Last month I took part in VCIC, a competition in which we pretended to be Venture Capitalists.
This weekend I took part in the “sustainable” version of the competition – the Sustainable Venture Capital Investment Competition (SVCIC: it’s annoying how that doesn’t trip off the tongue as nicely as “VCIC”).
As the name suggests, this was basically the same competition, but this time the focus was on “sustainable” businesses – i.e. those businesses that have some kind of “social return on investment” (SROI). I haven’t particularly been in to the “social” side of entrepreneurship before, but I love venture capital investing so I was keen for another crack of the whip!
The three companies we were evaluating were involved in the electric vehicle industry, recycling of waste material for fashion and an innovative solution to provide water to remote 3rd world communities.
This was the internal competition to decide who would represent Oxford at the SVCIC final in North Carolina. Unlike the VCIC competition, there would be no European semi-final – the winners would go straight to the final. What’s more, is that Oxford are actually the defending world champions!
Whilst there were 22 teams in the VCIC competition, there were only 5 teams for SVCIC. Nevertheless, all 5 teams were in it to win it and I think the participating teams put a lot more preparation work in to this than most did for VCIC. What’s more is that everyone had the feedback from VCIC, and more specifically the much interrogated winning VCIC team, to help their preparation.
For VCIC we had assembled a highly structured crack team of wannabe-VCs. This time, I thought I would see how we would do with a more generalist team (I’m sure they won’t mind me describing us like that). None of us had any specialist finance or legal background and, in contrast to alpha team A1 for VCIC, this time XX dominated XY.
We decided to “invest” in the company doing recycling for fashion. In fact, I bought one of their belts made from recycled firehose.
In the end we did not win, but we did get a special mention for the most creative deal structure. Specifically, we suggested a convertible note, which is basically a loan that converts to equity at a later financing round. The main advantage of this structure is that it avoids the need to do a valuation of an early-stage company when it is difficult to accurately value. The down-side is that you don’t prove to the judges that you actually know how to do a valuation. With hindsight, we should have done a range of valuations anyway (DCF, comparables, multiples), then said why they were not appropriate. N.B. Part of the structure of a convertible note is a valuation cap, which gives the investor upside protection in case the startup has a massive valuation when it does its next financing round. It’s a little bit difficult to get your head around at first, but this blog post gives a really good explanation as well as a couple of Excel models to show you how it all translates in to equity %s and discounts.
I’d say I got more out of this competition than I did from VCIC. Whilst I had A+ teams for both competitions, for SVCIC the fact we were all generalists meant we were all involved in all parts of the due diligence and deal structuring. That was probably the biggest learning from VCIC – everyone had to participate equally and know about the whole VC process. Dividing in to specialisms would not be to our advantage.
Overall, it was a great experience (again)- exceptionally intense. I’d actually say I learnt more from 2 days doing that competition than I have from anything else on this MBA course so far.
Once again I think the team that won was the team that had done the most-preparation. Unfortunately this suggests that my occasionally used tactic of “winging it” is unlikely to reap me many rewards in the future*. Damn! The winners are of course a great team and I wish them all the best for North Carolina.
Also, our Oxford VCIC team heads to London Business School tomorrow for the European semi-final. They have been doing lots of preparation – so good luck to them too! Go Oxford!!
*future potential VC employers please note I am just joking – I always prepare very diligently for anything I am doing.