Deal with investors_StartupBus @Google Switzerland_Nicolas Berg_oct2013

early stage investments by entrepreneurs

NICOLAS BERG

How a startup should deal with investors

StartupBus
@Google Switzerland
Zurich 28th Oct 2013

Redalpine Venture Partners Ltd, Pfingstweidstrasse 60, 8005 Zurich, Switzerland, +41 44 271 15 30, www.redalpine.com

Agenda
1.

2.
3.
4.
5.
6.
7.
8.
9.

About me,
Redalpine &
Eco system of startups & venture investors
Know everything about your potential investors!
Why do you go for investors?
Why should an investor invest in YOUR startup?
What drives an investor & how does he select deals?
Which investor type fits for my startup?
How do I identify & approach investors?
How do I pitch for & negotiate with investors?
How do I treat investors after I got money?

Copyright Redalpine Venture Partners AG, Switzerland

2

Speaker: Nicolas Berg


Serial entrepreneur with 10 start-ups (1984-2011)
e.g. founder of Borsalino 1998, sold 2000 at 20x multiple to Ringier
iCEO Sharoo June-September 2013



Full time angel investor in 16 start-ups (2000-2006)
e.g. Investor & Country Manager XING 2004-2010
IPO at 30x multiple 2006



Partner at Redalpine Venture Partners (since 2007)
Built a portfolio of 20 European high innovation start-ups with Redalpine Capital I & II
5 portfolio companies ranked among 13 Swiss top start-ups in 2011



Lecturer, journalist and jury member
Teaching students & entrepreneurs at venturelab.ch since 2006
Jury member of business plan & seed money contests (Venture kick, SVC, Suvorov)


3

Redalpine in a nutshell


Manages Redalpine I CHF 20M micro VC fund (2007-2015)
 Manages Redalpine II CHF 30M* micro VC fund (2012-2020)
Seed/early-stage in continental Europe (* aims at CHF 60M in 2nd closing)



Most innovative sectors in Europe
Technology/New Media and Life Science



Fund thesis
European seed/early stage offers potential for superior exit multiples
Best choice in Switzerland – leading accelerator in Berlin



Convincing track-record


4

Intro
A typical successful Top-10-Swiss-Startup 2013
 2/3 from Zurich or Lausanne
 20 out of 26 founders were not Swiss!
 80% ICT, Life Science or Electronics
 2/3 with links to ETH, UZH or EPFL
Typical Swiss seed & early stage investors:
 200’000+ CHF millionaires
 2000 angel investors + VC funds (shrinking since 2000)
 20 successful investors (2+ double digit CHF million exits)
Source: Top 100 Swiss Startups


5

Conditions to become a high-tech cluster
①

Successful startup founders  role models 44

②

Successful early-stage investors  Venture Capital 4

③

International Top-10-university  innovation, spin-offs 44

④

Qualified immigrants  recruiting, risk takers 44

⑤

Vital support ecosystem  entropy thru networking, training 444

⑥

Non bureaucratic research grants  transfer 44

⑦

Mature companies of same sector  cooperation, M&A, recruiting 44

⑧

General economic conditions & infrastructure image, recruiting 444

⑨

Attractive home market  faster & safer Proof of Market 4


6

Great job creation impact of startups


US start-ups create 3 million jobs per year,
existing firms slash 1 million jobs (Kauffman Foundation

Jobs
4m
3m
2m
1m

US start-ups create 3 million jobs per year

Net job change startups <5 yrs

0
Net job change companies >5 yrs

- 1m
- 2m

Source: Kaufmann Foundation,
Business Dynamics Statistics, Tim Kane

- 3m
- 4m


2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

- 5m

7

Spin-offs by international top-10-university
①

Most Swiss university spin-offs by ETH, EPFL, UZH

②

Number of spin-offs independent from economic sentiment (e.g. 2008/09)


8

Top exits of Swiss ICT startups
1998 – 2008 (10 years)
①
②
③

④
⑤
⑥
⑦
⑧
⑨
⑩
11
12

13

Scout24/Human Line  Ringier
Auktion24  Ricardo
Comparis  Investors
Borsalino  Cash Ringier
Kelkoo  Yahoo
Oanda  Index Ventures
Search.ch  Post  Tamedia
LeShop  Bon appétit
Mediastreams  Microsoft
LeShop  Migros
Endoxon  Google
Jobs.ch  Tiger Fund
Green  TIC


2009 – 2012 (4 years)
①
②
③
④
⑤
⑥
⑦
⑧
⑨
⑩
11
12
13
14

15

Wuala  LaCie
Svox  Nuance
DeinDeal  Ringier
Doodle  Tamedia
Liberovision  Vizrt
Procedural  Esri
Trigami  eBuzzing
Fashionfriends  Tamedia
Borsalino/Cash  Bankzwei
Umantis  Haufe
Jobs.ch  Ringier/Tamedia
Spontacts  Scout
Digitec  Migros
Housetrip  Index
NetBreeze  Microsoft
9

Top exits of Swiss life science startups
1999-2004 (5 years)

2009 – 2013 (4 years)

①

Actelion  IPO

①

Esbatech  Alcon ($589m)

②

Prionics  30x pay-back

②

Neurimmune  Biogen

③

Axovan  Actelion

③

Levitronix  Thoratec

④

Jomed  IPO

④

Okairos  GSK

⑤

Glycovaxyn  Investors

⑥

Endosense  St. Jude Medical

⑦

Neocutis  Merz Pharma

2005 – 2008 (4 years)
①

Arpida  IPO

②

Glycart  Roche ($200m)

③

Serono  Merck (€10.2b)

④

Speedel  Novartis ($880m)


10

About 2000 Swiss early-stage investors
ICT: Early-stage VCs, angels
& founders with recent top exit

Live Science: Early-stage VCs, angels
& founders with recent top exit

①

Index Ventures

①

Index Ventures

②

VI Partners

②

VI Partners

③

Brains-to-ventures

③

Redalpine

④

Redalpine

④

Nexgen

⑤

Creathor

⑤

NVF

⑥

Beat Schillig

⑥

BioBAC Basel

⑦

Peter Schüpbach

⑦

Bruno Oesch

⑧

Klaus Hommels

⑧

Peter Pfister

⑨

Oliver Jung

⑨

Jürg Geigy

⑩

Roland Zeller (…)

⑩

George Haas (…)


11

Challenges for early-stage investors
①

Early-stage  smaller transactions  small fund  lower fees

②

Active investment managers  higher returns  5 startups per manager

③

Diversified portfolio 15+  better risk return  3+ investment managers

④

Entrepreneurial skills needed to select winning early-stage deals


12

Opportunities & risks
①

Early-stage angel investments deliver 27% IRR
-8

studies in US/UK on historical return in business angel markets, RSCM 2010

But <10% of virtual portfolio (>6000) delivered >70% of returns
③ «Average» investor got 27% IRR, but median investor looses money
②


13

Wanted investor types for Switzerland
①

Serial entrepreneurs with at least one top exit

②

Micro VC funds
managed by serial entrepreneurs (age 25-45) and successful angels
Very active investment approach in seed and early-stage
Diversified portfolio of 15+
Entrepreneurial LPs (serial entrepreneurs 50+, family offices)

③

Co-investment & side-car funds
Less active or passive investment manager approach
Government and corporate funded (e.g. HTGF)
Driven by economic impact, not returns only


14

Why do you go for investors?







Secure innovation lead/USP
Unlock maximum market potential
Gain experience & network
Probably better exit
Share risk (upside & downside)
 Best startups are sourced by best investors
 Best startups approach best investors

Alternatives
 Grow slower  loose lead
 Self financed  independent
 Work capital financed by customers, bank credit or leasing

16

Why investors go for startups


Adrenalin



Being useful providing network & know-how



High profits possible
 High-innovation
 But

startups as an asset class provide 25% IRR

majority of investors (median) looses money

Alternatives


Consume (Villa, yacht, golf, hotels, private jet)



Classic assets (Listed equity, funds, bonds, money market)



Alternative assets (real estate, commodities, gold, hedge fund)


17

What drives the investor (motivation)


Profit opportunity
High-innovation startups as an asset class provide 27% IRR,
but majority of investors (median) looses money!



Adrenaline



Being active & useful
Network
Knowledge

Alternatives




Consume (Villa, yacht, golf, hotels, private jet)
Classic assets (Listed equity, funds, bonds, money market)
Alternative assets (real estate, commodities, gold, hedge fund)


18

What investors are looking for (criteria)






Team, team, team
At least 2 extraordinary personalities that can IMPLEMENT
milestones of next 2 years
Disruptive idea, technology or business model
Attractive market
10% probability for 30x exit multiple


19

Founder types


Which founder types investors like or don’t like …


20

Close to reality distortion, psycho


21

Selectively focused, autistic


22

Stubborn and autistic



Resistant to advice – or asking mom, dad and
grandma till she gets the answer she wants
Says “smart investor” but thinks “just give me
the money for MY company, sugar daddy!”


23

Naïve model pupil




Reacts and obeys to any advice
naïve, model pupil or weather vane
Definitely not an entrepreneur!


24

Selectively honest, dishonest




Communicates only good news instantly
Not honest
Secret agenda


25

Con artist, scammer, manic




Communicates only good news instantly
Not honest
Dubious genius


26

Egotist, no team player




Poor alpha animal, can’t delegate
Never recruits strong team member
Non empathic, poor motivator


27

Money driven, not by results




Exit, salary, participation and bonus in focus
Vision, cause and results only second priority
Self marketer


28

What many investors like or dislike


I follow the lead wolf (brand name) in my investor network,
and I avoid startups in fundraising mode since >9 months



I go for the hockey stick OR
I don’t want to loose any investment



As soon as there is a gap to the plan I quit OR
as soon as there is good news I invest more



If there are no news for several months I expect bad news OR
If I get good & bad news instantly my confidence rises



Founders that follow each of my advises have no clew OR
founders that never listen are autistic



Good people help the weak and poor OR professional investors
focus on fittest & strongest portfolio companies


29

Investor types


Business Angels (>90%)
Virgin angels
Super angels (successful, xx millions, portfolio)
Smart co-investing angels
Operational/consulting/passive angels
Angel networks: b-to-v, mountain-clug.ag, BAS, StartAngels, BioBAC…



Micro Venture Capital / Superangel Funds (<10%)
Seed & early, small & bigger transactions, entrepreneurial
VC approach or co-investments/sidecar



Corporate Venture
 Other Seed Money Sources
Seed money & Business plan contests: Venture Kick, de Vigier, Heuberger, Venture, Technopark
Research grants: CTI, Nationalfonds, EU Rahmenprogramme
“Government” aided funds: ZKB, HGF, EVA-Basel, SZKB Innovationsstiftung, LUKB…
Foundations
Family, Friends & Fools (3F)

30

Identify best investors for your startup


Best exits in your sector last 5 years?
 Identify investors and founders of those startups!



Which top investors are close to me (1-2h by car/plane) and have
an affinity to my market and idea?



Which investors have resources just now? (time, money; stage of
investment portfolio, last closing or exit)



Check references on investors contacting portfolio companies

 Only

best investors are good enough for ambitious startups

 Ambition

level of founder and investor must match
(1b, 100m, 10m exit goal?)

 Always

pitch for & negotiate with 2-4 alternative investors


31

Examples for good early stage VCs
Switzerland
 Index Ventures, Geneva
 Brains-to-ventures, St. Gallen
 Redalpine Venture Partners, Zürich
 VI Partners, Zug/Morges
 Creathor, Zürich/Germany
 Innovationsstiftung SZKB, Schwyz
European early-stage VCs
 Atomico, HTGF, Earlybird, Sofinnova, Eden, Partec, Wellington …
Superangels & Fresh Angels (entrepreneurs with a good exit)


33

How do I approach investors
Tailor made approach, do research first (portfolio CEO’s)
 Identify door openers in your network to target


Portfolio companies
Co-Investors
Lawyer, Banker, Incubator, University tech transfer etc.

Phone, Email, Youtube, Powerpoint, Word, Excel…
 Find out best timing for first contact
 Never look desperate


If it hurries it’s often not interesting (except if top investors already are
lined up with subscriptions)
 Good

investors want to discover startups
 «Didn’t answer my mail» doesn’t mean no

34

How do I pitch for investors


Be extremely well prepared (exercise 30x, get feedback!)
 Enthusiastic, relaxed, competent
 Simple, simple, simple – reduced to the MAX
 Only target is to achieve a next meeting
 Switzerland:

Benefit of Venturelab, CTI coaching, Startup Weekend,
actor school, CTI-invest, Venturekick …
 Pitch:
 10-12 Slides
 5-10 Min


not smaller than Font


24
35

How do I negotiate with investors


Agile, not stubborn and not soft



Learn venture terms before you negotiate
Tag along, ABV, pre money, liquidation preference, anti dilution, options…

Choose experienced M&A lawyer with startup experience in your sector


Always tell the truth, but don’t tell everything if not necessary



Show self-confidence, always organize more than one option

 Investor

must see that founder is hurt hardest if there is no success
 Investor must feel that founders will fight 100% to succeed


36

How do I treat my investors?


Honestly



Pro-actively information information information!
Communicate good news instantly
Bad news as well!



Ask actively & regulary for advice & network



Always remember who is the owner of the company:
All shareholders, not only you!


37

Thank you


Questions?



Remarks?

Read!


Guy Kawasaki: The Art of Start



Amis: Winning Angels

Slides:


Slideshare.net/nicoberg (Nicolas Berg)


38

Bonus slides for investors
①

Scouting talents delivers better multiples than acquiring stars

②

Pro-active investors know where the puck is going to be

③

PE best asset class 10 out of 20 years (and worst 4 out of 20)

④

PE best in class if combined with commodities and healthy bonds*
(* = bonds from governments & corporations with little debt)


39

Grow big stars by scouting many talents
Analogue to a football team you have 2 options:


invest $100m to buy a star (Bale, Messi or Ronaldo)
 try to earn $110m extra with him (1.1x) or



invest $5m to scout & train 20 young talents
 sell best one (Doumbia, Shaquiri) for $20m (4x)



 good Micro VCs prefer a movie rather than a photo (= 3 pitches)


40

Invest pro-active – don’t follow the crowd
An ice hockey player can either:
 skate to the place where the puck is now – as most players – or
 to the place where the puck is going to be (Wayne Gretzky)

Source: http://www.brainyquote.com/quotes/authors/w/wayne_gretzky.html


41

Private equity best in class – sometimes
Returns year by year
1990

1991

1993

1994

1995

2007

2008

2009

29.1% 48.3% 14.2% 31.5%

5.3%

60.6% 36.8% 54.0% 48.5% 40.9% 49.7% 13.4% 32.1% 45.5% 32.2% 25.6% 36.4% 32.7%

6.6%

41.9% 28.3%

17.5% 41.0% 12.3% 26.3%

5.1%

22.2% 34.4% 18.6% 24.3% 34.6% 27.3% 10.3% 11.6% 36.4% 17.3% 12.9% 22.8%

9.0%

4.1%

30.0% 23.0%

9.0%

19.4%

9.7%

22.5%

4.4%

20.7% 33.9% 16.2%

8.7%

26.5% 11.3%

9.3%

10.1% 33.1% 15.6%

9.5%

20.1%

8.3%

-4.9%

26.1% 11.9%

8.8%

18.5%

8.7%

14.0%

3.1%

20.6% 17.8% 15.8%

8.6%

24.9%

9.1%

4.9%

3.5%

20.7% 14.7%

8.5%

10.4%

7.4%

-23.3% 19.7% 11.8%

7.1%

18.3%

8.2%

13.0%

1.7%

20.3% 14.4% 13.7%

5.8%

14.9%

8.7%

2.8%

2.0%

19.8% 11.8%

7.8%

9.3%

6.6%

-25.4% 18.7%

9.0%

1.5%

16.7%

7.1%

12.2%

1.4%

16.6% 13.5% 10.2%

2.9%

5.6%

6.8%

-3.9%

1.0%

12.0%

5.4%

3.4%

5.2%

5.7%

-38.4% 13.5%

9.0%

-4.7%

14.5%

4.4%

10.3%

-2.4%

12.1%

5.8%

8.2%

-5.1%

-0.7%

4.1%

-16.8%

0.2%

8.2%

3.1%

2.7%

4.3%

4.6%

-40.7% 13.4%

5.2%

-17.0%

7.1%

4.2%

3.5%

-3.5%

11.1%

4.0%

6.0%

-17.8% -2.0% -13.2% -18.0% -19.9%

3.2%

2.7%

2.0%

4.3%

4.2%

-46.5%

5.1%

-34.2% -6.1%

1992

-5.2% -12.3% -3.9%

6.5%

1996

3.3%

1997

1998

1999

2000

2001

2002

-14.1% -35.7% -6.0% -18.6% -31.9% -32.5%

2003

1.3%

Equally weighted Portfolio

Private Equity USA
Corporate Bonds USD
Equitiy Developed Countries

1.7%

2006

-15.1% -17.1% -50.7%

3.3%

1.4%

2010

0.5%

Real Estate USA

Bonds USD

1.5%

2005

Hedge Funds

Liquidity USD

2004

Commodities

Source: UBS QIS
Nur zur Veranschaulichung. Die Marktbedingungen können sich ändern und die Renditen schwanken. Bitte lesen Sie die Erklärungen unter «Simulierte historische Performance»
am Ende dieses Dokuments. Bitte beachten Sie, dass diese Seite immer in Verbindung mit den Risikoinformationen und Begriffserklärungen im Anhang zu dieser Präsentation zu
42
lesen ist.

BEST
ASSET
CLASS
Highest
return that
year

WORST
ASSET
CLASS
Lowest return
that year

PE always best in class – if combined

1.00

0.08

-0.07

0.09

0.28

0.12

Equity MSCI World

0.08

1.00

0.18

0.48

0.30

0.72

Commodities

-0.07

0.18

1.00

0.16

0.04

0.18

Hedge Funds

0.09

0.48

0.16

1.00

0.16

0.42

Real Estate (REITS)

0.28

0.30

0.04

0.16

1.00

0.27

Private Equity

0.12

0.72

0.18

0.42

0.27

1.00

Commodities

Hedge Funds

Real Estate REITS

Private Equity

Bonds (USD)

Bonds (USD)

Equity MSCI World

Go for a mix with low correlation and high returns:
Combine PE with commodities, corporate bonds or real estate

Source: UBS WMR; generated by QIS

43

«You miss 100%
of the shots you
don't take.»

«To evaluate the potential
of a new idea requires a
clear understanding of the
market dynamics. We trust
in the team of Redalpine to
master this challenge
successfully.»

Wayne Gretzky,
Hockey legend

Jürg Staub,
Reichmuth & Co

www.redalpine.com
www.facebook.com/redalpine
www.twitter.com/redalpine

Redalpine Venture Partners AG
Pfingstweidstrasse 60
CH-8005 Zürich
Switzerland
phone +41 44 271 15 30

Deal with investors_StartupBus @Google Switzerland_Nicolas Berg_oct2013

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