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The Business of Venture Capital

Insights from Leading Practitioners on the Art of Raising a Fund, Deal Structuring, Value Creation, and Exit Strategies

The definitive guide to demystifying the venture capital business

The Business of Venture Capital, Second Edition covers the entire spectrum of this field, from raising funds and structuring investments to assessing exit pathways. Written by a practitioner for practitioners, the book provides the necessary breadth and depth, simplifies the jargon, and balances the analytical logic with experiential wisdom. Starting with a Foreword by Mark Heesen, President, National Venture Capital Association (NVCA), this important guide includes insights and perspectives from leading experts.
* Covers the process of raising the venture fund, including identifying and assessing the Limited Partner universe; fund due-diligence criteria; and fund investment terms in Part One
* Discusses the investment process, including sourcing investment opportunities; conducting due diligence and negotiating investment terms; adding value as a board member; and exploring exit pathways in Part Two
* Offers insights, anecdotes, and wisdom from the experiences of best-in-class practitioners
* Includes interviews conducted by Leading Limited Partners/Fund-of-Funds with Credit Suisse, Top Tier Capital Partners, Grove Street Advisors, Rho Capital, Pension Fund Managers, and Family Office Managers
* Features the insights of over twenty-five leading venture capital practitioners, frequently featured on Forbes' Midas List of top venture capitalists

Those aspiring to raise a fund, pursue a career in venture capital, or simply understand the art of investing can benefit from The Business of Venture Capital, Second Edition. The companion website offers various tools such as GP Fund Due Diligence Checklist, Investment Due Diligence Checklist, and more, as well as external links to industry white papers and other industry guidelines.
Portrait
MAHENDRA RAMSINGHANI has over a decade of experience in fostering the growth of early-stage technology businesses. As Director-Venture Capital Initiatives for Michigan Economic Development Corporation (MEDC), Mahendra led the legislation for two Fund-of-Fund programs that deploy $200+ million in VC funds in Michigan. For his economic contributions, his US Citizenship was approved under "National Interest," a category reserved for less than 1% of the applicants.

He is also the co-author of Startup Boards (Wiley, 2014) with VC and author Brad Feld. His articles have appeared in Forbes and MIT Technology Review.

Mahendra's background includes a Bachelor's in Electronics Engineering and MBA with a major in Marketing & Finance. He lives in San Francisco, CA.
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  • Foreword xv

    Preface xix

    Acknowledgments xxiii

    PART ONE Raising the Venture Fund 1

    CHAPTER 1 The Basics 3

    Raise the Venture Fund 3

    Find the Right Investment Opportunities 4

    Generate Financial Returns 6

    Roles and Responsibilities 8

    Compensation 9

    Notes 12

    CHAPTER 2 Getting In 13

    Entry-Level Positions: Analysts and Associates 14

    Internships and Campus Recruitment 18

    Midlevel Positions: Principals and MDs 19

    Honing Investment Expertise within Allied Fields 22

    Senior Partner versus Junior Associate 24

    What about Luck? 25

    Notes 26

    CHAPTER 3 Building Your Career as a Venture Capitalist 29

    Intellectual Stimulation and Financial Returns 30

    Aptitudes and Attitudes of Successful Practitioners 31

    The Challenges of a VC Career 40

    Notes 43

    CHAPTER 4 The Universe of Limited Partners 45

    An Overview of Alternative Assets 47

    Sources of Capital: Limited Partners 51

    Fund of Funds 59

    FoF Models: Variation of a Theme 61

    Comparison of Limited Partnerships 65

    Notes 67

    CHAPTER 5 How Limited Partners Conduct Fund Due Diligence 69

    Sourcing and First Screens 70

    Evaluating the Venture Firms 71

    Notes 74

    CHAPTER 6 Defining Your Fund's Investment Strategy 77

    Sector-Based Strategy 79

    Stage and Geography 81

    Notes 86

    CHAPTER 7 How Institutional Investors Evaluate Fund Managers 89

    The Fund Management Team Dynamics: Stability, Skill Set, and Alignment 91

    Notes 99

    CHAPTER 8 Fund Size and Portfolio Construction 101

    Fit within the LP's Current Portfolio 105

    Market Timing 106

    Why LPs Terminate Existing Relationships 108

    Notes 109

    CHAPTER 9 Performance Analysis 111

    Individual Performance and Attribution 111

    Fund-Level Performance 113

    Comparison Benchmarks 117

    Public Market Equivalents 119

    The Quest for the Elusive Top Quartile Managers 119

    All the Managers Are Above Average 122

    Notes 124

    CHAPTER 10 Emerging Managers: A Promise of the Future 125

    Why LPs Seek Emerging Managers 127

    How Investors Rank Emerging Managers 130

    Institutional Allocations for Emerging Managers 131

    A Tale of Two Emerging Managers 132

    The Global Emerging Manager: 500 Startups 133

    Notes 134

    CHAPTER 11 The Venture Capital Firm, Operations, and Culture 137

    The DNA of a Firm 137

    Governance of the Firm 142

    Notes 147

    CHAPTER 12 The Fund-Raising Process 149

    Build Your Target List of Investors 151

    Fund Marketing Materials 152

    Presentation Slides 154

    Making the Presentation Pitch: Drink Your

    Own Kool-Aid(r) 154

    Attracting the Lead Investor: Your "Nut" 156

    Communicate, Create, and Maintain Momentum 158

    Announcing the Close 159

    Notes 160

    CHAPTER 13 Terms of Investment: The Limited Partnership Agreement 161

    Key Terms 161

    Fund Financial Terms 164

    Fund Governance Terms 168

    What Institutional LPs Seek 171

    Offering Sweeteners to Attract LPs: A Double-Edged Sword 173

    What Matters Most 173

    Notes 175

    CHAPTER 14 The Role of Placement Agents in Fund-Raising 177

    Agents Bring Market Intelligence and Relationships 179

    Ethical Challenges 182

    Notes 183

    PART TWO Making Investments 185

    CHAPTER 15 Sourcing Investment Opportunities 189

    The Best Source: The Network 194

    Accelerators and Demo-Days 196

    The VC e-Marketplace: AngelList, Kickstarter and FundersClub 197

    Angels 197

    The Fountainheads of Academia and Research 199

    Corporate Research 200

    Trade Conferences 201

    Pitch Me, Bro 203

    Competitions: From $40 Million Moonshot to $10K 204

    Cold Calling 205

    You Win Some, You Miss Some 206

    Notes 209

    CHAPTER 16 The Art of Conducting Due Diligence 213

    The Due Diligence Checklist 214

    What Is Important: Jockey, Horse, or Markets? 217

    Who Invests in Rap Music and Shaving Blades? 220

    Notes 223

    CHAPTER 17 Management Team Diligence 225

    Assessing Intangibles 225

    How to Assess the Jockey 229

    Serial Entrepreneurs versus First-Time Entrepreneurs 237

    What about Charisma? 238

    The Importance of Conducting Background Investigations 239

    Notes 241

    CHAPTER 18 Diligence beyond Management 245

    Assessing the Market 245

    Evaluating the Idea or Product 247

    The Business Model 249

    Financial Projections 251

    Do Business Plans Matter? 252

    Notes 253

    CHAPTER 19 Structuring Investment Transactions 255

    The Spirit of the Term Sheet 255

    Negotiation Stress Points 256

    Structuring Terms to Generate Target Returns 258

    Valuation Methods and Other Voodoo Arts 260

    The Drivers of Valuation 261

    The Simplified Form of the Venture Capital Method of Valuation 262

    Comparable Valuations of Similar Investments (Comps) 264

    Discounted Cash Flow Method 266

    Convertible Loan 268

    Equity: Preferred Stock 270

    Liquidation Preference 273

    Antidilution Protections 277

    Milestone-Based Financing: Risk Mitigation or Distraction 279

    Governance and Control: Protecting Your Securities 280

    Exit-Related Provisions 281

    Other Terms 284

    Syndicating Investments 285

    Keeping Term Sheets Simple 286

    The Closing Process: After the Term Sheet 289

    Notes 291

    CHAPTER 20 Serving on the Board 295

    Self-Education: Preparing for Your Board Role 296

    Roles and Responsibilities of a Board Member 297

    Legal Requirements of Board Service 298

    Notes 302

    CHAPTER 21 Board Culture, Composition, and Orientation 303

    Toward a Better Board Culture 305

    A VC Reports to Limited

    Partners and the Venture Capital Firm 309

    Importance of Independent Directors 309

    Notes 310

    CHAPTER 22 Board Value Creation and Evaluation 311

    Good Governance as the First Step toward Value Creation 313

    The CEO's Perspective on VC Value Add 314

    Board Self-Evaluation 317

    Notes 318

    CHAPTER 23 Challenges in the Boardroom 321

    Challenges among Shareholders 322

    Managing CEO Transition 326

    Best Practices in Managing Transitions 328

    Alignment of Exit Method, Timing, and Exit Value 329

    Notes 330

    CHAPTER 24 Exit Strategies 333

    Preconditions for an Exit 334

    Secondary Markets 339

    Notes 342

    CHAPTER 25 Acquisitions: The Primary Path to an Exit 343

    The Sell Process 349

    When an Acquirer Comes Knocking 353

    The Buy-Side Acquisition Process 354

    Deal Killers 358

    Notes 359

    CHAPTER 26 Initial Public Offering 361

    The IPO Process: The Long and Winding Road 362

    Steps to an IPO 363

    Not an Endgame, but a Financing Event 366

    Timing the Market 367

    IPO Underpricing and Dutch Auctions 367

    Information Asymmetry: The Bigger Fool Theory of IPO Underpricing 369

    The Dutch Auction: Eliminate the Pop and Those Middlemen 370

    Post IPO: Should VCs Stay Engaged? 371

    Notes 373

    CHAPTER 27 Human Psychology 375

    Emotions versus Logic 375

    Reciprocation, Obligations, and Indebtedness 376

    A VC with Ego: Why Should I Eat Your Leftovers? 376

    Conformity (or Groupthink) 377

    Rock Stars in the Business 378

    That Overhyped Rolodex is Not as Useful as You Think 378

    Notes 379

    Afterword 381

    About the Author 385

    About the Companion Web Site 387

    Index 389
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Beschreibung

Produktdetails

Einband gebundene Ausgabe
Seitenzahl 432
Erscheinungsdatum 19.09.2014
Sprache Englisch
ISBN 978-1-118-75219-7
Reihe Wiley Finance Editions
Verlag John Wiley & Sons Inc
Maße (L/B/H) 23.6/15.9/4 cm
Gewicht 719 g
Auflage 2. Auflage. Plus Website
Verkaufsrang 33682
Buch (gebundene Ausgabe, Englisch)
Buch (gebundene Ausgabe, Englisch)
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