Workshops in Funding Cycles and Exit Strategies
By: Chelsea Braithwaite and Brian Li
Reading articles about VCs and doing research is really important to understand how they function, however, active workshops and activities allow you to get in the headspace of a VC. Here, we go over two separate workshops: one on funding cycles and one on exit strategies.
Understanding Funding Cycles
Head over to www.crunchbase.com and pick a company that you are interested in learning more about. Crunchbase shows many different aspects of the company including financials, people, technology, and news. Below, you can see what a typical homepage looks like for a company.
From here you can explore many parts of the company, including features in recent news. Once you are ready head over to the financials tab to start looking into the funding cycles.
All of the information related to funding is listed here. You can see the number of funding rounds, how much was raised in each round, and the investors. Some companies go through more funding cycles than others for different reasons like the nature of their industry, the company’s growth potential and profits, customer acquisition costs, and current events within a company. Grab some friends interested in VC and discuss your thoughts with them! Alternatively, you can talk to your friends who do not know much about VC to test your knowledge.
RFV Funding Cycles Workshop Example with SpaceX
SpaceX has 38 rounds of funding and its current valuation is $74 billion. They are backed by seven lead investors including Nasa, Manhattan Ventures, UIT Growth Equity, and Republic Labs. SpaceX saw a growth rate of 55% from 2017 to 2018 which brought their annual revenue up to $2 billion. They are the highest valued private technology company in the U.S.
One of SpaceX’s major projects is Starlink. It provides high-speed internet access globally by using a network of over 1,000 satellites. Starlink was launched in October 2020 and has 10,000 beta users. Another project is Musk’s “pet project” which is attempting to reach mars using a reusable rocket through the starship rocket program. SpaceX is also commissioned by NASA to transport astronauts to and from the International Space Station (ISS) at about $55 million per launch. This makes SpaceX the first company to launch humans to the ISS.
The plots above show both how much Capital SpaceX raised in each funding round and what the complementary valuation was. In Series G, SpaceX was able to raise $1 billion from investors like the Founders Fund, 137 Ventures, DFJ Growth, Google, and Fidelity Investments, among others. This brought their valuation from $1 billion to over $10 billion, and from there it continued to grow.
Working through Exit Strategies
This workshop has three different scenarios. Try to come up with an optimal exit strategy from the VC standpoint. Discuss with your friends and see what you come up with! You can compare your answers with ours at the end.
Scenario 1: Stevens Venture Group has a 100 million dollar investment in Space Tech LLC. With their development of a rocket that used ⅓ less fuel than any other rocket, their valuation has skyrocketed. But they do not have the infrastructure to produce these rockets at the capacity needed for today’s space missions. Their current market value is 1 billion. There is an interest in a merger from SpaceX. What type of exit strategy would return the highest profit for Stevens Venture Group.
Scenario 2: Hoboken Venture Partners has invested 10 million in a small startup electric car company called e-mobiles. Their business model was to create cheap electric cars for people in cities and other congested areas. With the advancement of Tesla’s self-parking and summons technology, e-mobile has lost market share and Hoboken Venture Partners is looking to liquidate its investment and try to minimize losses.
Scenario 3: East Coast Ventures has a 25 million dollar stake in a biotech company that has promising research in the Lung Cancer sector. But their next research study will not conclude for another 5 years. East Coast Ventures need to make sure their investment will pay off. Should they wait until possible good news at the end of the study or try to exit while they are ahead.
RFV Exit Strategies Workshop Discussion
Scenario 1: Management Buyout or Merger. Management buyout allows the VC to liquidate the shares and avoid a large barrier of entry. A merger is a good option if the VC wants to keep the shares.
Scenario 2: Merger or Acquisition. They can merge with another company that is more developed and has the resources and infrastructure needed. They can be acquired by another EV manufacturer. The ideal situation would be to get acquired by Tesla.
Scenario 3: Acquisition or Management Buyout. The VC can consult the preliminary studies and look for an acquisition by a bigger MedTech company. If the company portfolio is less than $200M, the VC should exit through a management buyout. If the company portfolio is greater than $200M, then the VC should keep going and stick with the company. A partial buyout is an option that would get another investor involved and reduce risk.
