Jason Green is the founder of Emergence Capital. He has many years of experience in the venture capital business. He has helped create over $100 billion in value and has taken a spot in FORBES’s 2017 Top 100 Venture Capitalists Midas List. He has also been an early investor in top companies such as Box, ServiceMax, Yammer, SteelBrick, SuccessFactors, Visual Networks, DoubleClick, and aQuantive among others. Here are three lessons we can learn from Green.
Go to places you feel excitement
The excitement of the dot-com boom drew Green to Silicon Valley. Green believes that investing in the wrong start-ups is one of the most frequent mistakes that venture capitalists make. Venture capitalists should invest in companies that make them feel excited.
Repeat a winning formula
Jason Green discovered a formula that worked for other investments. A product that customers like and a great team can yield great value. Emergence Capital prefers working with its portfolio companies to create their value over time.
Move from success to significance
Green has moved from success to significance. He loves what he does and the people he works with. He is also involved with non-profits that help entrepreneurs. According to him, every business has a responsibility to give back to the community.
References https://www.inc.com/peter-cohan/6-secrets-of-this-100-billion-venture-capitalists-success.html?cid=search http://www.emcap.com/people/jason-green/
Venture capitalists get paid well regardless of how well they perform. Despite the shortcoming of venture capitalists, they represent the most appealing and glamorous form of financing to many entrepreneurs. If you are an entrepreneur looking for capital, what should you look for in venture capitalists?
It is important to know the people or organizations that the VC know, work, invest or travel with. Relationship pedigrees that include successful entrepreneurial testimonials, major law firms, and happy institutional investors are very important.
Calibrating the ethics and integrity that define your venture capital firm is very important. There are always going to the untrustworthy and unethical people carrying out business in the world. Do background research about venture capitalist firms. Do they have any history of unprofessional behavior? The research could save your company from expensive legal trouble or an embarrassing scandal in the future.
Knowledge of Industry
Almost all VC firms have their area of expertise. For example, Tandon Group specializes in the consumer, defense, healthcare, EMS, and IT industries. A venture capitalist firm may specialize in industries such as cryptocurrency, or fintech. Knowledge of the industry is the starting point for finding an ideal VC partner.
References https://www.tandongroup.com/2017/09/04/what-to-look-for-in-a-venture-capital-firm/ https://www.entrepreneur.com/encyclopedia/venture-capital
Venture capitalist firms are paying close attention to the amount of capital that has been raised through initial coin offerings (ICO) in 2017. Some venture capitalists believe that ICO could disrupt the way venture financing is structured.
As of November 30, 2017, 228 ICOs have raised $3.6B, CoinSchedule reported. The capital raised via ICO overshadowed that of seed-stage VC funding for internet companies in 2017. The numbers have left many venture capitalist thinking about how initial coin offering might affect the traditional VC model. Similar questions were raised when crowd-funding platforms started to gain momentum 2008.
Currently, Ethereum is trading over 40x of its price at the beginning of 2017 and Bitcoin is trading above $11,000. Blockchain technologies have a wide range of potentially disruptive applications. They have also received plenty of attention in 2017, fuelled by the ICO phenomenon this year.
Traditional venture capital firms have invested little in either crypto assets or blockchain-related tech. Blockchain depends on a public distributed network that is kept by each network participant. It has the potential to cut the need for the middleman as the two parties involved in a transaction could deal directly with each other.
References https://www.pehub.com/vc-journal/what-cryptocurrencies-mean-for-venture-capital/# https://www.coindesk.com/how-cryptocurrencies-and-blockchain-startups-are-revolutionising-venture-capital/
In every venture capital deal, control is a critical component. It can be used to block undesired outcomes or dictate desired outcomes. Typically, negative controls give the VCs the right to unilaterally block various corporate actions.
A majority of the shareholders and the board control the result of decisions that need voting. Although Venture capital funds own minority positions, they rely on protective provisions to block action they do support. Protective provisions are a standard part of the basic agreement the entrepreneur enters into with the VCs:
Common categories covered by protective provisions are winding up and dissolution of the corporation; a disposition of the corporation’s assets or a merger or sale of the corporation; issuing or creating senior or pari passu securities; amendments to the corporation’s charter; borrowing money; changing the number of directors, and redeeming securities. The protective provisions give the venture capitalist a veto right to protect they investment by not allowing stockholders or the board to undertake actions that would diminish investors’ equity value.
Entrepreneurs should always remember the agreement that binds them and ventures investor when it comes to control.
References https://www.entrepreneur.com/article/234654 https://www.strictlybusinesslawblog.com/2014/02/09/venture-capital-term-sheet-negotiation-part-6-voting-rights-protective-provisions/
Boku, a United States-based carrier billing company, listed on the London Stock Exchange’s Alternative Investment Market (AIM) recently, has raised up to £45 million in stock in their IPO.
This case is particularly interesting because Boku is only actually worth around a few hundred million dollars, a staggeringly small amount compared to the technology giants that have initiated their IPO in years past. So how Boku pull this through, and why?
Taking a look at the numbers, Boku has boasted full-year revenue numbers of $14.2 million, $15.2 million, and $14.4 million in 2014, 2015, and 2016, respectively. Evidently, growth is high for Boku, and shows improving profitability.
Another interesting point is Boku’s market. While it is a US-based company, with headquarters in the United States, Boku has decided that its trading market is in fact London, miles across the sea. While this sort of practice isn’t unheard of, it is somewhat strange to see a venture-backed, US based company going public for the first time abroad.
Still, the London Stock Exchange has commented that this IPO shows that “LSE…has a track record of offering small and micro companies access to high quality capital at lower cost and reduced regulatory burden relative to US public markets. It also shows VC shareholders can diversify funding for portfolio companies and often achieve partial exit through a London IPO.”
The venture capital industry uses due diligence to evaluate a potential investment opportunity. Investing in start-ups is risky, and the process of due diligence is used to select the potential winners, find the key risks connected to the investment and come up with a risk mitigation plan with management as part of a potential investment.
There are three stages of due diligence: screening due diligence, business due diligence, and legal due diligence. In screening due diligence stage, venture funds evaluate numerous business opportunities over the fund life and use pre-set criteria to find the opportunities to invest in. This enables them to flag fast those that fit and those they will spend more money and time evaluating.
In business due diligence, the opportunity is determined to “fit” criteria of fund’s investment. The deal is assigned to a senior and junior member of the team who evaluates further to determine the deal viability. Each firm reviews the management team, the product or service, market potential and the business model.
Legal due diligence is the last stage. In this stage, a lawyer completes a legal review. Venture capitalists should ensure that their lawyers are prepared to answer their questions.
References https://www.marsdd.com/mars-library/the-due-diligence-process-in-venture-capital/ https://www.theventurealley.com/2011/10/what-is-due-diligence/
Raising capital from venture capitalist can result in conflicts of interest. Since venture capital firms are in the business of investing, they often advise or control more than one company at a time. In such condition, the regulators are likely to look at whether the VC is complying with its fiduciary duty to act in the best interest of each company. Although it is difficult to identify all areas where venture capitalists may face a conflict of interest, here are some of the most common scenarios.
Normally, a conflict of interest arises between the fund’s investors who want to limit the funds to make sure that the capital raised is used well and a fund manager that want to maximise the fund to increase the management fees created by the fund.
A fund manager should allocate broken deal expenses and transaction expenses between the fund manager, the fund, and co-investors by reasonable investor expectations and the fund’s limited partnership agreement.
Conflict of interest is also likely to occur in co-investment scenario. This situation occurs when individual investors in the fund and the fund manager have the opportunity to independently invest in one of the fund’s portfolio companies. In case the terms under which the investors and fund managers differ from the terms under which the funds invest, a conflict of interest may arise during the negotiation of the fund’s investment.
References https://www.strictlybusinesslawblog.com/2017/05/24/managing-conflicts-interest-private-equity-venture-capital-funds/ http://fortune.com/2011/09/08/venture-capitals-conflicts-of-interest/