Month: August 2013

First Republic Bank Private Equity and Venture Capital NextGen conference

Ever since I can remember, I’ve hated corporate conferences.  Ok, hate is a strong word, so perhaps strong dislike is a better term. Many are nothing more than a holy amalgamation of talking heads, rubber chicken dinners, conversations borne out of intoxication, and military grade agendas. Nevertheless, I trudge through 7-8 conferences a year. Perhaps it’s because I don’t have a choice. Perhaps it’s because of my desire to reconnect with old acquaintances and colleagues.  Who knows, but I go to conferences like clockwork despite my general feelings toward them. As such, it’s a strange feeling to be someone that has led planning for a specific conference for the 3rd consecutive year (1st year at my new organization).   Wait, didn’t I say I usually hate conferences? Last Friday, hosted by my employer First Republic Bank, our 1st annual finance NextGen conference for Private Equity/Venture Capital concluded in beautiful Monterey, CA,  remarkably replete with sunny skies.  Our host audience for the conference was Controllers, VP of Finances, and Early CFO’s employed by Venture Capital and Private Equity firms. Despite my general distaste for most conferences, I absolutely love being at the center of planning this conference as it’s a cause that I feel incredibly passionate about.  Oh, and while we call it a conference, we do try our best to incorporate concepts that are fresh and different to make it less conference like. One of the biggest problems that exists within any business or industry is the lack of effective generational planning and by extension, the lack of comprehensive development programs for the next generation of leaders and influencers.  It’s counterintuitive of course given that generational change is an inevitable course in all facets of life and business. The singular mission of this conference to help address this issue.  Through a platform of differentiated programming and network building, we aim to hopefully do our (small) part in helping provide lift within the broader ecosystem while concurrently building valuable sub-communities.  It’s something we’re committed to and feel privileged to be a part of. While success will ultimately be measured in years, not days or weeks, I’ve been thrilled to see some great early results.  Playing host to nearly 50 of the best and brightest minds firms from some of the top Venture Capital and Private Equity firms in the world was truly a privileged experience for us all and we are already looking forward to a better event next year. Unbelievably humbling is the incredible support we received from like-minded partners and friends, including support from one of the greatest leaders of all time, Hall of Fame NFL player, Ronnie Lott.  From Limited Partner discussions to...

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VC Math for Founders – It’s me, not you!

Venture Capital Math – It’s me, not you! While a necessary exercise, embarking on the fundraising path for most is no more enjoyable than a trip to the dentist.   Aside from being distracting, fundraising can an incredibly difficult process to navigate through. Recently, I spoke with a founder who after two weeks of pitching to VC’s, lamented to me “I don’t get it – they should be falling all over this idea!” Well, of course they should.  In this case, I think she was actually right. She had a great team, solid technology, and some early traction in a quickly expanding market.  The problem of course was that her business in its current phase wasn’t perceived to align with the type of return necessary for fund managers. This comes back to my title of “It’s me, not you!”. As difficult as it is to build a successful company, it’s also incredibly difficult to consistently achieve returns to investors commensurate with the risks associated in venture investing.  Don’t believe me? Check out these returns.  When raising capital from VC’s, it’s imperative that you understand the other side of the table, both on a macro and micro level, to successfully navigate the game of raising institutional capital.   A key component to understanding the other side is being aware of the economics.  After all, VC’s are in effect, just money managers. Let’s take a typical $100MM early stage focused Venture fund. Let’s assume that the fund economics are a standard 2/20 (2% annual management fee/20% Carry on fund profits). To attract investors (Limited Partners) into the fund, the fund managers are expected to clear a minimum risk-adjusted return rate.  Given the high risk and long-term illiquid nature of venture, this hurdle return is usually an IRR on contributed capital of ~15%. Assuming an average holding period for investments of ~7 years, a 15% hurdle return works out to a ~2.75x net return to Limited Partners from the fund. In other words, that $100MM fund needs to return $275MM in capital to Limited Partners to meet a minimum 15% return hurdle. If that’s not daunting enough, $20MM of the fund will go toward management fees, leaving only $80MM in capital that’s invested into companies (in the interest of keeping it simple, I’m ignoring recycling effects).   This means that a 3.4x multiple on invested capital is required to meet the return hurdle to LP’s. ($275MM/$80MM). Oh, I almost forgot there is something called Carry.  Remember, the GP’s of this fund get 20% of each dollar of profit above $100MM.   So to achieve a net return of $275MM to Limited Partners, the fund needs to realize $343MM in total liquidity...

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