Venture Capital: Finding the Next Billion Dollar Companies

Venture CapitalFinding the Next Billion Dollar Companies

Michael Herlache MBA

Doctorate of Business Administration in Finance Candidate 2020

CEO of Founders Ventures


IndexI. The Purpose of the Company

II. How Companies Create Value

III. Strategy & Finance

IV. Value & Valuation

V. The Role of the CEO

VI. Value Management

VII. Valuation

VIII. Value in a Digital Context

IX. Lowering Entrepreneurial Risk: Diversification

X. Lowering Entrepreneurial Risk: White Label

XI. Value Themes

XII. Category Leaders or New Category

XIII. The Next Billion Dollar Companies

XIV. The Billion Dollar Portfolio


I. The Purpose of the Company

Companies exist to create value


II. How Companies Create Value

Companies create value by investing capital at rates of return that exceed their cost of capital. This is the principle of value creation.

The only thing that differs across companies is the implementation (i.e. different asset and capitalization mix)


III. Strategy & Finance

Rate of Return Cost of Capital

Asset Mix Capitalization Mix

Corporate Strategy Finance

Uses Sources


Rate of Return Cost of Capital

Asset Mix Capitalization Mix

Corporate Strategy Finance

Uses Sources

IV. Value & Valuation


Valuation

IV. The Role of the CEO


Valuation

Value Management

IV. Value Management


• Valuation to guide business decisions and ultimately corporate policy• Valuation for each strategic alternative; how much value does each create• Managing value mindset throughout organization• Value – Assess it, create it, and communicate it• Review and target performance of asset mix• Communicate the value of the business to shareholders & value of strategy• Value of company derives from ability to generate cash flows

IV. Valuation


Comparable CompaniesComparable TransactionsDiscounted Cash FlowLBO (Financial Sponsor)Accretion/Dilution (Strategic)

II. Value in a Digital Context

• All new ventures start as social networks around a value theme. From this social network, additional functionality in the form of custom mods emerge along with corresponding business models. All digital ventures should thus begin as social networking platforms acquiring users and then after seed funding begin the work on custom mods and monetizing via business models. Additional mods emerge as users are added to the platform and confirm that they are in fact willing to pay for the additional functionality.


II. Lowering Entrepreneurial Risk: Diversification

• The practice of entrepreneurship involves utilizing a diversification strategy to bring down entrepreneurial risk coupled with a white label strategy to cut down on startup costs and time to prototype.


II. Lowering Entrepreneurial Risk: White Label

• A white label strategy to cut down on startup costs and time to prototype.

• Best practice has already been built for marketplaces and relationship platforms


II. Value Themes

• Value themes are major categories that have business models associated with them along with their corresponding markets

• Examples include Health, Love, & Investment


II. Category Leaders or New Categories

• The startup should either have the ability to be a category leader or create a new category


II. The Next Billion Dollar Companies

• Ultimately, now and in the billionaire digital companies will come in the form of marketplaces and relationship platforms (i.e. finding new ways of relating to each other).


II. The Billion Dollar Portfolio

• The billion dollar portfolio in terms of Net Present Value should consist of pre-accelerator investments in 15 marketplaces and relationship platforms. Investments should be $3,000 for 4%


Economy & Finance

Venture Capital: Finding the Next Billion Dollar Companies