Zelkova Ventures

This past Friday I had the pleasure of judging the Venture Capital Investment Competition (VCIC) at NYU Stern along with several other VC’s including, Bronson Lingamfelter from Rose Tech Ventures, Zach Schildhorn from Lux Capital, David Nevas from Edison Venture Fund, Justin Wohlstadter from Penny Black and angel Joe DeMartino.

Unlike most business plan competitions this one flips the model, the students act as VC’s and evaluate 3 real companies and determine which one to invest in.  As a judge you are not evaluating the companies, but evaluating the students abilities around diligence, term sheet development and negotiating a deal.

The three companies that volunteered to be poked and prodded by the students were MusicVilage, CalendarFly and Dr. Chrono.  The day started with 15-minute presentations by each company and was followed by a diligence session between the companies and each team.  From there the teams went off and developed term sheets for the company of their choice and than presented and negotiated them.

The six schools competing at the NYU event were Carnegie Melon, Columbia, Cornell, London Business School and Yale.

The fund profile the teams were given to invest from was an $80mm fund, that was 40% invested and invested in Seed / Series A Deals.  I believe this handicapped the teams as all three companies were seed stage companies that most of us agreed needed $500k – $1m to show some results.  Further there were some questions on whether the exits of the companies could move the dial for a fund of $80mm.   The fund size probably should have been around $30mm – $50mm, in which case any of these companies could produce appropriate returns for funds of those size.

A few themes out of the diligence sessions included:

• Focusing mainly on the business very little about the entrepreneurs
• No team gave the entrepreneurs the ability to ask them questions
• Few teams focused on product roadmap / development

A few themes that came out of the term sheet development and negotiations included:

• All teams over funded the companies significantly.
• Many of the term sheets used a complex traunching schedules.
• Valuations ranged significantly and were based on the science of financial models, which is very different than seed stage valuation determination
• Board sizing was interesting, most were 5 or more, and one team proposed a 4 person board

Congrats to all the teams that did a great job!  The top three teams were 1) Columbia 2) London Business School 3) Cornell.