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#+title: Section 4 | Lesson 24 - What Investors You Should Target + How Investord do Due Dilligence on You

* Links
- [[./../mba-main.org][<Back to Main MBA]]
- [[https://www.udemy.com/course/an-entire-mba-in-1-courseaward-winning-business-school-prof/learn/lecture/4282924#overview][S04:L24 - What Investors You Should Target / Due Dilligence]]

* Notes

** NASA
Nasa was created to compete with sputnik.

Fairchild was financed by Nasa to figure out how to put transistors into the Apollo rocket.

Fairchild got too big to innovate, and people quit.

These people went on to create other companies
 - AMD
 - NVIDIA

** The Process
1. Founder wants to change the world
2. The company gets big
3. The executives either want to change the world or just get a paycheck
4. If they want a paycheck they won't take risks3
5. If they want to change the world they can't stand the culture and start their own company

** VC's

- VC's love backing the same executives
- top VC firms get all the great deals
- Sequoia is the best investor in CA
- Most VC's are in the bay area
- Industry is cyclical
  - not as bad lately
  - businsesses are easier to start and run because of all the innovations in software and hardware

** What VC's should you target
things to know:

1. stage focus
   - stages are: a, b, c, d, e
   - waht stage of a business do they prefer to focus on
   - some businesses focus on earlier stage, some later

2. sector focus
   - what industries do they tend to work with

3. reputation
   - NEVER do business with bad people
   - once they are on your board you are STUCK with them

4. target return date
   - make sure the company understands where you are focused on getting results

5. are they founder friendly?
   - do they tend to fire founders?
   - do they like working with founders?
   - are they here to help, or here to be a pain in the ass?

6. growth or value?
   a. growth
      - growing fast
      - they dont' care about valuation
      - good at investing in tech companies
   b. value
      - buy low sell high
      - bad at investing in tech companies

7. do you enjoy their company
   - you will be spending a LOT of time with them
   - life is too short to spend on jerks

8. do you trust them?
   - first 20 min your gut will tell you
   - trust your gut

** how do VC firms make money: 2 and 20
  1. 2% annual management fee
  2. 20% incentive fee
     - they take 20%
  3. similar to a hedge fund

** VC legal paperwork
a. accredited investors
  - legally recognized by financial authorities as eligible to invest in private markets
    - venture capital
    - hedge funds
    - private equity
  - based on income, net worth and professional criteria
  - requirements for an individual
    - over 200k per year for prev 2 years
    - net worth exceeding $1 million, excluding priamry residence
b. offering memorandum
   - legally documents that everyone has to read

** How does investing in VC work
a. capital calls
   - they call you for the capital when they need it
   - you agree to make an investment
   - when they need part of it, they will call for part of it
b. 20% left over to avoid dilution
   - they avoid using 20% of what you agreed to invest to avoid getting diluted

** How do VC firms get deals?
a. network
b. past investments
c. other VC introduce firms to VC
   - firms compete and cooperate
d. work for it
   - if it seems "super lucky" be skeptical
e. universities
   - you meet the guys who are about to do something amazing

** How do VCs do due diligence
1. analyze competitive market
2. a report can take up to 400 pages
   - linked in
   - call people who know people
   - size up market and create in depth financial model

** How the deals are structures

all venture capital deals will have one lead investor and a bunch of smaller investors

** Preferred Shares and Harvesting

*** who do we back
1. strong management team
   - they know what they are doing, had a good exit
   - good board of advisors
   - ok if they failed before
2. huge tam
   - (total adjustable market)
   - should be at least 20 billion usd
3. strong syndicate
   - the other investors before you are high quality
4. disruptive business model
   - something that will change the world