Software Tools for Venture

Capital Investment Process

ISBE 2012 Conference

Current effort classifies by decision process and stage of investment

300+ “software tools”

documented

Definition of stages of venture

capital investment

Seed – Financing that allows a business concept to be developed, perhaps involving the production of a business plan, prototypes and additional research, prior to bringing a product to market and commencing large-scale manufacturing.

Startup – Financing provided to companies for use in product development and initial marketing. Companies may be in the process of being setup or may have been in business for a short time, but have not yet sold their product commercially.

Expansion – Financing provided to companies that have reached a fairly stable growth rate; that is, not growing as fast as the rates attained in the early stage. These companies may or may not be profitable, but are more likely to be than in previous stages of development.

Stage of

investment

[1] British Venture Capital Association, 2010. BVCA Private Equity and Venture Capital Report on Investment Activity 2010. Available at: http://www.bvca.co.uk [2] National Venture Capital Association, 2011. NVCA Yearbook. Available at: http://www.nvca.org [3] European Venture Capital Association, 2011. EVCA Yearbook. Available at: http://www.evca.eu/

Decision process model of venture

capitalist investment activity Origination – the processes by which deals enter into consideration as investment prospects

Screening – involves a delineation of key policy variables which delimit investment prospects to a manageable few for in-depth evaluation

Evaluation – involves the assessment of perceived risk and expected return on the basis of a weighting of several characteristics of the prospective venture and the decision whether or not to invest as determined by the relative levels of perceived risk and expected return

Structuring – covers the negotiation of the price of the deal, namely the equity relinquished to the investor, plus the covenants which limit the risk of the investor

Post-Investment Activities – assistance to the venture in the areas of recruiting key executives, strategic planning, locating expansion financing, and orchestrating a merger, acquisition or public offering

[4] Tyebjee, T.T. & Bruno, A.V., 1984. A Model of Venture Capitalist Investment Activity. Management Science

Investment Networks

Investment Networks are essentially social

networks linking entrepreneurs and investors Examples:

• AngelList

• SeedSummit

• Angel’s Den

Case Study: AngelList

―AngelList is a platform for startups to meet investors

and talent.‖

Online pitching – Ability to pitch online to get

connected with angel investors

Database – 600+ angel investors, 100+ seed funds

and 300+ VCs

Key information - including investment history,

criteria and contact details

[5] AngelList, [Online], Available at: http://angel.co [9 June 2012]

Databases

Popular Databases used in industry. Examples:

• Dow Jones’ VentureSource

• Standard & Poor’s Capital IQ

• Bureau van Dijk’s FAME

• Thomson Reuters’ ThomsonONE (formerly VentureXpert)

• CB Insights

• Duedil

Case Study: CB Insights

―CB Insights is an information platform tracking startups invested in by VCs, angel investors, incubators and university programs.‖ Advanced search – 80,000+ high growth private companies and 50,000+ funding events In-depth company profiles – with funding history, management team and competitors Tracking and alerts – track and receive alerts on companies and funding events “Funding Recommendation Engine (FRE)” – analyzes funding history in order to recommend relevant funding sources

[6] CB Insights, [Online], Available at: http://www.cbinsights.com [9 June 2012]

Market Intelligence

Market Intelligence platforms generally utilize large

sets of data in order to give insight and provide

information on market dynamics and participants. Examples:

• Startup Intelligence

• Quid

Predictive Valuation

Tools that allow entrepreneurs to submit their

application for funding to investors. Examples:

• YouNoodle

Case Study: Younoodle

―Younoodle is a place to discover and support the

hottest early-stage

companies and university innovation.‖ Social network – a social networking platform

focused on university entrepreneurship

“Startup Predictor” – algorithmic prediction

estimating company's expected future value

“Podium” – a business plan competition platform

[7] YouNoodle, [Online], Available at: http://www.younoodle.com [9 June 2012]

Markets

Markets offer a marketplace to buy and sell shares

in private companies. Examples:

• Sharespost

• SecondMarket (formerly Restricted Stock Partners)

• NASDAQ’s BX Venture Market

Case Study: SecondMarket

―SecondMarket helps buyers and sellers

transact in illiquid,

restricted and alternative investments‖ Centralized online platform – 30,000+

participants, thousands of transactions, representing

billions of dollars in assets

Streamlined process – specialists streamline

process from listing to settlement

[8] SecondMarket, [Online], Available at: http://www.secondmarket.com [9 June 2012]

Benchmarking

Benchmarking tools allow companies to

benchmark their performance against their

competition and peer-group. Examples:

• Startup Genome Compass

• SVB Analytics Benchmarking

• CB Insights Mosaic

Deal Platforms

Deal Platforms offer a solution for investors to

manage their deal flow of prospective investments. Examples:

• Gust (formerly Angelsoft)

• Sevanta Dealflow

• CapLinked

• EquityNet

Case Study: Gust

―Gust provides a flexible, secure platform that helps investors and entrepreneurs seamlessly coordinate on funding decisions.‖ Investor search engine – to find investment from over 600 angel groups Common application – to apply for funding directly to one or more groups Investor Relations Site – allows companies to present all the information investors need to know

[9] Gust, [Online], Available at: http://www.gust.com [9 June 2012]

A note on notoriety

Alternative Finance

Alternative Finance tools, covering Crowdfunding and Peer-to-peer offerings, which don’t necessarily fit our tradition venture capital investment process but offer insight into new innovations and developments in relation to early-stage investment. Examples: • Kickstarter

• GrowVC

• Crowdcube

• Seedrs

• Funding Circle

• MarketInvoice

Case Study: Seedrs

―Seedrs makes

investing in startups

simple and rewarding.‖

Equity-based – allowing investment between £10 and £100,000 through the platform in return

for equity

Investor Access – access capital from a wide range of investors up to £100,000

FSA Authorised – approved by the Financial Services Authority (FSA)

[10] Seedrs, [Online], Available at: http://www.seedrs.com [9 June 2012]

E thomas.stone@ucl.ac.uk

T @tstonez

Why? It’s all fiction…

There is a tool for every task,

and a task for every tool.

— Tywin Lannister (Game of Thrones)

For every task, there's a perfect

tool. — Jihl Nabaat (Final Fantasy XIII)