups Are

Reference: Saylor URL: http://www.saylor.org/books

➢ Assistance With Hiring & Building a Team Is Available

➢ Increased Publicity & Exposure Are Likely

➢ Help Raising Subsequent Rounds of Funding Is Available

Reference: Saylor URL: http://www.saylor.org/books

Reference: Saylor URL: http://www.saylor.org/books

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