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More About This Title The Business of Venture Capital: Insights from Leading Practitioners on the Art of Raising a Fund, Deal Structuring, Value Creation, and Exit Strategi
English
English
Preface xvii
Acknowledgments xxix
PART ONE:Raising the Venture Fund 1
CHAPTER 1: The Universe of Limited Partners 5
An Overview of Alternative Assets 6
Sources of Capital 10
Comparison of Limited Partnerships 29
Summary 29
CHAPTER 2: Fund Due Diligence 33
Sourcing and First Screens 34
Fund Due Diligence: How LPs Evaluate Venture Firms 36
Evaluating the Fund Managers 39
Emerging Managers: A Promise of the Future 53
The Quest for the Elusive Top Quartile Managers 61
Fund Investment Strategy 67
Market Timing 77
Fund Size and Portfolio Construction vis-a-vis Fund Strategy 80
Fit within the LP's Current Portfolio 85
Why LPs Terminate Existing Relationships 87
Summary 87
CHAPTER 3: Terms of Investment: The Limited Partnership Agreement 89
Sample Terms in a Fund's PPM 90
Other LP-GP Terms 105
What Matters Most 110
Summary 110
CHAPTER 4: Fund Structure, Governance, and Operations 113
Key Constituents of the GP Team 114
Finding Suitable Partners 125
Fund Governance and Economics 126
Governance of Management Services GP LLC 127
Summary 134
CHAPTER 5: Getting to the First Close 135
Build Your Target List of Investors 137
Fund Marketing Materials 141
Presentation Slides 142
Making the Presentation Pitch: Drink Your Own Kool-Aid 144
Attracting the Lead Investor: Your "Nut" 144
Communicate, Create, and Maintain Momentum 146
Offering Sweeteners to Attract LPs: A Double-Edged Sword 147
The Role of Placement Agents in Fund-Raising 147
Caveat Emptor 151
Summary 152
PART TWO:The Investment Process 153
CHAPTER 6: The Art of Sourcing Investment Opportunities 155
The Best Source: The Network 157
The Fountainheads of Academia and Research 160
Corporate Research 161
Venture Events and Trade Conferences 163
Venture Farming 165
Angels and Pledge Funds 167
Business Plan Competitions 171
Cold Calling 172
You Win Some, You Miss Some 172
Summary 174
CHAPTER 7: The Art of Conducting Due Diligence 177
What Is Important: Jockey, Horse, or Markets? 178
Attributes of the Jockey 179
Serial Entrepreneurs versus First-Time Entrepreneurs 183
What about Charisma? 184
Management Team Due Diligence: How to Assess the Jockey 185
The Importance of Conducting Background Investigations 192
Assessing the Market 194
Evaluating the Idea or Product 199
Reviewing the Business Model 201
Considering the Financial Projections 202
Weighing the Importance of Business Plans 203
The Due Diligence Checklist 203
Summary 206
CHAPTER 8: The Basics of Corporations, Ownership, and Control 209
Authorized Shares and Issued Shares 211
Shareholder Rights 217
Role of the Board 217
Summary 218
CHAPTER 9: Valuation Methods and Other Voodoo Arts 219
The Drivers of Valuation 220
The Simplified Form of the VC Method of Valuation 221
Comparable Valuations of Similar Investments (Comps) 224
Discounted Cash Flow Method 226
Summary 228
CHAPTER 10: Structuring Investment Transactions 229
The Spirit of the Term Sheet 229
Negotiation Stress Points 230
Milestone-Based Financing: Risk Mitigation or Distraction 238
Structuring Terms to Generate Target Returns 239
Governance and Control: Protecting Your Securities 246
Exit-Related Provisions 247
Other Terms 248
Toward a Simpler Term Sheet for Smaller Investments 250
Syndicating Investments 251
The Closing Process: After the Term Sheet 252
Summary 253
CHAPTER 11: Behind Every Successful CEO Stand a Few Good Board VCs 255
The Need for Director Education 256
Roles and Responsibilities of a Board Member 257
Board Composition and Orientation 261
Board Practices 263
Get That Gavel: Overview of Robert’s Rules of Order 265
Value Creation: How to Support Your Portfolio Company’s CEO 268
The CEO’s Perspective on Venture Capitalist Value Add 269
Setting the Tone through Board Culture 275
Improving the Board Game 284
Summary 289
CHAPTER 12: Exit Strategies 291
Preconditions for an Exit 292
Acquisitions: The Primary Path to an Exit 297
The Sell Process 302
When an Acquirer Comes Knocking 307
The Buy-Side Acquisition Process 307
Deal Killers 310
Acquisition Case Study: Mint.com Generates 5x Cash-on-Cash Return in Two Years 310
Initial Public Offering 313
Private Exchanges: Necessity Drives Liquidity Solutions 324
Summary 327
CHAPTER 13: Summing Up 329
Aptitudes and Attitudes of Successful Practitioners 330
Drawbacks 338
What about Luck? 339
Key Takeaways for Practitioners 340
As You Go Forward 344
About the Companion Web Site 345
Notes 347
Suggested Reading 375
About the Author 379
Index 381
