Lorenzo Guerra Bautista

Let's start to define the relationship between company valuations and VC returns, and yes! it is not as simple as 2x the valuation = 2x the return. When a VC gives a company money it buys new shares of the company. The value of the round is based on the share price. As companies raise further rounds, the firm issues additional new shares which dilutes the shareholding. Illustrating an example below - a. Company starts with 100 shares among two founders. b. 1st investor buys 20 new shares for 1cr per share to give the company money to grow. Now there is a total of 120 shares and an imputed valuation of 120*1Cr= 120 crores. c. Next investor buys 30 new shares for 1.6 Cr per share. The company now has a total of 150 shares and an imputed valuation of 150*1.6Cr= 240 crores. Do you see here that while the valuation doubles from 120 to 240, the value of the 1st investor's share is just 1.6x (1.6/1). What exactly happened? - There was a dilution of 20% (30 new shares / 150 total shares) Formula can be = Valuation multiple X Retention (Or 1 - dilution) = 240/120 * (1 - (30/150) = 2 *(1 - 0.2) = 2 * 0.8 = 1.6x As a back-of-the-hand calculation, always assume a 20% dilution for each round. Thus, if the valuation jumped by 400x and took 6 rounds, how much do you think the VC made? Take a moment to do this on your own, Let's start by calculating how much we retained of our shareholding, we assume a 20% dilution for each round. This would mean after every round we held (1 - 0.2) = 80% of our last round holding. So over 6 rounds, we would hold = 80% * 80% * ..... 6 times = (.8)^6 = .25 or close to 25% So now the multiple seen on the investment by the VC would be = 400 * 25% = 100x While the valuation jumped over 400x, it took 6 rounds for that to happen wherein the VC retained just 25% of their holding making a 100x return on the money invested. This is the math that VCs follow to calculate how much money they make and in creating a unicorn opportunity they typically do a 60x -100x on their initial investment. Note, that I have just calculated this number for the initial investment. If they invest in further rounds you can use the same formula to get to their multiple for that investment. Let me know if you have any questions. #BuildingRight #BaniyaBuddhi

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$3-6M ARR SaaS companies with moderate growth (15-30%) enter the no-mans land of capital. ❌They are too large for a seed check ❌ Not growing fast enough for a Series A ❌ Debt providers offer too little capital and amortize quickly, and ❌ Too small for private equity Luckily, I’ve found a few funds with a viable option for companies at this juncture: HYBRID FUNDS A hybrid fund offers a product with elements of debt and elements of equity. This can take the form of a term loan with minimal amortization but with a warrant to create equity upside or it could come in the form of two securities invested at the same time such as a term loan and a convertible note. With structures like these, the funds often are willing to put up more capital. Sometimes as much as 1.5x ARR. This level of investment gives a founder the firepower they need to scale their way to $10 million in ARR. Once the $10 million ARR milestone is reached, the world of private equity becomes a lot more attractive to founders. They are able to sell shares creating a large windfall for founders and employees AND maintain some ownership in the go-forward business creating an opportunity for another windfall down the road. Do you know any founders using or interested in this capital pathway?

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🚩 22 investor red flags to look out for. 🚩 You deserve the best investors! But it’s easy to make a mistake. There are over 8,400* VCs in Europe alone. During fundraising you will meet many. And not all investors are created equal. They will all be selling themselves well. You will read and hear all kinds of superlatives. Spotting early red flags is essential. I’ve decided to help you out on this. 🚩 22 investor red flags to look out for 🚩 > Arrogant behavior > Highlife party culture mentality > No track record in your industry > Pressing you to make a decision > Slow response in communication > Slow in the due diligence process > No clear value-add besides money > Wanting to take >50% of the company > Very aggressive valuation negotiations > The VC worked only in financial services > Demanding lock-up exclusivity, during DD > Conflict of interest with other investments > No prior founder experience in the VC fund > Demanding unrealistic stake. Check trends > Wanting too many board seats or veto rights > Discouraging you to do due diligence on them > Not transparent in advance with LP constraints > No exploratory calls with your customers (if any) > Corruption proposals. Getting you into a scheme > Late for meetings and acting like nothing’s wrong > Bad feedback on them by their portfolio founders. > No transparency on process, criteria, decision-makers If you see any of these red flags, be cautious. Dig deeper. If things don’t look well, move on. It’s 8,400* of them in Europe alone. P.S. What red flags would you add? 🚩 Let's discuss in the comments. ⬇️ *According to Crunchbase

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How many investments should a VC portfolio hold? Can you tell me what the range and mean will be at 400 positions? I see this, and variations of this graphic, in several VC presentations on the topic of portfolio construction. The conclusion is always the same, “A VC fund should have N number of positions to reduce variance and have approximately the same mean.” N is usually the value to the far right when the data magically ends. Sadly, the analysis is incorrect. Regardless of data sets, the graphic will always look pretty much the same. A declining range that tightens around a mean. This is because as you select more positions from the sample population, the simulations will begin to match the population data until it is the population data.   When the portfolio number matches the sample population number, in this case 400, the range is zero, the mean equals the population mean, and the need for a sophisticated sounding “Monte Carlo” simulation evaporates. If you’re a VC manager, don’t be fooled by this analysis. If you’re a VC investor, don’t be fooled by nonsense masquerading as insight. At Ascent Energy Ventures we do things a little differently and that makes all the difference. *This graphic data is made up but closely resembles real graphics.

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VC versus CVC investing...as someone who has been in both, this is the big difference 👇 Simply put, CVCs follow the same foundational thinking and metrics as VCs, but with an additional strategic layer. 🏗️ This is how we evaluate the strategic alignment when making an investment decision: 1. Strategic Fit: The first step is assessing whether the company fits within the corporation's strategic roadmap. The opportunity for a commercial partnership can be immediate (strategic investment) or a bet on the future (tech bet). 🔍🗺️ 2. Technical Due Diligence: The second step involves technical due diligence with the right internal stakeholders. We check that the technology is viable and solves an actual problem. 🔧📊 It's worth noting that although the foundational financial metrics we consider are the same as VCs, if a company's strategic value is high, we can approach those financial metrics with more flexibility. 📈✨ Ultimately, the strategic performance of your investments is only as strong as the investment thesis they are built on. If this isn't aligned with the long term goals and needs of the corporate, the investments have limited longevity.

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🔥List of Seed & Series A US VCs🔥 US investors' average valuation in the seed phase is $15m, compared with European, which is $7,1m. This is a good opportunity for US companies and European-based startups with HQ or legal entity from the US. I would love to share lists of the active US seed & Series A VCs that are actively invested in companies with a presence in the US market. To get the database, please complete BOTH STEPS (Step 1 & Step 2) Step 1: Comment on the post below Step 2: Drop me a DM/Inmail (with a connection request if we're not synced up) saying "US VC" and I will send you a link to the database. Step 3: (Optional) ♻️ Found this helpful? ↳ Repost it so your network can benefit from it, too.

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A new income stream: Deal Scouting The art of qualitative/qualitative analysis of startups 3 things that benefit from this: - The returns (Carry) - The network - The skills (market analysis, mapping, etc) #dealscout #venturecapital #vc #venture #finance #money #incomestream #tech #money #howto

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🌟 How to extend your runway by Sequoia Capital 🌟 This document covers three main areas: - First: What is your runway right now? How should you calculate it? - Second: How should you think about how much runway you actually need? - Third: How do you actually extend your runway if you need more? ~~~~~ ♻️ Found this helpful? Repost it so your network can learn from it, too. Follow All Chance to learn from more innovative insights.

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Just analyzed the latest SaaS M&A data and the numbers are fascinating. Here's what every founder needs to know: The SaaS M&A market is waking up: deal volumes are up 20.5% in Q3, reaching 594 deals. Let's break it down: ## Valuation Multiples - Median M&A multiple: 4.1x revenue -> think about this when you calculate the value of your equity - This is much lower than the 6.9x public SaaS capital index and shows the brutal reality of private M&A - Top performers (Rule of 40 over 60) get a 200% premium - Vertical SaaS companies are seeing stronger multiples, particularly in healthcare, fintech, and HR tech - Most deals are below $100m EV ## When are you an interesting target? - ARR above $10m: at this stage both PEs and strategics are interested. At this stage you get higher multiples and more interested parties. - Rule of 40: YoY Growth + EBITDA margin should be at least 40% -> but higher growth is preferred over higher EBITDA - Net revenue retention of ~100% -> this shows that the product is sticky - 60% of acquisitions involved companies with <50 FTEs - Bootstrapped companies are particularly attractive ## Who are the buyers? - Private Equity: companies like Thoma Bravo and Vista Equity Partners are executing "buy-and-build" strategies, particularly in vertical SaaS. This involves buying a "platform" company and adding "bolt-on" acquisitions on top to achieve multiple expansion. - Strategic buyers: strategic buyers are more cautious nowadays, but you can still be acquired, especially in Vertical SaaS.

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public SaaS multiples, measured by market valuation against annualized current run-rate ARR, have now reverted to levels seen around 2016. for me, this suggests that the market may have hit rock bottom, opening up opportunities for growth (link to the report is in the comments). the elevated multiples observed during COVID, driven by the expectation of a permanently virtual and remote work setting, are gone for good, though.

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It was news last year. It has now become standard procedure. #Secondaries once the preserve of large private equity managers are becoming increasingly accessible to their #VC counterparts. Thanks to Timothy Motte for giving me a space to shed some light on this emerging trend in #venturecapital. Read below and subscribe to his must read newsletter "The Realistic Optimist". A must read for anyone interested in a highly documented, yet refreshing, cross-border perspective on everything #entrepreneurship, #startups and #investing. Enjoy!

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As we predicted, M&A in the startup space is up! According to data published by Carta and shared by Peter Walker, total acquired startups rose 24% in Q3 of this year as compared to Q3 2023. This can be the exit opportunity founders have been looking for and want. Buhler Duggal & Henry LLP's M&A practice is equipped and ready to help startups in their sale/purchase to/as an acquirer. Visit our website for more information on our practice, notable transactions and team! #startup #mergersandacquisitions #markettrends #acquisitions #mergers #legalcounsel

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Imagine you are getting a 20x ARR acquisition offer post Series A... And your investors are against taking it. Because it offers little more than a 1-2x return for investors who got in during the last round. And only ~3-4x for Seed investors - considering Seed median pre-money valuations of ~$15M and dilution. Well below their return expectations. You need to be aware that VC math works a bit differently. A life-changing sum for founders may only represent a marginal ROI for VCs.

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VC firms review 101 deals to make 1 investment! 😲 🤯 Securing funding from VC firms remains a significant challenge. The chart below is data from Harvard Business Review in 2021, what does this look like in 2024? Based on the CB Insights data, you would assume a lot has changed! ✅ The Positive: During 2024 deal sizes have increased by 17% to an average of $14.4 million, which is higher than the 2023 average.  🔻 The Negative: Deal volume was still less than half of what was seen in Q1 2022. 📈 The Trend: Investors are putting more money behind select startups, resulting in larger deals. #future #innovation #investment Nobody Studios

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US Startup M&A had its biggest quarter since 2022, per Carta. Startups that raised under $25M made up 75% of all transactions. This is consistent with Carta’s platform history and user demographics; however, there is a small uptick in larger deals this quarter—aligning with recent rate cuts, which lower the cost of capital and make larger deals more viable. 2024 shows renewed confidence, with a 24% increase in dealmaking over the past 4 quarters. This reflects both renewed market optimism and more active dealmaking. We’ve seen this trend at FE as well, with buyers becoming more hungry for acquisitions in recent months. The dry spell in mega deals and IPOs makes mid-size and smaller M&A deals more viable, while investor confidence rises as interest rates fall. Although this is a limited dataset—just 45K companies on Carta’s platform—it points to a broader trend of positive momentum. #acquistions #carta

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