VCIC ® Team Prep Session The VCIC Game

VCIC © 2009 UNC Kenan-Flagler Agenda VCIC background Event Itinerary Judging Criteria Tips for Preparing –Understanding VC –Dos and Don’ts Covered in the other Prep Session –Basic VC math –The VC ecosystem (LPs, GPs, etc.)

VCIC © 2009 UNC Kenan-Flagler VCIC Background Invented at UNC in 1998: 4 schools, 1 eventInvented at UNC in 1998: 4 schools, 1 event In 2009…In 2009… –50 schools –40 events (31 internals, 8 regions, 1 finals) –700 students worldwide –150 VCs donating thousands of hours –100 entrepreneurs –OXFORD: European Champion, 2 nd Place Internationally 2008: Entrepreneurs Choice Award2008: Entrepreneurs Choice Award

VCIC © 2009 UNC Kenan-Flagler

Made it to the Finals Lately?

VCIC © 2009 UNC Kenan-Flagler Agenda A little VCIC background Event Itinerary Judging Criteria Tips for Preparing –Understanding VC –Dos and Don’ts

VCIC © 2009 UNC Kenan-Flagler Event Itinerary Read business plans Watch entrepreneurs pitch Interview entrepreneurs Negotiate a deal Feedback from judges The VCIC ® Experience Research industries, markets, technology, etc. Make investment decisions Thursday 5pm 1 On Your Own 2 Saturday 9am 3 Saturday 10am 4 Saturday noon 5 Saturday 1:30pm 6 Saturday 4:30pm 7

VCIC © 2009 UNC Kenan-Flagler Thursday-Friday Receive business plans by 5pm Wednesday Research industry, market, etc. Hold team strategy meetings Create lists of questions for entrepreneur CHOOSE YOUR COMPANY –Valuation, Term Sheet, Investment Philosophy, Due Diligence Questions

VCIC © 2009 UNC Kenan-Flagler Saturday 9:00Entrepreneur pitches 9:45Due diligence sessions (15 minutes each) 11:30Working lunch: Pick ONE investment 1:00Written deliverables 1:30Negotiations and Q&A 4:45Awards Ceremony 5:00VC Round Robin (feedback)

VCIC © 2009 UNC Kenan-Flagler Agenda A little VCIC background Event Itinerary Judging Criteria Tips for Preparing –Understanding VC –Dos and Don’ts

VCIC © 2009 UNC Kenan-Flagler How do teams “Win”? Due Diligence Written Deliverables Negotiations and Q&A BOTTOM LINE: which team would judges like as a venture partner?

VCIC © 2009 UNC Kenan-Flagler Due Diligence: 33% These are the actual questions on the VCIC Judge Form How well did the team cover what you consider the key issues/questions? How did the team seem to understand the business opportunity and strategy? To what level was the team able to establish appropriate rapport with the entrepreneur? How appropriately did the team lead/control the meeting? How well did the team dig into the right issues? How skilled was the team at getting information (not just asking a list of questions)? To what level did the team appropriately demonstrate their value as a VC firm to the entrepreneur? How well did the team demonstrate an understanding of the financial requirements of this deal? How well did the group appear to work together as a team (as best you can tell)?

VCIC © 2009 UNC Kenan-Flagler Term Sheet and Negotiations: 67% Backed the right horse with the right terms. –Valuation / Investment Size / Syndication / Board Structure / Option Pool / Liq. Pref., Anti- Dilution, Dividends / Dates and other terms Team’s performance during negotiation? –Focus on the important issues? / Establish positive rapport? / Demonstrate firm’s value? / Made progress towards getting a deal? How well did the team handle Q&A? –Did they demonstrate a mastery of VC skill sets and domain expertise? –How well does the team’s proposed deal address the concerns of other investors (syndicate, previous, future or skip if not applicable)? –How well does the team’s investment fit the fund profile, including syndication (or not) and planning for follow-on rounds? –Other: Insert any question if the team did something else that stood out, good or bad. For example, were you surprised to get a term sheet on this deal based on due diligence? –How well did the group work together as a team?

VCIC © 2009 UNC Kenan-Flagler How do Negotiations Work? You will negotiate with the entrepreneur you chose for a deal Entrepreneur will have a copy of your term sheet (not your executive summary) You have 15 minutes to make progress and demonstrate to judges that you are great VCs Judges have 10 minutes for Q&A with you; they will have all written deliverables

VCIC © 2009 UNC Kenan-Flagler Agenda A little VCIC background Event Itinerary Judging Criteria Tips for Preparing –Understanding VC –Dos and Don’ts

VCIC © 2009 UNC Kenan-Flagler Understand the VC Profile Strategy: swinging for fences Need to “move the needle” on fund size Expect future rounds You are the experts at venture creation Eye on the exit Not 3X 10X on $100k doesn’t cut it And plan for them Make strategic assertions Back into your #s

VCIC © 2009 UNC Kenan-Flagler Fund Profile You will be given a profile explaining the size of your fund and focus For example: –$75MM fund formed in early 2007 –20% already committed –85% active The investment you make must “fit” the profile (not be too large or small)

VCIC © 2009 UNC Kenan-Flagler Example: What to do with $100M Really only $80M to invest (fees: 2%/yr x 10 yrs) Could be a couple different strategies: –8-12 deals at $5-10M each 1 st round $1-2, follow on $2-4 One or two big gambles in the $10M range –Or maybe deals at $3-6M each

VCIC © 2009 UNC Kenan-Flagler Advice About Valuation No DCF! Find comparable investments and exits. Back out of exit to current need. (e.g., $200M exit means we need 50% with our $5M investment to get 20X means pre-money $5M) Plan for reasonable % ownership through future rounds (keep everyone incented). Consider syndication. Gut check: is a guy in his garage worth $10M? VCs hate it when you over-value a venture. –Does it pass the smell test?

VCIC © 2009 UNC Kenan-Flagler Do’s Be EXPERTS in simple VC math and jargon (pre- money, post-money, options, etc.) Understand that VCs need to spend ~$1M+ on each round and ~$5M+ on each deal total (amount will depend on fund profile) Expect follow-on rounds, even if the entrepreneurs don’t think they’ll need it Nail the due diligence for all the deals

VCIC © 2009 UNC Kenan-Flagler Don’ts Don’t use DCF to calculate valuation. Don’t use VC jargon if you aren’t comfortable with it. Don’t hold to your guns in Q&A. If judges are pushing back on something you did, you probably screwed up. Don’t get fancy with the term sheet. VCs tend to see creativity on the term sheet as unnecessary risk.

VCIC © 2009 UNC Kenan-Flagler SBS Internal Competition To be run just like the real thing: Our team will be well prepared for LBS…and UNC 2-3 Entrepreneurs, real business plans and live due diligence/negotiation sessions SVCIC anyone? Key Dates: –Sign-up Deadline 4 th December –Internal Comp 16 th January –LBS 26 th February –UNC 8-10 th April

VCIC © 2009 UNC Kenan-Flagler Prepare well in Advance Once teams have been registered, you will be provided with a list of resources intended to level the playing field (somewhat) However, primary assistance will be minimal – it will be up to your team to prepare: survival of the fittest! Our winning team will be supported by previous participants and VCs

VCIC © 2009 UNC Kenan-Flagler So what makes an ideal team? Work ethic and a strong desire to win at UNC… A diverse set of backgrounds – transaction experience is especially useful Lawyers and number crunchers Do you present well and communicate effectively? Industry experience: tech nerds, biotech etc. Not necessary but can be useful.

VCIC © 2009 UNC Kenan-Flagler Q&A