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Finance Secrets of Billion-Dollar Entrepreneurs > Chapter 13 Use VC Intelligently > Flashcards

Chapter 13 Use VC Intelligently Flashcards

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1
Q

What is a key factor for using VC wisely?

A

Timing: after leadership Aha, when dilution is lowest.

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2
Q

What do many entrepreneurs consider VC to be?

A

An endorsement of the venture and a mark of success.

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3
Q

List the reasons why seeking VC may not be right for an entrepreneur.

A
  • May not get VC
  • Venture may fail with VC
  • May be fired by VCs or executives they hire.
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4
Q

What is one common misconception about obtaining VC?

A

That every entrepreneur can get VC by writing a great business plan.

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5
Q

What is the probability of an average new business receiving VC?

A

Approximately 0.002 percent.

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6
Q

What annual return do VCs seek to earn from their portfolio?

A

20 percent and up.

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7
Q

How selective are top-ranked VCs in funding ventures?

A

They only fund about one or two ventures out of every hundred business plans.

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8
Q

What should entrepreneurs avoid unless they have a breakthrough?

A

Expecting VC as a start-up.

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9
Q

What is the average age of a venture at the time of VC funding?

A

About four years.

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10
Q

True or False: VCs prefer investing in ventures that are not likely to dominate an emerging industry.

A

False.

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11
Q

What do early stage VCs primarily seek in their investments?

A

Home runs for high returns.

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12
Q

What has been the trend of median VC returns since the 2000 Internet crash?

A

Median VC returns have been below target.

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13
Q

What are some factors that affect VC returns?

A
  • Venture mix
  • Investment-per-venture by stage
  • Years to exit
  • Number of home runs.
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14
Q

What type of opportunities do VCs prefer to invest in?

A

High-potential, disruptive opportunities in emerging trends.

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15
Q

Provide an example of a successful entrepreneur who built a billion-dollar company without VC.

A

Hamdi Ulukaya, founder of Chobani.

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16
Q

What industry did Pierre Omidyar’s eBay emerge from?

A

The Internet age.

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17
Q

Fill in the blank: VCs invest in very few ventures because there are few attractive, high-potential, _______.

A

disruptive opportunities.

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18
Q

What is one reason why larger companies acquire successful ventures in emerging industries?

A

To combat disruptive ventures.

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19
Q

What does the VC industry suffer from when high-potential industries are not emerging?

A

Lack of attractive opportunities.

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20
Q

What is the rejection rate for VC plans?

A

About 99 percent.

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21
Q

What do VCs need to see to finance ventures?

A

Evidence that they can dominate emerging, high-potential industries.

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22
Q

What kind of ventures do VCs seek for high portfolio returns?

A

Ventures with attractive exit options.

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23
Q

What do VCs seek to finance in ventures?

A

High returns and evidence of dominance in emerging, high-potential industries

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24
Q

What do VCs prefer regarding exit options?

A

Fast, attractive exits with high annual returns

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25
What was Instagram's valuation when it raised $50 million?
$500 million
26
How much did Facebook pay for Instagram?
About one billion dollars
27
What is a common outcome for ventures without attractive IPOs or strategic sales?
Unlikely to receive VC funding
28
What percentage of companies went public from 1980 to 2000 compared to 2016?
311 companies per year from 1980 to 2000; 105 in 2016
29
What is an example of a high-value exit for VCs?
The sale of Broadcast.com to Yahoo for $5.7 billion
30
What is the implication of seeking VC too early?
Wasting time before the venture's high potential is evident
31
What is the recommended timing for seeking VC?
After the venture's potential is evident but before the peloton has passed
32
What percentage of billion-dollar entrepreneurs did not get VC?
76 percent
33
What is a significant difference between Jobs I and Jobs II?
Jobs I lost control after early VC; Jobs II regained control and led Apple to success
34
What do VCs typically seek in venture leadership?
Control over strategic decisions and direction
35
What is the risk associated with ceding control to VCs?
Loss of influence and potential negative impact on the venture
36
What is the estimated percentage of entrepreneurs replaced by professional managers?
20 to 50 percent
37
What is the impact of capital-intensive growth on entrepreneurs?
May lead to dilution and ongoing funding challenges
38
What financial instrument do VCs often use?
Convertible preferred shares
39
What happens to entrepreneurs in about 80 to 99 percent of VC-funded ventures?
They may only receive their salaries
40
What stage of venture funding receives the highest proportion of VC investment?
Later Stage (about 40 percent)
41
What do VCs require to invest in a venture?
Proof of potential and evidence of momentum
42
What common misconception exists about the shortage of early-stage VC funding?
That more capital is the only requirement for developing successful businesses
43
Fill in the blank: VCs prefer to invest after the venture reaches _______.
Aha
44
What is the perceived issue regarding early-stage VC funding?
There is a constant lament about the 'shortage' of early-stage VC funding to build businesses.
45
What is the general impression about the need for VC funding?
The impression is that all you need to develop successful businesses is more capital.
46
What percentage of VC-funded ventures are estimated to become home runs?
About one percent.
47
What are the typical outcomes for VC-funded ventures?
* 20% to 40% are total losses * About 19% are successes * The remainder are partial losses or barely breaking even.
48
According to Marc Andreessen, what percentage of venture capital returns come from how many investments?
97 percent of venture capital returns come from fifteen investments.
49
What is the probability of a venture becoming a home run, based on Andreessen's statement?
About 0.000025 (15 out of 600,000).
50
What does Howard Anderson state about the success rates of financed ventures?
Of every hundred ventures financed, twenty are total write-offs, twenty are losers, forty are in the middle, and twenty are winners.
51
What is the significance of emerging industries in relation to VC home runs?
VC home runs are mainly created in high-growth, high-potential, emerging industries.
52
What industries had notable home runs in the 1960s and 1970s?
* Semiconductors: Intel, AMD * PCs: Apple, Microsoft
53
What were the returns for VC funds started in the 1990–96 era?
42.9 percent.
54
What percentage of VC firms accounted for 66 percent of market value from IPOs between 1997 and 2001?
Four percent.
55
What is the relationship between VC success and geographic concentration?
VC funders who invest in Silicon Valley are more likely to fare better than VCs in other areas.
56
What is a common misconception about VC in building giant companies?
Many believe that VC is key to building a big business.
57
Can billion-dollar companies be built without VC?
Yes, entrepreneurs have built giant companies without VC.
58
What is a common trait among billion-dollar entrepreneurs?
They used finance as a weapon to build their business and control their venture.
59
What is the estimated percentage of U.S. companies that have sales exceeding one billion dollars?
About 0.01 percent.
60
What is the importance of VC funding timing for entrepreneurs?
VC early entrepreneurs lose control to a CEO picked by the VCs.
61
What is the outcome for VC early entrepreneurs like Steve Jobs?
They may be fired from their company when expectations are not met.
62
What is the average number of billion-dollar entrepreneurs in the U.S.?
About one hundred to two hundred.
63
What percentage of America's billion-dollar entrepreneurs are VC Early?
6 percent ## Footnote VC Early entrepreneurs get venture capital early and often lose control to a CEO picked by the VCs.
64
Who are two examples of VC Early entrepreneurs?
* Steve Jobs * Pierre Omidyar
65
What is the defining characteristic of VC Late entrepreneurs?
They get VC after the venture has momentum and stay on as CEO.
66
What percentage of America's billion-dollar entrepreneurs are VC Late?
18 percent ## Footnote VC Late entrepreneurs have the credibility to stay on as CEO due to the venture's established potential.
67
Who are two examples of VC Late entrepreneurs?
* Bill Gates * Mark Zuckerberg
68
What is a key feature of VC Avoiders?
They grow without VC and maintain control of their business.
69
What percentage of America's billion-dollar entrepreneurs are VC Avoiders?
76 percent ## Footnote VC Avoiders use personal or family funds to grow their business.
70
Who are two examples of VC Avoiders?
* Michael Bloomberg * Dick Schulze
71
What does VC Early mean for entrepreneurs in terms of control?
It means they may cede control of their business to investors.
72
What is the wealth retained by VC Early entrepreneurs compared to VC Avoiders?
7 percent for VC Early; 56 percent for VC Avoiders.
73
What is the implication of delaying VC for entrepreneurs?
It helps them stay in control and keep more of the wealth created.
74
What percentage of billion-dollar companies in Silicon Valley received VC?
90 percent ## Footnote This contrasts sharply with the 90 percent outside Silicon Valley that grew without VC.
75
What is the percentage of Minnesota's billion-dollar entrepreneurs that never got VC?
80 percent
76
What is the common trait of entrepreneurs in Minnesota regarding VC?
They generally grow their businesses without seeking VC.
77
What are four strikes against entrepreneurs seeking VC for modest goals?
* Top VC funds prefer blockbuster potential * Lower tier VC funds may not have a proven track record * VCs get their money out first * VCs may hire a professional CEO who could fire the entrepreneur
78
What do VCs expect in terms of returns?
High returns to compensate for high risk.
79
What is a potential downside of VC advice?
Post-investment involvement does not significantly affect venture performance.
80
What percentage of VC-funded ventures become home runs?
1 to 2 percent
81
What is the VC-benefit gap?
The disparity where 99.98 percent of US ventures do not benefit from VC.
82
What are the three categories of billion-dollar entrepreneurs based on their relationship with VC?
* VC Traditionalists * VC Delayers * VC Avoiders
83
What is the main conclusion about VC for entrepreneurs?
Very few entrepreneurs benefit from VC; many succeed without it.
84
What is the wealth retained by VC Delayers compared to VC Traditionalists?
17 percent for VC Delayers; 7 percent for VC Traditionalists.
85
What can improve the odds of success for entrepreneurs?
Growing without VC or with delayed VC.

Finance Secrets of Billion-Dollar Entrepreneurs (19 decks)

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