Venture Capital and Capital Raising

Major Domus Venture Partners

Major Domus Venture Partners has launched a new co-investment portfolio to provide transparent, managed, and diversified access to predetermined “Target Company Universe” of secondary opportunities.

Major Domus Venture Partners is a research-driven co-investment focused on the secondary market for late-stage, Pre-IPO companies.  We work closely with Principals to give them the access they want while providing Shareholders with the diversification they need.

Target Company Universe is a chance for Principals to benefit from MAJOR DOMUS VENTURE PARTNER’s proven investment acumen, industry expertise and execution capabilities. Investments will be predominantly acquired through direct sourcing in the secondary market, based on proprietary quantitative and qualitative selection criteria.

This leverages Major Domus Venture Partners’ unique insight and unparalleled access to serve its investor Members.

Financing the Secondary Market

Over the course of a decade, the financing landscape has rapidly changed for many privately held technology companies.  No longer a “short-term” play, privately funded companies are now looking to post-IPO to create a greater increase in their valuations. Many of these entrepreneurial start-ups are bringing in substantial revenues are operating with better business models that help them rapidly increase their private capital. While remaining mostly private, the readily available pools of private capital made by these start-ups make for attractive investments in post-iso for traditional and non-traditional investors equally.

According to Caro, these secondary shares for late-stage private companies have created a new asset class. Creating a marketplace that should be open, transparent and structured as any public market. (Caro,2006).

MDVP seeks to bridge investors with limited access to primary tech opportunities (Seshadri,2017). with its unique research and ability to streamline the transaction process by providing a one-stop principal investing and advisory solution to various shareholders, as well as GPs and LPs.(Crunchbase,n.d)

[1] CARO, HOWARD. “A SECOND LOOK AT SECONDARY MARKETS.” SCENIC ADVISEMENT. N.P., 3 JUNE 2016.

MDVP and Target Company Universe

Major Domus Venture Partners has launched a new co-investment to provide transparent, managed, and diversified access to predetermined “Target Company Universe” of secondary opportunities.  Using a selected portfolio from a group of top-tier venture-backed companies. Members are provided with a Target Company Universe of investments which will comprise the investments prior to acquisition.

Major Domus Venture Partners offers a late-stage focus with a 1-4 year investment exit horizon and a preselected portfolio compares favourably to traditional 10-12 year blind- pool venture capital funds. Distributing marketable securities to the Members during a 180-day investment period, designed to take advantage of current market conditions. Major Domus Venture Partners assures the client that no more than 15% of capital commitments will be invested in a single portfolio company.

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Investment Process

Raising capital for a start-up has traditionally been one of the most difficult parts for entrepreneurs to get their ideas off the ground.  However, given today’s technology and numerous platforms to choose from, it provides new and easier ways for entrepreneurs to raise enough capital to start their companies.  Here’s how you can choose to get your company funded.

Venture Capital (VC)

According to The U.S Small Business Administration, Venture Capital is a type of equity financing that addresses the funding needs of entrepreneurial companies that for reasons of size, assets, and stage of development cannot seek capital from more traditional sources, such as public markets and banks.[1]

If you wish to raise capital to start up a new technology firm, here is the typical process you can expect:

Submit Business Plan

In order for venture capitalists to justify the high risks involved in the early seed investment of your company, you must offer them a fresh and innovative business idea that will find a niche in the existing marketplace. According to Charley Polachi, partner at the Polachi Access Executive Search, he stresses the importance of of having a truly unique idea with high barriers to entry in order to attract the attention of venture capitalists[2],”Venture capitalists are looking to fund projects that are unique and can’t be easily replicated. Ideally, the technology or service can be patented or trademarked to give the start-up some breathing room and really allow the business owner some time to gain traction and market share.”

Once the entrepreneur is able to attract the attention of the venture fund and meet certain stringent investment criteria, the fund will review the business plan, and they will talk to the business owner before proceeding to the next stage.

Due Diligence

Once the venture fund is interested in the business plan that the start-up company presents, the fund will then perform its due diligence on the company, for example looking deeper into details of the company’s management team, products, services, markets, and financial statements etc…

Usually a term sheet, listing all the terms and conditions of the deal, will also be drafted at this stage.

Investment

After all the due diligence has been performed by the venture fund, and if interest remains, the venture fund will then make an initial investment and acquire an equity stake within the start-up company.However, statistics show that most start-up companies do not qualify for venture capital. It is shown that there are around 600,000 new business started in the US each year, and only 300 of which were funded by VC. In addition, the Small Business Administration shows that around 99.95 percent of the venture companies will fail to raise fund from a venture fund[3].For those who fail, online crowd funding platforms such as Kickstarter[4] and Indiegogo[5] may be an option. To provide an example, Lockitron[6], a start-up company which was initially rejected by Kickstarter, was able to raise USD$1,500,000 in just five days through a similar online crowd-sourcing platform, and that’s ten times more than the amount they originally planned to raise[7].

Realisation – IPO

Since Venture Capital is one of the very first steps to kick-start a business, IPO will be one of the eventual realisations for the venture capitalists to exit their investments. According to CB insights[8], after a good year for tech IPO in 2013, the wave of IPOs will remain as heated in 2014, assuming there is no massive downturn in market sentiment[9]. As in December 2013, there were 590 tech companies that were valued at USD$100 million or more in the IPO pipeline, all of which were either backed by venture capital or private equity, a 25% in volume more than the previous year.

Although taking a private company public is a very time-consuming and costly process, an IPO can provide massive capital to fuel growth and liquidity for the founders. Some other benefits are listed below[10]:

  • Given the high valuation of public companies in recent years (for example Facebook, Tencent, and possibly Alibaba in the near future), IPO can grant the founder the access to capital to fund their growth and not to worry about future funding.
  • It grants you with enough capital to acquire other businesses and a valuation if your business becomes an acquisition target.
  • It serves as an exit strategy for private company investors such as venture capitalists.
  • It serves as a marketing campaign for the company to attract more public attention. It can enhance your brand image, public profile as well as credibility[11].

According to CB insights, it shows that the average duration for a tech company to go public will take an average of 7 years from the very first funding to an IPO exit[12]. As there is no overnight success story, a great deal of work and stress will always be involved during this 7-year period, from fund raising at the angel-investor stage to accumulating customers and getting confident enough to the pipeline of the IPO. So in order to ensure that your IPO is a success, consider the following points[13].

Employ a CFO

Hiring a CFO is crucial because he/she knows how to play the game of Wall Street. As soon as he/she understands your business, then he/she will be able to integrate the future path of your business so that he/she can communicate and present the vision of your company during the market campaign.

Choose the investment banks carefully

Picking the right bank is crucial in determining the success of your IPO. While most banks possess some qualifications and competencies, knowing them well prior to your IPO can ensure you can pick up the best and most flexible terms on the deal. The managing underwriter will coordinate with a company to develop the registration statement, prepare the road show, underwrite certain risks, and also form a syndicate.

A company can always go public without an underwriter, but as mentioned the process of IPO is so complex that it should be left to the experts. They can assure you that the IPO is properly managed and supported throughout the pre and post IPO journey.

Assemble your IPO Team

Despite the investment banks – the underwriters, there are also three groups of team that are vital to your success of the IPO.

  • The underwriter’s counsel

The underwriter counsel is generally involved in drafting the underwriting agreement, and they will ensure on behalf of the underwriters that the registration agreement is accurate and not misleading before the files are sent to the regulators for approval

  • Independent auditors

Prior to the IPO process, it is necessary for your company to employ an independent auditors for strategic and technical advisory. The services these auditors can provide are strategic advice to establish a plan to enter the capital markets; technical advise on how to prepare the registration statement and obtaining approval from the regulators; guidance of accounting issues, and providing audits of the financial statements[14].

  • Other professional advisers

Other advisers will include public relations firms and other consultancy firms. They will assist and guide your company through the marketing campaign period, such as preparing all sorts of materials required for road shows and analyst presentation, and even coach management on presentation skills.

Craft your ‘story’ – the road show

This step is basically about how to position your company, highlighting your company’s strengths, strategy, the market opportunity, and why your company will be a good investment in the future. As investors are looking for great growth potentials, especially for tech companies. It is crucial that you tell potential investors a story compelling enough before they even start to scrutinise your company and dig deeper into the bottom-line performance.

Last Stage – Post IPO

The last stage of the IPO journey begins after the shares are priced. For the next 24 months of post IPO, there will be more work to be done to attract investors and analysts. As a new public company, the management team is now accountable to hundreds or even thousands of investors compared to perhaps a dozen of them when your company was private. It may be correct that a newly public tech company may enjoy high share prices fuelled by the enthusiasm of the market of tech companies, however unless the company is able to maintain the interests of investors and sell-side analysts, the euphoria will quickly vanish[15].

Major Domus Family Office Services

Major Domus Family Office Services (MDFOS) and BBD Enterprises (BBD) have partnered to offer private enterprises in-house merger, acquisition and corporate restructuring services. The partnership puts together a team of senior executives with many years of legal, accounting, regulatory and investment banking experience. For any size of capital raising, the MDFOS and BBD team can act as your structuring team, including capital raising, and when necessary work with other licensed investment banking partners to execute public offerings.

Our in-house services are substantially less costly and more efficient than pulling together a panel of separate and individual external firms which usually have a view of getting for themselves a maximum piece of the pie. Controlling cost and information internally with a team that is financially aligned to the owners is an emerging trend worth considering.

Please note that Major Domus does not carry a Type 6 license from SFC for Advising on Corporate Finance (stock exchange listings, mergers or IPOs); BBD is an independent professional services firm and is not licensed to offer legal and tax advice. The services our team provides are for private non-listed companies only.

[1] The U.S Small Business Adminstration, Venture Capital, [online], Available: http://www.sba.gov/content/venture-capital [5 August 2014].

[2] Elisha Hartwig (2013), 4 Things Your Startup Needs to Attract Venture Capital, Mashable, [online], Available: http://mashable.com/2013/05/06/startup-venture-capital/ [5 August 2014].

[3] Dileep, Rao (2013), Why 99.95% Of Entrepreneurs Should Stop Wasting Time Seeking Venture Capital, [online], Available: http://www.forbes.com/sites/dileeprao/2013/07/22/why-99-95-of-entrepreneurs-should-stop-wasting- [5time-seeking-venture-capital/ [5 August 2014]

[4] https://www.kickstarter.com/?ref=nav

[5] https://www.indiegogo.com/

[6] Lockitron is a company which manufactures electronic device that can unlock deadbolt locks via remote control. For more information about Lockitron, please vistit https://lockitron.com/preorder.

[7] Brainz, [online], Available: http://brainz.org/venture-capital-and-kickstarter-how-tech-startups-get-funded/ [6 August 2014].

[8]  CB insights is a research firm that collects venture capital and angel investment data,

[9] Thompson, C. (2013), Here’s what the 2014 tech IPO pipeline looks like, [online], Available: http://www.cnbc.com/id/101266208# [6 August 2014].

[10] Wasserman, E. (2010), Inc., [online], Available: http://www.inc.com/guides/preparing-for-initial-public-offering.html [11 August 2014].

[11] Ernst & Young, EY’s guide to going public, [online], Available: http://www.ey.com/Publication/vwLUAssets/Ernst_and_Young_guide_to_going_public/$FILE/Guide_to_Going_Public.pdf, [15-8-2014]

https://www.cbinsights.com/tech-ipo-pipeline [11 August 2014].

[13] Solomon, G. (2013), Going long for growth stage entrepreneurs who are think big, [online], Available: http://goinglongblog.com/top-10-steps-to-ipo-preparation/ [11 August 2014].

[14] PriceWaterHouseCoopers, Roadmap for an IPO, [online], Available: http://www.pwc.com/us/en/transaction-services/assets/roadmap-for-an-ipo-a-guide-to-going-public.pdf, [15-8-2014].

[15] PriceWaterHouseCoopers, Roadmap for an IPO, [online], Available: http://www.pwc.com/us/en/transaction-services/assets/roadmap-for-an-ipo-a-guide-to-going-public.pdf, [15-8-2014].

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