HEC Business school Lecture / introduction to Venture Capital, entrepreneurial finance and technology companies Professor Olivier Younes EXPEN / guest speaker christophe raynaud ISAI Part II is about venture capital investment thesis and part III is about how ISAI (early investor in BlaBlaCar) source and screen potential deals

1. INSIDE VENTURE CAPITAL
February 2016
Christophe Raynaud – Managing Partner & Cofounder

2. WHO AM I TO SPEAK ?
 HEC graduate (last millenium)
 Entrepreneur…
- Chateauonline
- Netboussole
- Samaris
 …Turned VC (dark side of the force)
- Saeed Amidi (Amidzad partner / plug&play tech center)
- Paris Business Angels
- ISAI
CONTACT : r a y n a u d @ i s a i . Fr / @chraynaud

3. WHAT WILL I BE TALKING ABOUT ?
 What is Venture Capital History ?
 What is an investment thesis ? What’s ISAI’s ?
 How do VC/ISAI source/screen opportunities ?
 What makes a great founder ?

5. WARNING
 NO BULLSHIT RULE
 NOT THE TRUTH, JUST MY OWN EXPERIENCE

6. INVESTMENT
THESIS

7. PEOPLE vs IDEA INVESTMENT CHOICE
 ARTHUR ROCK
« WHAT I AM INTERESTED IN IS INVESTING IN PEOPLE »
> BET ON THE JOCKEY NOT THE HORSE
EUGENE KLEINER
« MAKE SURE THE DOG EATS THE DOG FOOD »
« IN A HIGH WIND, EVEN TURKEYS CAN FLY »
> BET ON HUGE MARKET AND PROVEN TRACTION
T
E
A
M
M
A
R
K
E
T

8. DEAL FLOW vs THESIS DRIVEN
 DEAL FLOW CENTRIC INVESTMENT (PASSIVE)
- PAST BUYER’S MARKET
- 1980’s : 183 VC @ $42m
- THIN & SHALLOW
 THESIS DRIVEN INVESTING (ACTIVE)
- TODAY SELLER’S MARKET
- 2000’s : 3300 VC @ $280m
- WIDE & DEEP

9. DEMAND / SUPPLY INVERSION

10. WHAT’S AN INVESTMENT THESIS (example 1)
SOFT TECH VC
- 3 ASSES RULES

11. WHAT’S AN INVESTMENT THESIS (example 2)
 USV @AVC
- Thesis in one Tweet

12. WHAT’S THE MANDATE LPs GAVE GPs?
 WHAT IS YOUR STRATEGY TO PROVIDE RETURNS TO LPs
- SECTOR
- STAGE
- GEOGRAPHY
- PORTFOLIO SIZE / DEAL SIZE
- NUMBER OF DEALS / PARTNERS
- VALUE ADDED / BOARD SEATS
- FAILURE RATE / MULTIPLE TARGETED
- WHY IS THIS COMPELLING ? WHAT SECRET INGREDIENT ?
(Cycles ? Differientiators ?)

13. WHAT VCs DO TO SPOT A DEAL ?
> RISK / REWARD ANALYSIS

14. BUSINESS PLAN TOPIC COVERAGE 1/3
1. The Business:
- Company’s business
- Strategy
- Mission statement
2. The Market:
- Historic and projected sizes in
dollars
- Market trends
3. Product Offering:
- Product description
- Development schedule and
launch date(s)
- Product differentiation

15. 4. Distribution:
- Key customers
- Customer acquisition strategy
- Sales channels /Partnerships
5. Competition:
- Key competitors
- Competitive advantages
- Barrier to entry
6. Management Team:
- Roles and responsibilities
- Background of team members
- Board composition
BUSINESS PLAN TOPIC COVERAGE 2/3

16. 7. Financials:
- Revenue model, margin analysis
- Historic and forecasted P&L (first two years by quarters)
- Projected cash flow (first two years by quarters)
- Current balance sheet
- Projected head count by functional area (G&A, sales, marketing, product
development)
- Capitalization schedule
8. The Deal:
- Amount to be raised
- Anticipated valuation
- Use of proceeds
- Options plan
BUSINESS PLAN TOPIC COVERAGE 3/3

17. WHAT ELSE THAN BP DO VCs LOOK AT ?
 INVESTMENT STRATEGY COMPATIBILITY
- AMOUNT / STAGE / GEOGRAPHY / SECTOR
 PORTFOLIO COMPATIBILITY
 QUALITY OF THE SOURCE
 SHOPPED DEAL / AUCTION
 CO-INVESTORS (FIT/QUALITY)
 QUALITY OF LEGAL COUNSEL / INVESTMENT READINESS
 PERSONAL FIT

18. ISAI
BUSINESS CASE

19. ISAI
[isaj] n.f. (jap. name: different, remarkable)
Acronym : Internet Savvy Active Investors
VISION: RECYCLE $/EXP. OF SUCCESSFUL FOUNDERS
FOUNDERS WHO HAVE MADE IT
HELP OTHER FOUNDERS
TO MAKE IT

20. WHO ARE WE ?
 AN ENTREPRENEURS’ FUND
- 130 ENTREPRENEURS
- €150M UNDER MANAGEMENT
 INTERNET SECTOR SPECIALIZED
(MARKETPLACES/SAAS/MOBILE/ADTECH)
 EARLY STAGE FOCUSED
(SEED/POST SEED/SERIES A)
 FRANCE BASED
(OR ABROAD WITH FRENCH ANGLE)
> BORN 6 YEARS AGO

21. WHO ARE WE ?
 OUR TEAM
 OUR COFOUNDERS
 OUR PORTFOLIO

22. OUR ENTREPRENEURS’ FUND MODEL
 OUR LPs ENTREPRENEURS HELP US SOURCE DEALS
- GLOBALLY
- HIDDEN MARKET
 OUR LPs ENTREPRENEURS HELP US SCREEN DEALS
 OUR LPs ENTREPRENEURS ADD VALUE TO BOARD
MEETINGS

23. MISSION: HELP OTHERS SUCCEED

24. WHAT’S OUR (INITIAL) INVESTMENT THESIS ?
 TARGET USUAL SUSPECTS
TEAM/PRODUCT/MARKET/COMPETITIVE ADV.
 SELECT THOSE WITH ISAI CRITERIA
- CAPITAL EFFICIENCY
- PROVEN TRACTION
- PROGRESSIVE AMBITION
- VALUATION < 3/5M
- ETC…
> BUILD A WHITE PONEY IN 3/5 YEARS
EXIT > 15/30M€

25. WHERE’S THE TRICK IN OUR THESIS ?
 WE OPERATE ‘AVENUE DE LA GRANDE ARMEE’
 …NOT ON ‘SAND HILL ROAD’
- IPO (FR) = DEAD END
- SMALL M&A MARKET
- EXITS > $80M ARE VERY RARE
 WHITE PONEY CAN TURN INTO :
- CENTAURS (> $100m)
- UNICORNS (> $1Bn)
> FROM 2X (LOW FAILURE RATE) UP TO 4X (1/3 WINNERS)

26. ISAI’S « MAGNIFICENT SEVEN »
1. Oustanding TEAM
2. Proven Traction / Velocity
3. Low Capital Intensity
4. Defensible Position
5. Progressive Ambition
6. Fair Valuation
7. Value Added Board Position(s)

27. SOURCING &
SCREENING

28. TRADITIONAL DEAL FLOW SOURCING
 INBOUND
- BRAND / BLOG POST / PRESS / SOCIAL PRESENCE / WHITE PAPER
 INCUBATORS

29. TRADITIONAL DEAL FLOW SOURCING
 INBOUND
- BRAND / BLOG POST / PRESS / SOCIAL PRESENCE / WHITE PAPER
 INCUBATORS
 ACCELERATORS

30. TRADITIONAL DEAL FLOW SOURCING
 INBOUND
- BRAND / BLOG POST / PRESS / SOCIAL PRESENCE / WHITE PAPER
 INCUBATORS
 ACCELERATORS
 BOUTIQUES

31. TRADITIONAL DEAL FLOW SOURCING
 INBOUND
- BRAND / BLOG POST / PRESS / SOCIAL PRESENCE / WHITE PAPER
 INCUBATORS
 ACCELERATORS
 BOUTIQUES
 STARTUPS STUDIO

32. TRADITIONAL DEAL FLOW SOURCING
 INBOUND
- BRAND / BLOG POST / PRESS / SOCIAL PRESENCE / WHITE PAPER
 INCUBATORS
 ACCELERATORS
 BOUTIQUES
 STARTUPS STUDIO ANGEL GROUPS / SEED FUND
 LPs + ECOSYSTEM REFERALS
OTHER PRO-ACTIVE RESEARCH
- SPECIALIZED MEDIA / COMPETITIVE ANALYSIS / TECH EVENTS / STARTUP JURY

33. ISAI DEAL FLOW / CONVERSION FUNNEL

34. ISAI DEAL FLOW EVOLUTION
643
1105
1377
1529 1507 1505

35. ISAI DEAL FLOW COVERAGE
ISAI look at 4/5 opportunitiesISAI look at 2/3 opportunities
89 rounds
« Seed Stage »
145 rounds
« Post Seed » & « Series A »

36. ISAI DEAL FLOW SOURCING
Deal flow Step 0 Deal flow Step 3
BEST DEAL FLOW COMES FROM OUR 130 ENTREPRENEURS LPs NETWORK

37. Download slides on twitter/chraynaud