Blue Cloud Ventures INITIATION GUIDE
CONFIDENTIALITY – The information regarding Blue Cloud Ventures portfolio companies contained in this report should be treated with extreme confidentiality. By accepting this report, each newly member agrees, with respect to all information that is disclosed in this report (including, without limitation, all information pertaining to the partnership, portfolio companies, other investments and affiliated persons of the partnership or the portfolio companies) or is disclosed in documents that are provided to the limited partner along with this document (collectively, the "confidential information"), to (1) treat as confidential and not disclose the confidential information and (2) prohibit all of its authorized representatives from sharing or disclosing any confidential information. Team members, however, are permitted to disclose any confidential information (a) that has become generally available to the public; or (b) as may be required or appropriate in any report, statement or testimony submitted to any governmental authority having or claiming to have jurisdiction over such member. This report has been prepared exclusively for training purposes, and it is not to be used by any other person or for any other purpose. The information presented herein is not intended for public disclosure or distribution, each of which could result in economic or other damages to the partnership and/or the portfolio companies described herein.
Table of Contents I.
Introduction
……..……...……………………………………………………………………………………………………………….
3
II. Training Modules Module 1: Overview of the Venture Capital Industry
………………………………………………………………………………
6
Covers the basics of the Venture Capital industry and offers insights into the different type of funds and fund structures
Module 2: Blue Cloud Ventures Investment Philosophy & Portfolio Companies
…………………………………………...…….
8
An introduction to BCV’s innovative investment strategy and overview of the fund’s portfolio companies
Module 3: Introduction to the Enterprise Software Industry
…..…………………………………………………………………
10
Essential reading for understanding the difference between Software-as-a-Service (SaaS) and traditional software licensing models; also covers the underlying economics of SaaS ownership
Module 4: SaaS Companies and Open Source Models
........…………………………………………………………………………
11
Provides a deeper understanding of the specific metrics used to asses SaaS companies; also includes insight into various SaaS business models
Module 5: Investor Report
……………………………………………………………………………………………………………
12
Quarterly report sent to Limited Partners
│Blue Cloud Ventures • 183 Madison Avenue, Suite 806 • New York, NY 10016│ www.bluecloudventures.com
2
I. Introduction Dear Asif,
Welcome to the Blue Cloud Ventures’ team and congratulations on your new position! We were impressed by your background and experience to date and are excited to have you on board. Prior to starting work at Blue Cloud Ventures, each new member is expected to go through the enclosed booklet and complete the pretraining requirements. This will typically take 1.5 – 2 weeks to complete. If you have any questions please do not hesitate to reach out to any of us. Contact details can be found on the next page. As an aspiring venture capitalist at Blue Cloud Ventures, it is important to understand the company culture and what is expected of you. Expectations are high! BCV is not a typical venture capital firm. We pride ourselves not only on our innovative and unique investment approach and fund growth strategy but also on out of the box thinking and creativity. To that end, we strive to foster an environment of collaboration and inclusivity, and input from all levels of the firm is welcome. Joining a growing venture capital firm is an exciting and challenging prospect and requires hard work and dedication. We strongly believe in the collaborative power of team work and encourage you to think of your role as beyond the traditional category of analyst or associate, and instead as an integral part of a team whose actions have a real impact on the success of the firm and the others around you. This is an entrepreneurial role where initiative, quality, and taking ownership of any given task is rewarded and appreciated. We believe that BCV is as much our company as it is yours. Unlike any other analyst or associate position, your work at BCV will not be narrowly defined to a simple set of mundane tasks. Instead, you will be required to wear several hats, think out of the box, multitask and take on more responsibility one normally would in joining a typical firm at this level. While your role will be focused on the investment part of the business (i.e. sourcing deals, conducting due diligence, screening investment opportunities and companies, attending technology events and trade shows etc.) you will be exposed and involved in other aspects of the business such as investor relations, fund management and PR as well as fund strategy. As a venture capitalist, it is important to be kept up to date on industry happenings, recently closed deals, and the activity of other VC firms. After logging into your newly created BCV email account, please sign up for and familiarize yourself with the following VC-related news sites and blogs: Crunchbase, Wall Street Journal, Fortune Magazine Term Sheet, Mashable, DealBook, TechCrunch, Venturebeat. While reading these publications, please focus on the Tech and Investment sections in particular.
We look forward to working with you!
BCV Team
│Blue Cloud Ventures • 183 Madison Avenue, Suite 806 • New York, NY 10016│ www.bluecloudventures.com
3
Team Members Contact information Mir Arif, General Partner E:
[email protected] T: 212-776-1981 C: 917-692-0724 Chris Eu, Analyst E:
[email protected] T: 212-776-1989 C: 917-562-9235 Rami Rahal, General Partner E:
[email protected] T: 212-776-1981 C: 917-692-0724
Asif email Address E:
[email protected] T: to be assigned Email online Log-in information: Domain: https://email.1and1.com/ Temporary Password: Asif123 Once you log-in for the first time, you will be able to change your password. Please set-up your signature in the following form: Asif Junaid Analyst Blue Cloud Ventures 183 Madison Avenue, Suite 806 New York, NY 10016 E : ajunaid@bluecloudventures T : To be assigned C : Please provide
│Blue Cloud Ventures • 183 Madison Avenue, Suite 806 • New York, NY 10016│ www.bluecloudventures.com
4
II. Training Modules
│Blue Cloud Ventures • 183 Madison Avenue, Suite 806 • New York, NY 10016│ www.bluecloudventures.com
5
Module 1: Overview of the Venture Capital Industry Training Time: 5 Days
Developing a holistic understanding of the Venture Capital industry is crucial prior to joining Blue Cloud Ventures and is a basic requirement for any aspiring venture capitalist. For the purpose of explaining the mechanics and common terms encountered in this industry, the following reading materials have been provided in a PDF attachment. Book: Venture Capital & the Finance of Innovation by Andrew Metrick and Ayako Yasuda While the entire book is considered to be required reading for any VC, certain chapters have been highlighted as particularly important and are expected to be covered prior to your arrival. Chapters include: chapter 1, 2, 3, 8, 9, 10, 12, 14, 15, 16, 17, 18. Chapters 1, 2 and 3 provide a general overview of the VC industry. Chapters 8, 9, 10, 12, 14-18 go deeper into the mechanics of investment and various deal structures. Understanding the different terms in a term sheet, knowing how to build a correct waterfall analysis, and how to value companies and deals will be crucial for your work at the firm. Please do take into consideration that as a late and growth stage firm we focus on investing in later stage rounds of relatively mature companies (ie. Series C, D, E etc). In addition, given the firms’ narrow focus on enterprise software, please dismiss any examples and exercises that focus on unrelated industries. As you go through the valuation section and learn more about how to value deals, take into account that valuation is an art and not a science. Varying multiples will generate a range of valuations for any target company. As an investor, several factors must be taken into account when considering what valuation BCV is comfortable at investing in. Typically, tech companies are valued based on revenue and EBITDA multiples. These multiples are calculated by using a combination of public comparable companies and M&A/precedent acquisitions. Although understanding the underlying concept of valuation is important, you will also be further trained upon joining on how to value different types of technology companies and what are the factors that affect valuation.
Chapter 1:
The VC industry
(Pages. 3-20)
Chapter 2:
VC Players
(Pages. 21-45)
Chapter 3:
VC Returns
(Pages. 46-63)
Chapter 7:
The Analysis of VC investments
(Pages. 144-145)
Chapter 8:
Term Sheets
(Pages. 146-163)
Chapter 9:
Preferred Stock
(Pages. 163-178)
Chapter 10:
The VC Method
(Pages. 178-192)
Chapter 12:
Comparables Analysis
(Pages. 214-228)
Chapter 14:
The Valuation of Preferred Stock
(Pages. 252-270)
│Blue Cloud Ventures • 183 Madison Avenue, Suite 806 • New York, NY 10016│ www.bluecloudventures.com
6
Chapter 15:
Later-Round Investments
(Pages. 272-285)
Chapter 16:
Participating Convertible Preferred Stock
(Pages. 290-303)
Chapter 17:
Implied Valuation
(Pages. 305-319)
Chapter 18:
Complex Structures
(Pages. 320-334)
As you go through the chapters, please write down any questions that you may have, and feel free to share them with any member of the BCV team. Keep in mind that you may also utilize online resources such as Google, Wikipedia and Investopedia for further clarification on specific topics and terms.
│Blue Cloud Ventures • 183 Madison Avenue, Suite 806 • New York, NY 10016│ www.bluecloudventures.com
7
Module 2: Blue Cloud Ventures Investment Philosophy & Portfolio Companies Training Time: 2-3 Days
The importance of understanding the BCV investment philosophy cannot be understated. Having a clear grasp of what type of investments we look for is essential. In addition, being able to clearly articulate the fund's value proposition and strategy will be key at marketing events, while pitching management of potential investment companies or even when talking to partners of other VC firms. Understanding the fund investment strategy will also enable you to quickly identify potential investment targets. Moreover, detailed knowledge of the fund's portfolio companies and space they operate in is important. New team members should be able to talk about any of the fund's 10 investments and are expected to know, in addition to each company's business description and primary competition, key investment terms of each particular deal (pre-money valuation, BCV investment, investment structure, total round size, co-investors, etc). The first step towards understanding BCV's value proposition is to go through the BCV website and focus on the About Us section. Going through the Team page as well as Advisory Board page is important. To get a better understanding of our portfolio companies we have attached investment memos for 8 of the 10 investments made by the fund. While reading the investment memos, please focus on the following sections: company strategy, investment strategy, returns analysis, market opportunity, growth strategy, Competition and financials analysis. Included below is a brief overview of each of the 10 investments made by BCV. While not exhaustive, these short write-ups provide important information on the amount invested, co-investors, company business description and current status of each investment. Investments Overview Exited 1.
$0.5
million
in
AFS
Technologies,
the
leading
provider
of
subscription-based
software
applications to the food & beverage and consumer packaged goods industries; co-invested with Goldman Sachs Private Equity and ABRY Partners – Sold to Court Square Capital Partners in February 2014 2.
$1.25 million in BeyondTrust, a provider of identity management software; co-invested with Insight Venture Partners – Acquired by Veritas Capital in September 2014
│Blue Cloud Ventures • 183 Madison Avenue, Suite 806 • New York, NY 10016│ www.bluecloudventures.com
8
Active 3.
$1.5 million in Aras, an open source product lifecycle management software provider; coinvested alongside Gold Hill Capital; previous investors include Matrix Partners, Greylock Partners and Oak Investment Partners
4.
$0.5 million in Cloudbees, the leading Java-based Platform-as-a-Service (PaaS) solution; coinvested with Matrix Partners, Lightspeed Ventures and Verizon Ventures
5.
$1.0 million in Reflexis, the leading provider of retail execution and workforce management software; co-invested with Sageview Capital
6.
$1.0 million in The Resumator, the leading SaaS self-serve recruiting software platform focused on serving the SMB and SME markets; co-invested alongside Volition Capital
7.
$1.0 million in Reval, the leading provider of cloud-based treasury and risk management software; co-invested with North Bridge Venture Partners
8.
$1.0 in BTI Systems, the leading provider of intelligent networking software & systems for cloud deployment; co-invested alongside Bain Capital Ventures
9.
$1.0 million in Shift, the leading SaaS social media real-time marketing platform; co-invested with DN Capital &
Draper Fisher Jurvetson; other investors include Crosscut Ventures, Rincon
Venture Partners, Lerer Ventures, Thrive Capital, Siemer Ventures and Double M Partners
10.
$1.0 million in Vidyo, the leading SaaS-based video conferencing solution; co-invested with Rho Ventures, Menlo Ventures, QuestMark Capital, Sevin Rosen Funds, and Juniper Networks
│Blue Cloud Ventures • 183 Madison Avenue, Suite 806 • New York, NY 10016│ www.bluecloudventures.com
9
Module 3: Enterprise Software Training Time: 1-2 Days
As BCV focuses on investing in Enterprise Software companies, it is crucial to understand the difference between subscription based SaaS companies and the traditional software licensing model. This will help while researching potential future investments as well as identifying companies that are a fit for BCV. Paper 1:
SaaS vs. Traditional Software Licensing Model
Paper 2:
The True Costs of Software
Paper 3:
SaaS CRM Software Total Cost of Ownership (TCO)
Paper 4:
Software as a Service
Paper 5:
The Economics of Software as a Service vs. Software as a Product
Paper 6:
The Difference Between Enterprise Software and Software-as-a-Service
Paper 7:
15 Key Considerations: SaaS vs On Premise Software
Paper 8:
SaaS is Different - An Accounting Primer for SaaS Companies
Paper 9:
Software-as-a-Service: A Comprehensive Look at the Total Cost of Ownership of Software Applications
Paper 10:
The Business Case for Software as a Service
Paper 11:
Software as a Service (SaaS): An Enterprise Perspective
In addition to the readings proposed, please spend time researching additional articles that will help you better understand the enterprise software market.
│Blue Cloud Ventures • 183 Madison Avenue, Suite 806 • New York, NY 10016│ www.bluecloudventures.com
10
Module 4: Further understanding SaaS Companies and the Open Source Model Training Time: 2-3 Days
BCV focuses on investing in SaaS, and in particular high recurring revenue companies. As part of the traditional due diligence work performed while assessing the viability and attractiveness of an investment opportunity, key analyses that are specific to the SaaS industry must be done. Analyzing how target companies generate revenue and retain customers is necessary in determining the attractiveness of an opportunity and whether BCV should invest. SaaS specific metrics and analysis methods have been developed by veterans of the industry, such as David Skok, General Partner and founder of Matrix Partners. Being familiar with these concepts will also help in future interactions with both portfolio companies and clients; having a deep knowledge of the industry BCV is invested in shows both diligence and interest. Read the following papers closely and research David Skok as you are expected to become familiar with key concepts and analytical methods included in the these papers. Paper 1:
SaaS Metrics - A Guide to Measuring and Improving What Matters
Paper 2:
SaaS Metrics 2.0: Guide to Measuring and Improving What Matters
Paper 3:
Lessons from Leaders: How JBoss did it
Paper 4:
SaaS Economics - Part 1: The SaaS Cash Flow Trough
Paper 5:
Optimizing Your Customer Acquisition Funnel
Paper 6:
Start Up Killer: The Cost of Customer Acquisition
│Blue Cloud Ventures • 183 Madison Avenue, Suite 806 • New York, NY 10016│ www.bluecloudventures.com
11
Module 5: Investor Reports Training Time: 1 Day
Each quarter, BCV produces a report detailing the performance of the fund and the underlying portfolio companies which is distributed to its limited partners in order to update them on the status of their investments. As you will eventually be tasked with producing these reports yourself, it is pertinent that you are comfortable with the wording, structure and quality of the reports and the content therein. Attached is the latest investor report. Read it as it provides key information on each of our portfolio companies and serves as a good point of reference when creating new reports for future use.
│Blue Cloud Ventures • 183 Madison Avenue, Suite 806 • New York, NY 10016│ www.bluecloudventures.com
12
