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© Cumming & Johan (2013) Venture Capital and Private Equity Contracting
Venture Capital and Private Equity Contracting:An International Perspective
Douglas CummingB.Com.(Hons), M.A., J.D., Ph.D., CFA York University Schulich School of Business
Sofia JohanLL.B., LL.M., Ph.D.York University Schulich School of BusinessTilburg Law and Economics Centre (TILEC)
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© Cumming & Johan (2013) Venture Capital and Private Equity Contracting
Materials
• Textbook:– Cumming, D.J., and S.A. Johan, 2013. Venture Capital and
Private Equity Contracting: An International Perspective, 2nd Edition, Elsevier Science Academic Press.
• Web:– http://booksite.elsevier.com/9780124095373/
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© Cumming & Johan (2013) Venture Capital and Private Equity Contracting
Chapter 1 Objectives
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• Introduction
• Venture Capital and Private Equity Definitions
• Issues addressed in course and textbook
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Sources of Funds for Entrepreneurial Firms
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
Sources of fundsWhat do VC/PE Managers Do?Possible Misconceptions?
• There are various sources of funds
• Characteristics of other sources are very briefly provided on the next slide
• Our focus in this course is on Venture Capital (VC) and Private Equity (PE)
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Table 1.1. Greatly Oversimplified Typical Characteristics of Funds Providers
SourceInvestment Motivation
Focus of Attention
Cash Typically Available
Source of Funds
Biggest Drawbacks
Biggest Advantages
Security Required
Subject to Market Conditions?
Internal Operations Reinvestment Execution Unlimited Earnings Slow Non-Dilutive None Some
Founders Ambition Varies $100,000 Savings Personal Risk Non-Dilutive None Little
Friends and Family Relationships Support $250,000 Savings Relationships Easy Sell None Some
Private ‘Angel’ Investors The Entrepreneur Varies$500,000 to
$1.5MPrevious Successes
Varying Commitment
Brings Credibility None Considerable
Venture Capital FundsBusiness Plan, Team, Market,
Trajectory
Contracts, Liquidity Event,
Valuation$1M to $20M
Limited Partners,
Institutions
Time Consuming, Expensive
Brings Help, Credibility
Contractual Terms and Conditions
Greatly
Private Equity FundsMezzanine, Buyout,
Turnaround
Contracts, Liquidity Event,
Valuation
$20M to $500M
Limited Partners,
Institutions
Time Consuming, Expensive
Brings Help, Credibility
Contractual Terms and Conditions
Greatly
Commercial Banks (& Venture Banks)
Risk versus ReturnTwo Repayment
Sources80% of A/R, 50% of inv.
DepositsRegulatory Agencies
Advice, Clean, Straight-forward,
Businesslike
A/R, Inventory, IP
Little
Bridge Funds Risk versus Return Low Risk $500K to $5MLimited Partners,
InstitutionsWarrants
Speed (5 days to get a loan)
All Assets Including IP
Greatly
Leasing Companies Risk versus ReturnLiquidation
Values80% of value
Company Treasury
CostlyCheaper than
EquityVaries Little
Factors (buy your A/R) Risk versus Return Collections 80% of A/RCompany Treasury
~5% over PrimeCheaper than
EquityVaries Little
Asset Lenders Risk versus Return Balance Sheet80% of A/R, 60% of inv.
Company Treasury
ExpensiveCheaper than
EquityPersonal
GuaranteeLittle
Partner CompaniesWhat You Can Do
For ThemSynergies Varies
Company Treasury
May Preclude Other Opportunities
2-Way Economics, Low Pricing
PressureLittle Some
Government Agencies MandatesRegulations,
WarrantsVaries Taxes
Paperwork, Oversight
Inexpensive, No Recourse
Little or None Little
Investment Bankers at IPO Fees Stock Market Unlimited PublicCosts,
Underpricing, Public Disclosure
Advice, Public Exposure
Escrow, Lock-in
Extreme
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Figure 1.1. Venture Capital Financial Intermediation
Investors
Venture Capitalist
Entrepreneurial Firm
Returns Capital
Equity, Debt,Warrants, etc. Capital
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What Do Venture Capitalists (VCs) Do?
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
Sources of fundsWhat do VC/PE Managers Do?Possible Misconceptions?
• Due Diligence– Screening– 1 to 2 deals out of >1000
• Value-added– Monitoring, Networks, Expertise– Legal, Financial, Accounting, Suppliers, Buyers,
Boards of Directors, Human Resources, Strategic, Marketing, other
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Possible Misconceptions (?!)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
Sources of fundsWhat do VC/PE Managers Do?Possible Misconceptions?
• “Vulture” capital: significant ownership and control rights
• Insufficient funds
• Sell bad investee firms public in initial public offerings (IPOs)
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Venture Capital and Private Equity
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
DefinitionsSizeCountries/ Data
Some Definitions
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PROFITS
TIMEValley of Death
BreakEven
Angels, FFF
Seed Capital
(Could include VC)
1st
2nd
3rd
Mezzanine
IPO
PublicMarket
SEO
Early Stage Later Stage
VCs, Acquisitions/MergersStrategic Alliances, etc.
Figure 1.2
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“Venture Capital” vs “Private Equity” (1/3)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
DefinitionsSizeCountries/ Data
• Seed– Financing provided to research, assess and develop an initial concept before a business
has reached the start-up phase.• Start-up
– Financing provided to companies firms for product development and initial marketing. Companies Firms may be in the process of being set up or may have been in business for a short time, but have not sold their product commercially.
• Other Early Stage– Financing to companies firms that have completed the product development stage and
require further funds to initiate commercial manufacturing and sales. They will not yet be generating a profit.
• Expansion– Financing provided for the growth and expansion of a company firm which is breaking
even or trading profitably. Capital may be used to finance increased production capacity, market or product development, and/or to provide additional working capital.
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“Venture Capital” vs “Private Equity” (2/3)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
DefinitionsSizeCountries/ Data
• Bridge Financing– Financing made available to a company firm in the period of transition from being privately owned to
being publicly quoted.• Secondary Purchase / Replacement Capital
– Purchase of existing shares in a company firm from another private equity investment organization or from another shareholder or shareholders.
• Rescue / Turnaround– Financing made available to an existing business firm which has experienced trading difficulties (firm is
not earning its cost of capital (WACC)), with a view to re-establishing prosperity.• Refinancing Bank Debt
– To reduce a company’s firm’s level of gearing.• Management Buyout
– Financing provided to enable current operating management and investors to acquire an existing product line or business.
• Management Buyin– Financing provided to enable a manager or group of managers from outside the company firm to buy-
in to the company firm with the support of private equity investors.
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“Venture Capital” vs “Private Equity” (3/3)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
DefinitionsSizeCountries/ Data
• Venture Purchase of Quoted Shares– Purchase of quoted shares with the purpose of delisting the firm.
• Other Purchase of Quoted Shares– Purchase of shares on a public stock market.
• In practice, sometimes broader categories of definitions are used. For example, – Start-up: sometimes used in practice to refers to Start-up, and Other Early Stage – Expansion: sometimes used in practice to refers to Expansion, Bridge Financing,
Rescue/Turnaround– Replacement Capital: sometimes used in practice to refers to Secondary
Purchase/Replacement Capital, Refinancing Bank Debt– Buyouts: sometimes used in practice to refers to Management Buyout, Management
Buyin, Venture Purchase of Quoted Shares.
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Size of VC and PE Markets?
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
DefinitionsSizeCountries/ Data
• VC is a small but important sector of the economy
• Connected to:– IPO markets (stock markets)– Legality: shareholder protection, bankruptcy law, tax– Government programs– Armour and Cumming (2006 Oxford Economic Papers)
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Aus
tria
Bel
gium
Den
mar
k
Finl
and
Fran
ce
Ger
man
y
Irela
nd
Italy
Net
herla
nds
Por
tuga
l
Spa
in
Sw
eden UK
US
Can
ada
Early Stage
Expansion Stage
Total Private Equity
All Dispositions
Fundraising
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Amounts Averaged1990 - 2003
Relative to GDPExpressed in %
Figure 1.4. Size of Venture Capital and Private Equity Markets Across CountriesSource: Armour and Cumming (2006)
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Figure 1.5. Comparison of VC Amounts by total PE versus GDP and PopulationThis figure shows the differences across countries in terms of amounts of early stage VC / total PE, early stage VC / GDP and early stage VC / population. Amounts are scaled as indicated to enable direct comparisons and show how country rankings for VC amounts change depending on the benchmark used to compare countries. Data are averaged by country for the period 1989-2011. 17
© Cumming & Johan (2013) Venture Capital and Private Equity Contracting
Figure 1.6. Comparison of the Number of VC Investments by total PE versus GDP and Population in EuropeThis figure shows the differences across countries in terms of numbers of early stage VC investment / total PE, early stage VC / GDP and early stage VC / population. Amounts are scaled as indicated to enable direct comparisons and show how country rankings for VC amounts change depending on the benchmark used to compare countries. Data are averaged by country for the period 1989-2011. 18
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VC Data
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
DefinitionsSizeCountries/ Data
• U.S.: http://www.ventureeconomics.com, http://www.vfinance.com, http://www.v1.com
• The PricewaterhouseCoopers MoneyTreeTM Survey: http://www.pwcmoneytree.com/
• Canada: http://www.cvca.ca, http://www.canadavc.com
• Europe: http://www.evca.com
• Australia: http://www.abs.gov.au/Ausstats/[email protected]/0/bffef2819df68ca2ca256b6b007ab94e?OpenDocument
• Private data sources
• Data and empirical methods summarized in Cumming and Johan (2013, Chapter 3)
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VC Industry in US
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
DefinitionsSizeCountries/ Data
• Over 1000 funds• Geographic concentration• Specialized focus• Over $US 100 billion capital under
management• Predominantly Private Limited Partnership
VC Funds
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Figure 1.7.a Capital Overhang for Venture Capital Funds Raised by US Investors Source: Pitchbook
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Figure 1.7.b. Capital Overhang for Private Equity Funds Raised by US InvestorsSource: Pitchbook
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Figure 1.8.a. Average Venture Capital Return Multiples by Vintage YearSource: Pitchbook
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Figure 1.8.b. Average Private Equity Return Multiples by Vintage YearSource: Pitchbook
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© Cumming & Johan (2013) Venture Capital and Private Equity Contracting
Table 1.4. Thomson Financials' Private Equity Performance Index (PEPI)Investment Horizon Performance through 09/30/2006 (expressed in %)
Fund Type 1 Yr 3 Yr 5 Yr 10 Yr 20 Yr
Early/Seed VC 2.9 5.5 -5.4 38.3 20.5
Balanced VC 10.7 12.8 1.8 16.8 14.6
Later Stage VC 27.8 10.5 2.7 9.4 13.9
All Venture 10.8 9.4 -1.0 20.5 16.5
Small Buyouts 11.3 9.4 5.0 6.0 25.2
Medium Buyouts 37.2 12.3 6.1 10.9 15.3
Large Buyouts 23.1 16.4 8.3 8.3 12.4
Mega Buyouts 23.4 16.2 10.1 8.9 11.6
All Buyouts 23.6 15.6 9.2 8.8 13.2
Mezzanine -8.1 4.7 2.9 5.9 8.4
All Private Equity 19.0 13.2 5.9 11.2 14
NASDAQ 5.5 7.8 8.7 7.1 11.4
S & P 500 9.7 9.9 5.2 7.5 9.725
© Cumming & Johan (2013) Venture Capital and Private Equity Contracting
Figure 1.9. Venture Capital Horizon IRR by Fund SizeSource: Pitchbook
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Figure 1.10. IRR Quartiles by Fund Size for Mature Venture Capital FundsSource: Pitchbook
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Figure 1.11. Median 1-Year Rolling Horizon IRR by Fund TypeSource: Pitchbook
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Figure 1.12. Horizon IRR – Private Equity, Venture Capital and Public IndexSource: Pitchbook
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Figure 4.13. US Buyout Returns by Vintage Year
Median, Upper and Lower Quartiles as of December 2006
Source: Kaplan (2007), Venture Economics
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Lower 1/4
Median
Upper 1/4
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Figure 1.14. US versus Non-US Venture Capital Investment by Fund Vintage YearSource: Thompson SDC.
0
2000
4000
6000
8000
10000
12000
14000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
US Private VC Investment in Seed Early and Expansion
Non-US Private VC Investment in Seed Early and Expansion31
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Figure 1.15. US versus Non-US Venture Capital IPO Exits by Fund Vintage YearSource: Thompson SDC
0
200
400
600
800
1000
1200
140019
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
11
US Private VC IPO Exits Non-US Private VC IPO Exits32
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VC Industry in Canada
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
DefinitionsSizeCountries/ Data
• The estimated size of Canada’s VC/PE) market: $76 billion at the end of 2013
• Buyout:$53.2 bil.; Mezzanine: $7.6 bil.; VC: $14.9 bil.
• Private indp. Funds: 59% of total funds; $44.6 billion, Institutional captive funds accounted for $20 billionCorporate captives $2.3 billion. Retail funds were $7.6 billion andGovernment owned and -directed $1.8 billion.
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Venture Capital in Australia
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
DefinitionsSizeCountries/ Data
Table 1: Amount of Funds Raised by Fiscal Year, Australia (in A$ Millions)
Year Venture Capital Private Equity TOTAL
FY2001 325.50 585.20 910.70
FY2002 55.60 780.40 836.00
FY2003 161.70 521.70 683.40
FY2004 155.30 863.20 1,018.50
FY2005 84.30 2,094.60 2,178.90
FY2006 184.70 3,933.60 4,118.30
FY2007 435.60 4,951.90 5,387.50
FY2008 343.60 5,581.70 5,925.30
FY2013 298.92 1,412.31 1,711.23
FY2010 168.28 1,456.07 1,624.35
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Venture Capital in Europe
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
DefinitionsSizeCountries/ Data
• Fundraising by European private equity houses reached €16bn in 2013, 80% below the €81bn raised in 2008
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© Cumming & Johan (2013) Venture Capital and Private Equity Contracting
Main Issues addressed in this Course
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
[Not a comprehensive list]
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I. Why Do VCs Exist?
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
• Why not simply borrow from banks?
• What does this imply about any theory / evidence in venture capital?
– Review agency theory in detail because it is paramount to all issues addressed in this course
– Cumming and Johan (2013 Chapter 2)
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II. What Matters in Running a Fund? (1/6)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
• What do institutional investors care about?– Return expectations, Reporting, Liquidity
• How does this affect fundraising?• How does this affect specialized fund
mandates, such as socially responsible funds?– Cumming and Johan (2013, Chapter 4)
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II. What Matters in Running a Fund? (2/6)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
• What terms with institutional investors?– Limited partnership agreements– Restrictive covenants– Limited liability– What clauses to use and when to use them– Cumming and Johan (2013, Chapter 5)
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II. What Matters in Running a Fund? (3/6)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• How to structure compensation?– Fixed fees– Carried interest– Cash versus share distributions– Clawbacks– Cumming and Johan (2013, Chapter 6)
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
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II. What Matters in Running a Fund? (4/6)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• Style Drift– Why and when should institutional investors
care?– Why and when does it matter to fund
managers?– Cumming and Johan (2013, Chapter 7)
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
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© Cumming & Johan (2013) Venture Capital and Private Equity Contracting
II. What Matters in Running a Fund? (5/6)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• Listed private equity (LPE)– What are the differences between LPE and
limited partnerships?– Who invests in LPE, and when and why?– Cumming and Johan (2013, Chapter 8)
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
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II. What Matters in Running a Fund? (6/6)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• What role for government?– Existence of capital gaps?– Economic sources of capital gaps– Legal sources of capital gaps– Direct government investment programs– Legislation– Evidence from US, UK, Continental Europe, Israel,
Australia, Canada– Cumming and Johan (2013, Chapter 9)
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
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III. Financial Contracting with Entrepreneurs (1/4)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• Investment process– Due diligence– Stage of development and industry– Location– Staging – Fund flows and valuations– Syndication– Portfolio size / manager– Board seats– Contracts– Innovative activity– Investment duration– Cumming and Johan (2013, Chapter 10)
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
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© Cumming & Johan (2013) Venture Capital and Private Equity Contracting
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• What structure of investment?– Security design
• Warrants• Common equity• Preferred equity• Convertible preferred equity• Convertible debt• Debt
– Other veto and control rights– Cumming and Johan (2013, Chapter 11)
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
III. Financial Contracting with Entrepreneurs (2/4)
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III. Financial Contracting with Entrepreneurs (3/4)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• Specific veto, control and cash flow rights– Definitions and terms– Role of preplanned exits– Cumming and Johan (2013 Chapter 12)
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
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© Cumming & Johan (2013) Venture Capital and Private Equity Contracting
III. Financial Contracting with Entrepreneurs (4/4)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• International differences in contracts, due diligence, board seats, syndication, co-investment– Role of legal systems– Cumming and Johan (2013, Chapter 13)
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
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IV. Investor Value-Added (1/4)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• VC and PE Value-Added– Jobs– Total Factor Productivity– Patents– Locusts?– Cumming and Johan (2013 Chapter 14)
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
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IV. Investor Value-Added (2/4)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• Do contracts ensure effort?– Advice– Monitoring– Conflicts– When more pronounced– Role for contracts in facilitating effort and
mitigating problems– Cumming and Johan (2013 Chapter 15)
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
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© Cumming & Johan (2013) Venture Capital and Private Equity Contracting
IV. Investor Value-Added (3/4)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• Where to invest?– Distance between investor and investee in the
US– Inter- versus intra-provincial in Canada– Implications of proximity and local bias– Cumming and Johan (2013 Chapter 16)
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
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IV. Investor Value-Added (4/4)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• How many investments? • Portfolio size/manager
– Trade-off: • Diversification• Diffusion in effort
– Cumming and Johan (2013 Chapter 17)
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
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© Cumming & Johan (2013) Venture Capital and Private Equity Contracting
IV. Investor Value-Added (4/4)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• Fund size– Scale economies versus limited attention– Cumming and Johan (2013 Chapter 18)
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
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V. How to Successfully Divest? (1/4)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• Overview of divestment process– Exit vehicle
• IPO, Acquisition, Secondary sale, Buyback, Write-off• Issues with IPOs
– IPO short-term underpricing, long-term overpricing– Impact of venture capital backing– Cumming and Johan (2013 Chapter 19)
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
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V. How to Successfully Divest? (2/4)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• Investment Duration– How long to invest– Economic conditions versus fund and investee
characteristics– Cumming and Johan (2013 Chapter 20)
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
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V. How to Successfully Divest? (3/4)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• Which exit vehicle?– Market conditions– Legal conditions– Fund characteristics– Investee firm characteristics– Allocation of control rights– Cumming and Johan (2013 Chapters 21)
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
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V. How to Successfully Divest? (4/4)
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• Returns, Valuation and Disclosure– Mechanics of valuation– What enhances returns?– How to make adjustments with valuations
based on return expectations?– How to disclose valuations of unexited
investments to institutional investors?– Cumming and Johan (2013 Chapter 22)
Why do VCs exist?What matters when running a fund?Financial contracting with entrepreneursInvestor Value-AddedHow to Successfully Divest?
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Summary
Introduction Venture Capital & Private Equity
Main Issues Addressed in this courseSummary
• VC/PE unique form of financing• Idiosyncratic risk matters• Contracts matter
– Fund structures: relations with limited partners– Public policy and design of statutes– Relations between investors and entrepreneurs– Exits, Returns, Valuations, Disclosure
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