Notes from entrepreneur club

Written by Piet IJzer

Tuesday, 29 September 2009 07:58

Dear student,

In these short notes there is a wealth of wisdom concerning entrepreneurship from 2 experienced investors. The presentations were held in Grenoble on the 26.2.2009.

1§ Cédric G. (a débuté sa carrière comme contrôleur de gestion dans...) Now Cédric does venture capital.

In France the statistics of 2007 show capital investment volume of 12 b€.

Class Number of deals Volume________Phase
1. Venture capital 400 < 1 b€ (innovation, no customers)

2. Growth capital 550 1,5 b€ (go to market, growth)

3. Buy out 400 10 b€ (value creation)

4. Turnaround 20 0 b€ (time for a change)

In 2009 the structure will shift materially towards more turnaround deals due to the economy.

New French tax law gives incentive for fund increase. Also popular now are the cleantech companies and the locations in the PLM belt (Paris, Lyon, Marseille).

Key success issues in fund raising: - the strategy

- all shareholders agree on condions /dilution, valuation, timing, ...

- management or one shareholder authorized

- management associated

- exit is planned beforehand (IPO or…)

- using a fund raiser (retainer)

- allow for 6-9 months’ financing process

The process:

Due diligence -> Decision -> Financing -> Value creation -> Exit

- valuation - corporate governance - deal structure - active monitoring

- risk mgmt - confict of interest - syndication - coaching

- anticipation - build up

- cross fertilization

Expectations:

The growth strategy is expected to be ambitious and controlled

Management professional

Compliance with law

Good labor conditions

Transparency

Social impact

Sharing of value creation

50% of investment stays in France

2 § André M. , business angel

From 1970 to 2000, André held strategic management positions and P&L responsibilities within telecommunications and various IT realated group. In 2000, he founded and managed for 6 years a world leading company in Telecommunication real time billing applications.

André acquired a broad experience in developing leading in-house and spin-off initiatives, as well as domestic and international operations.

Currently, André splits his energies between Board participations and strategic guidance to young high tech companies. Since 2007 he is a memeber of Grenoble angels.

Venture Capital globally is looking for a 9% ROI, which is the same as the global stockmarket, of which VC is about 2%. Angels syndicate the funding and make sure that the entrepreneur has majority of stocks. Angel share levels of around 20% ensure that the entrepreneur continues at full force. The relation between entrepreneur and angel must be based on locality, so that the angel can easily give help. Grenoble angels do not venture norther then Strasbourg.

Entrepreneurship is not a target, it is opportunistic behavior. There is however always a boss. To be one’s own boss is nonsense. First you have to learn the tricks in large companies, then in SME’s you learn to swim with the sharks. Big companies are slow, but the entrepreneur knows his domain and can decide quickly. Even using a consultant would be too slow. The entrepreneur is persistent, works 100 hours a week, no weekend, no vacation and family accepts. He loses money and family accepts. He must be visionary and paranoid. What the customer needs tomorrow is developed by him today. He is good in networking and talking.

Most important in funding is the term sheet. Once it’s completed it cannot be changed. It may be agreed that the shares of the company are basically determined e.g. 50% entrepreneur and 50% VC, but when selling the company - if the value of the company goes down, the venture capitalist’s value always remains the same and the entrepreneur will lose. Also watch out for over diluting your shares too much , you might get thrown out in the end if things are not good.

When raising capital it is a very good idea to use a road show company. Out of 140 ideas only 4 may get funded.

A 10% market share is considered necessary for a business to sustain sufficient R&D activities and remain strong against big companies. Companies with physical products are considered to have a more loyal customer base then companies which are offering only services. Similarly companies that possess production and mechanical machinery can obtain more leverage from banks and give a better return to capital. Exit must be done in 7-9 years at the latest and bring an exit multiplier of at least 3.

2.3.2009 / PRa

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KaylaGlass - reply

|91.201.66.xxx |2010-07-14 19:08:15

The mortgage loans suppose to be important for guys, which are willing to start
their company. In fact, it's comfortable to receive a commercial loan.

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