Archive | February, 2011

Still pretending to be a VC

22 Feb
Fire hose

Start with this...

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.

...and you can end up with this! Image taken from Elvis & Kresse website.

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. 😀

King of the Potato People

9 Feb

Like many of my weak attempts at a joke, this image will only make full sense to Brits over the age of approximately 30. i.e. Tony

So here I am in week 4 of Hilary Term – otherwise known as “Hellary Term” due to the supposed increase in workload compared to Michaelmas. I have to be honest I don’t feel that things are much busier this term than last, but that is probably because I can’t remember the first 4 weeks of last term. 🙂

The best thing about this term is that we are now working on our Entrepreneurial Projects (EPs). My EP is a startup that I had started before coming on the MBA and I have recruited a fine team of fellow students to help me with a business plan. My “A” game for the MBA is to launch this business out of the course, so this is important to me. But more about that in a later post…

For now, I think it is about time for me to give a potted analysis of this term’s courses so far:

  • Macroeconomics: Do you think you understand potatoes? Do you? Yes? You are mistaken. You do not understand potatoes. There are many complicated fuctors about potatoes that you will learn in this class.
  • Finance II: So I have this crappy loan from Natwest* with an interest rate of 7% above base rate. Apparently I can do an “interest-rate swap” and swap it for a loan that only charges 2.5%. Sweet! OK? Questions?
  • Technology & Innovation Strategy: We read about video games, talk about video games, do assignments about video games, play video games, and go to the pub. Theoretically awesome.
  • Developing Effective Managers: There is no such thing as a “bad result” from these personality tests. Your test says you’re semi-skilled, neurotic, and work-shy? That’s ok – you have a future in local government.
  • Operations Management: They have vays of making you talk… mainly about factory production lines and toy building blocks.

This term we are doing electives, so I don’t do all the available courses. However based on conversations with fellow students I have provide the following analysis about the other classes**:

  • Rethinking Business: More like re-reading business…
  • Culture & Global Markets: Read a whole book before each class, then cook ethnic food and listen to Kula Shaker.
  • Global Strategy: Framework-tastic.

* I learnt today through a comment on my original post about the Natwest MBA loan that the loan is no longer available. This is quite serious and means that there are now lo longer any real funding options for British students that want to do an MBA at a UK business school. I will follow-up on this matter in a later post.
** obviously since I don’t take these classes you can dismiss my analysis as frivolous hearsay.