Operations and Strategy

Charis Capital Ventures strives to provide entrepreneurs with the support they need to create profitable, growing businesses, while providing investors with outstanding investment returns.

• Relationships
• Due Diligence Process
• Judgment
• Discerning the Entrepreneur
• Valuation Strategy
• Company Creation
• Active Investor
• Exit Strategy
• Service Orientation.

Relationships

Charis Capital Ventures has developed, and will continue to develop strong relationships with intelligent, hard working, influential people. These relationships provide a strong base for success in the venture capital business. Leads for new investment opportunities, reference checks, key managers, sources of financing, and market predictions come from a wide variety of sources including bankers, accountants, lawyers, salesmen, engineers, the press, other venture capitalists, other entrepreneurs, friends, associates, and relatives. Charis Capital Ventures believes that an active venture capitalist with a strong network of influential people can effectively fund and develop companies with far greater success than a passive investor.

Due Diligence Process

Charis Capital Ventures has an eight-step procedure for due diligence before making an investment decision, and at any stage we may make a decision not to invest.

1) Read Plan/Assess Team. We request a business plan description and complete resumes of management from all entrepreneurs. CCV Partners meet with the best of these entrepreneurs, attempting to identify key traits that have been associated with entrepreneurial success in the past, such as high energy, a must-win attitude, intellectual brilliance, high personal integrity, relevant experience, a strong work ethic, and the ability to prioritize and focus.

2) Evaluate Market. In addition to our reliance on our own experience, Charis Capital Ventures has developed relationships with many market experts, including CEOs and other key employees of many successful companies in the healthcare technology arena. Each of these contacts represents a valuable source of information about his or her own market, and we call upon these contacts for candid references. As we evaluate markets, we need to become convinced that a company can attain niche leadership over time.

3) Examine Business Model. We examine the models upon which business plans are built, and have developed a distinct bias toward business models calling for high gross margins and relatively low capital intensiveness. Such businesses have higher internally sustainable growth rates than most and are the best candidates for superior return on equity invested.

4) Check References. Charis Capital Ventures requires each entrepreneur to supply a list of references in order that the Partners may get a better sense of the entrepreneur's past experience, strengths, weaknesses, and work habits. Charis Capital Ventures makes it a point to get references outside of this list as well, in order to avoid only "cherry-picked references." Charis Capital Ventures believes that these checks are important to develop a more complete and accurate picture of the team.

5) Call Potential Customers. Charis Capital Ventures makes it a practice to call a number of prospective customers to get a sense of how they might respond to the envisioned product. Early on Charis Capital Ventures attempts to develop and promote a sense of customer orientation in all entrepreneurs in whom we invest.

6) Evaluate Product/Technology. As part of our analysis, we need to be convinced that the product is unique, and that use of the product does not require a substantial change in customer behavior. To evaluate technology, Charis Capital Ventures does not rely on in-house expertise alone, but contacts appropriate specialists to evaluate the feasibility of developing the entrepreneur's vision. Generally, Charis Capital Ventures believes that assuming technology risk is part of the job of the early stage venture capitalist.

7) Evaluate Risks/Rewards. Charis Capital Ventures evaluates the pro-forma financials, the likelihood of an exit after a five to seven year holding period, and the upside and downside prospects for the company. We insist that, given realistic assumptions, we must be able to make at least 10 times, and preferably 100 times, our money on each initial investment.

8) Decide. When Charis Capital Ventures decides to make an investment, the Partners draw up a term sheet for negotiation. Valuation, board seats, requirements for additional investment, vesting schedules, salaries, and so forth are all discussed, and terms are agreed to. Generally, Charis Capital Ventures will require a board seat and preferred stock. While the result of the negotiation must clearly meet our needs, we believe it is important that the needs of the entrepreneurs are also met. From the point of the investment onward, we strive to match our interests with those of the entrepreneurs so that we can work together as true business partners.

Judgment

Charis Capital Ventures believes that the judgment of its team is critical to its success. This judgment is based on both the experience of the Partners, and the understanding that the Partners have of the entrepreneurs.

From experience, Charis Capital Ventures has developed biases about: Market Size, People, Uniqueness, Entry Barriers, and Teamwork. The market must be large enough for a company to grow to at least $100 million in value in five years even if it makes a few mistakes along the way. The people must be extremely motivated to do whatever it takes to make a success of the company. They must also be well qualified to take on the challenge. The product must have some differentiating feature that can lead to the creation of a profitable company. The company must be able to defend its position in its market once established. The members of the team must be completely dedicated to building a business and willing to hire the best people they can find. They must show that they work well together, and the proposed investment must align the interests of investors and management.

Discerning the Entrepreneur

It is always difficult for a venture capitalist to gauge the ability of an entrepreneur to implement the vision he or she has described. Charis Capital Ventures ponders over whether: 1) the entrepreneur is adequately motivated, and stable enough to handle a high degree of stress; 2) the venture represents a culmination of what the entrepreneur has long wanted to do; 3) the entrepreneur is a winner, works hard and focuses on the key issues; and 4) entrepreneurs are willing to hire the best people for the task even if it means dilution of their stock or authority. We view our investments as long term commitments to a team and an idea. As such, we think it wise for both of us to get to know each other well, prior to getting together.

Valuation Strategy

To value a company, Charis Capital Ventures believes that expectations of the company's management must be set appropriately, and that all key members of the team must feel good about their position and ownership in the company. Different things drive different people, and we must work to accommodate all key members while creating a superior investment opportunity for Charis Capital Ventures.

Company Creation

In addition to the nuts and bolts of venture capital, Charis Capital Ventures has additional expertise in creating and molding companies so that they improve their chances for success. In many cases, Charis Capital Ventures has created a company around an idea or an exciting market opportunity. In these cases, Charis Capital Ventures often earns a larger equity stake for its role in assembling the original team.

Active Investor

Charis Capital Ventures does not invest as a sleeping partner. Being an active investor, CCV brings the following expertise to the table.

1) Executive Search and Recruit. In many cases, Charis Capital Ventures helps recruit additional management needed to complete the management team that will take the company through the early stages.

2) Structure and Restructure. In some cases, the original entrepreneurial team is unbalanced or has an inappropriate distribution of equity. Charis Capital Ventures works with key members to restructure such companies before they are funded.

3) People Development and Guidance. Often the best entrepreneurs are young and inexperienced. Charis Capital Ventures provides these entrepreneurs with help, support and direction so that their companies will achieve healthy growth.

4) Incentives. Entrepreneurs must know that the company is still their company, even though investors require substantial equity to take the risk. They should not feel overpowered at any time, because typically, they started the company to avoid having someone watching over them in the first place. Charis Capital Ventures believes that keeping sight of an entrepreneur's incentives is one of the most important jobs of the venture capitalist.

Exit Strategy

Charis Capital Ventures needs to eventually sell the securities it intends to buy for the Partnership. Typically, the investors will exit in one of two ways: 1) through a public offering; or 2) through a merger with another company for liquid shares or cash. A public offering is generally our preference.

Service Orientation

After the investment, Charis Capital Ventures becomes a service organization to the company. If we take a board seat, Charis Capital Ventures takes on the role of financial planner, planning for follow-on rounds of capital and introducing the company to later stage venture capitalists, investment bankers, and potential corporate partners. We also help with executive searches for the key management roles not filled before the financing. We also become a confidant to the company president and other team members who need to work out strategy, growth, and personnel problems with an interested "sounding board."