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Venture capital investing

Author: Gladstone, David ; Gladstone, LauraPublisher: Prentice Hall, 2003.Language: EnglishDescription: 485 p. ; 24 cm.ISBN: 013101885XType of document: BookBibliography/Index: Includes index
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Item type Current location Collection Call number Status Date due Barcode Item holds
Book Asia Campus
Main Collection
Print HG4751 .G53 2003
(Browse shelf)
900095401
Available 900095401
Total holds: 0

Includes index

Digitized

CONTENTS Venture Capital Investing Venture Capital Investing lNTRODUCTlON XXV WHAT ARE THE BASIC ITEMS LOOK TO FOR IN A BUSINESS PROPOSITION? 2 1 . THE NUMBERS SHOULD B E 2 PROPERLY PRESENTED 2. THE DEAL MUST M A K E LOTS OF MONEY3 3. THE ACID TEST OF A DEAL I S MANAGEMENT 4 4. THE SITUATION SHOULD B E UNIQUE 7 5. THE PROPOSED VENTURE SHOULD BE ORIENTED TOWARD THE MARKET 8 6. THE DEAL MUST HAVE AN EXIT 9 IT'S O T N A N INVESTMENT, WRITTEN IT'S A PARTNERSHIP 9 PREPARE A SUMMARY BEFORE O U Y B E G I N TO I N V E S T 10 WHAT A R E YOU INVESTINO I N ? 1 1 WHO I S YOUR CONTACT AT THE BUSINESS? SUMMARIZE THE BUSINESS SITUATION WHO 1 THE MANAGEMENT TEAM? 1 5 WHAT ARE THEY SELLING? 1 1 1 1 2 12 AND HOW HOW MUCH MONEY ARE THEY RAISING MUCH ARE YOU CONSIDERING INVESTING? 1 2 1 3 I S THEREANY SECURITY FOR YOUR INVESTMENT? HOW WILL THE MONEY B E U S E D ? 1 3 WHAT I S THE PAST FINANCIAL PERFORMANCE? 1 3 WHAT A R E THE PROJECTIONS? 1 4 HOW WILL YOU CASH OUT? 1 4 H o w MUCH CAN YOU M A K E ? 1 4 WHAT D O YOU LIKE ABOUT THIS ~ITUATION? 1 5 SITUATION? WHAT D o Y o u DISLIKE ABOUT THIS 15 WHAT DOES A SUMMARY LOOK LIKE? COMPANY 1 5 TYPE OF BUSINESS 1 6 15 COMPANY SUMMARY 1 6 A SECOND SUMMARY COMPANY 1 E TYPE OF BUSINESS I 6 18 COMPANY SUMMARY 1 8 WHAT M A K E S IT EXCITING? 20 S O M E WORDS ABOUT FRANCHISING 2 2 S O U N D CONCEPT 2 2 WELL-FINANCED FRANCHISOR 2 2 HOW D O E S THE FRANCHISOR M A K E MONEY? 2 2 GOOD RELATIONS SUMMARY-QUICK 23 STANDARDS I N V E S T I N G 23 O F V E N T U R E CAPITAL ANALYSIS OF MANAGEMENT 2 7 THE STUDY O F ENTREPRENEURS 8 2 CHARACTERISTICS OF ENTREPRENEURS 30 30 NEED FOR ACHIEVEMENT H I G H NEED FOR AUTONOMY AND POWER 3 1 H I G H DEGREE OF SELF-CONFIDENCE AND NEED FOR CONTROL 3 2 HIGH TOLERANCE FOR AMBIGUITY 3 2 NEED TO ASSUME ONLY MODERATE RISK 3 2 SENSE OF U R G E N C Y 3 4 KNOWING WHAT IS R E A L 3 4 HIGHLEVEL OF ENERGY 3 5 MENTAL STAMINA 3 6 STRONG COMMUNICATIONS SKILLS 3 6 HIGHDEGREE OF INTEGRITY 7 3 SEEKING PARTNERSHIP STATUS 3 9 SEEKING FAIRPLAY 3 9 H O W W E SEE ENTREPRENEURS 40 H o w WE M A K E JUDGMENTS 4 1 ANALYTICAL APPROACH TO EVALUATIONS 4 2 INTERVIEWING ENTREPRENEURS 43 B E PREPARED 44 CLEAR MIND % 44 CONDUCIVE ENVIRONMENT 44 B E AN EFFECTIVE LISTENER 5 4 KEEP ON YOUR TOES DURING THE ~ N T E R V ~ E W 5 4 TYPES OF INTERVIEWS 46 DOCUMENT YOUR WORK 4 6 INTELLECTUAL EFFECTIVENESS 49 WORK APPROACH AND STYLE 50 PERSONAL RELATIONSHIPS 50 WHAT VENTURE CAPITALISTS L O O K FOR I N E N T R E P R E N E U R S 52 THE ENTREPRENEUR'S INDIVIDUAL CHARACTERISTIC^ 5 2 EXPERIENCE OF THE ENTREPRENEUR 5 4 C H A R A C T E R I ~ T I CO F S M A L L B U S I N E S S S MANAGERS VERSUS ENTREPRENEURS 55 CONCLUSIONS ON ENTREPRENEURS 57 DEVELOPING BACKGROUND INFORMATION P E R S O N A L REFERENCES 5 8 57 PRIVATE N V E S T I G A T I O N S 6 0 I PSYCHOLOGICAL ASSESSMENT TESTS 6 1 WRITTEN INFORMATION 61 ENTREPRENEUR 3 6 INFORMATION FROM T H E EMPLOYEES 5 6 MANAGEMENT TEAM 6 5 ORGANIZATION STRUCTURE A N D DECISION MAKING6 6 and DOCUMENTATION 66 S T R E N G T H S A N D WEAKNESSES 66 AND COMPENSATION 6 9 How Is THE COMPANY ORGANIZED?6 9 CORPORATE ORGANIZATIONAL H A R T C OFFICERS A N D 70 DIRECTORS 1 7 STOCKHOLDERS 2 7 CHARACTERISTICS OF MANAGEMENT 2 7 H o w A R E PEOPLECOMPENSATED? 7 3 EMPLOYEE COMPENSATION 7 3 WHAT EMPLOYMENT CONTRACTS EXIST? 8 0 EMPLOYMENTCONTRACTSAND SPECIAL COMPENSATION ARRANGEMENTS80 NONCOMPETE AGREEMENTS 8 1 NONDISCLOSURECONTRACTS8 1 WHAT I S THE WORKFORCE STRUCTURE? 8 2 UNIONS 8 2 WORK STOPPAGE8 3 TRAINING PROGRAM 3 8 MORALE OF THE WORKFORCE 8 3 WHAT PERSONNEL R E C O R D S ARE MAINTAINED? MAINTAINING INTERNAL RECORDS8 4 PAYROLL RECORDS84 EMPLOYEEB O O K S AND MANUALS 8 5 REPORTS FROM THE PERSONNEL DEPARTMENT8 5 HIRING PROCEDURES 5 8 MOTIVATING EMPLOYEES8 6 PERSONNELFILES OF MANAGEMENT8 6 EMPLOYEELITIGATION 8 6 REGULATORY AGENCIES 8 6 PERSONNELCONSULTANTS8 7 OTHER EMPLOYEEBENEFITS 8 7 HEALTH INSURANCE 88 SUMMARY 88 M A J O R STRENGTHS A N D WEAKNESSES 89 RATIO ANALYSIS 89 CHECKLIST 90 84 WHAT ARE THEY SELLING? PRODUCTS 9 4 94 PRODUCT DESCRIPTIONS 9 5 SEASONALITY OF PRODUCTS 9 5 PRODUCT LITERATURE 96 PRODUCT DEVELOPMENT 9 6 W H O B U Y S T H E P R O D U C T OR SERVICE? CUSTOMERS 9 7 CONTRACTS WITH SPECIAL CUSTOMERS 9 7 96 Loss OF CUSTOMERS 9 8 CUSTOMER COMPLAINTS 99 ORDER BACKLOG 1 00 CUSTOMER'CREDIT APPROVAL 1 0 1 CUSTOMER'S CREDIT TERMS 1 0 1 DISPUTED INVOICES 1 0 1 WHAT I S S A I D TO T H E CUSTOMER? PUBLIC RELATIONS 1 0 2 ADVERTISING 102 102 FORMAL ADVERTISING P R O G R A M 1 0 3 ADVERTISING B U D G E T 1 0 3 QUESTIONS FOR THE ADVERTISING PEOPLE 1 0 3 W H A T I S THE MARKETPLACE FOR T H E PRODUCT OR SERVICE? MARKET SIZE 1 0 5 COMPETITORS 1 0 5 MARKET GROWTH 1 0 6 MARKET INFORMATION 1 0 6 SUBSTITUTES I N THIS MARKETPLACE 1 07 MARKETING OBJECTIVES 1 07 MARKETING STRATEGIES 1 0 7 H O W I S PRICE DETERMINED? 1 0 8 1 0 4 PRICE CHANGES 1 1 0 PRODUCT WARRANTY 1 1 0 WHAT INTERNAL REPORTS ARE M A D E ? MARKETING REPORTS 1 1 1 SALES PROJECTIONS 1 1 Z PROCEDURES MANUALS 1 1 2 WHAT EXTERNAL INFORMATION IS AVAILABLE? INDUSTRY ASSOCIATIONS 1 1 3 TRADE SHOWS 1 1 3 TRADE PURLlCATlONS 1 1 4 BASIC INFORMATION 1 1 4 RATIO ANALYSIS 1 1 4 WHAT ARE THE STRENGTHS A N D WEAKNESSES? 1 1 5 11 3 1 11 1 T H E FACILITY 1 8 PLANT MOVES 1 1 9 EQUIPMENT 11 9 THE NEED FOR NEW EQUIPMENT 1 2 0 SURPLUS EQUIPMENT 1 2 2 CAPITAL EXPENDITURES 1 Z Z PRODUCTION CAPACITY 1 23 PRODUCTION EMPLOYEES1 23 MOTIVATING EMPLOYEES 1 2 4 UNIONS 1 2 5 RETIREMENT PLANS 1 2 5 STAFF MEETINOSOF PRODUCTION PEOPLE 1 2 6 REGULATORY AGENCIES 1 2 6 SUBCONTRACTING WORK 1 2 7 INVENTORY 1 2 8 CONTENT. QUALITY CONTROL 1 2 9 PRODUCTION COSTS 1 2 9 1 P R O D U C T I O N LEVELS 3 0 B A C K T O CAPACITY 1 30 S T R E N G T H S A N D WEAKNESSES O F T H E P R O D U C T I O N PROCESS 130 PURCHASING PROCESS 3 1 1 SUPPLIERS 1 3 2 RECEIVING 1 3 2 SHIPPING 1 3 3 CUSTOMER SERVICE 134 RESEARCHA N D D E V E L O P M E N T 1 3 5 RESEARCH A N D DEVELOPMENT STRENGTHS AND WSAKNESSES 1 37 BASIC INFORMATION 1 3 7 PRODUCTION REPORTS 1 3 7 RATIO ANALYSIS CONCLUSIONS CHECKLIST 1 37 ABOUT P R O D U C T I O N 1 3 9 1 4 0 CHAPTER6 ANALYSIS OF THE FINANCIAL STATEMENTS AND PROJECTIONS1 4 1 PERSONNEL 1 4 1 1 A N A L Y S I S O F T H E NUMBERS 4 2 FINANCIAL ANALYSIS CASH FLOW ANALYSIS ANALYSIS 14 2 1 4 5 OF THE BALANCE SHEET 1 4 6 B U D G E T I N G A N D CONTROL 1 4 8 P A S T F I N A N C I N G S 148 PAST BANKFINANCINGS 4 9 1 ENTREPRENEUR'S INVESTMENT 1 50 ENTREPRENEUR'S OWNERSHIP 1 5 1 PARTICIPATION WITH OTHER INVESTORS 1 5 1 U S E OF PROCEEDS 1 5 2 PROJECTIONS 5 3 1 B A S I C INFORMATION 1 5 5 RATIO ANALYSISOF THE FINANCIAL STATEMENT 1 5 5 PROFITABILITY RATIOS 1 5 5 LIQUIDITY RATIOS 1 5 6 LEVERAGE RATIOS 1 56 CASH RATIOS FINANCIAL 1 57 REPORTS 1 5 8 CONCLUSIONS ON THE FINANCIAL AREA CHECKLIST 1 58 1 58 CORPORATE STRUCTURE 6 2 1 1 6 3 MANAGEMENT QUESTIONS S T O C K QUESTIONS 1 6 4 QUESTIONS FOR BANKERS 167 OTHER INSTITUTIONAL LENDERS 1 68 QUESTIONS FOR ACCOUNTING FIRMS QUESTIONS FOR LAWYERS 7 1 1 SUIT SETTLEMENT 7 2 1 QUESTIONS FOR INSURANCE AGENTS 1 7 2 QUESTIONS FOR LANDLORDS 3 1 7 QUESTIONS FOR MANUFACTURERS' REPRESENTATIVES 1 7 4 QUESTIONS FOR THE ADVERTISING PEOPLE 1 7 5 QUESTIONS FOR SUPPLIERS 1 7 6 QUESTIONS FOR CUSTOMERS 1 76 1 6 9 QUESTIONS FOR COMPETITORS 1 7 8 QUESTIONS FOR SUBCONTRACTORS 1 7 8 CREDIT INFORMATION 179 C O N C L U S I O N S O N REFERENCE INFORMATION 179 AND COMMITMENT LETTER 8 1 1 PRICING T H E D E A L 1 B 1 RISK/REWARD 1 8 1 PROEABlLlTlES AND DEVIATION RETURN 1 8 7 RETURN TO INVESTOR 1 86 PRESENT VALUE 1 8 8 186 INTERNAL RATE OF RETURN 1 8 9 NET PRESENT VALUE 1 8 9 INVESTOR'S STANDARD 1 9 0 COMMITMENT LETTERS 9 0 1 1 . TERMS OF THE INVESTMENT 1 9 1 2. COLLATERAL AND SECURITY 1 9 5 3 . CONDITIONS OF THE LOAN1 98 4. REPRESENTATIONS 2 0 4 5. CONDITIONS OF THE COMMITMENT LETTER AN INVESTMENT MEMORANDUM 0 9 2 1 . TERMS OF THE INVESTMENT 2 1 0 2. COLLATERAL AND SECURITY 2 1 1 3 . CONDITIONS OF THE INVESTMENT 2 1 1 4. REPRESENTATIONS 2 1 1 5. CONDITIONS OF THE COMMITMENT 2 1 1 OTHER ITEMS 2 I 1 C O N C L U ~ I O NABOUT THE COMMITMENT ~ LETTER 2 1 2 FIRST TYPE O F CLOSING: LOAN WITH OPTIONS 2 1 6 DOCUMENTONE: THE LOAN AGREEMENT2 1 7 DOCUMENT TWO: THE NOTE 2 2 3 DOCUMENT THREE: THE STOCK PURCHASE OPTION 2 2 3 OTHER DOCUMENTS: EXHIBITS SIMPLE 1 ~ O O D 2 5 s 2 SECOND TYPE OF CLOSING: LEGAL DOCUMENTS FOR THE PURCHASE OF S T O C K 224 226 STOCK PURCHASE AGREEMENT2 2 6 LAWYERS AS INVESTORS OR BUSINESS OWNERS 229 EXPERIENCED LAWYERS ARE B E S T 2 3 0 PROCEDURES FOR REVIEWING DOCUMENTS 3 0 2 LEGAL HOW FEESKEEP GOING U P 2 3 1 LAWYERSU N UP YOUR LEGAL B I L L 2 3 2 R DISAGREEO N LEGAL POINTS 2 3 2 REWRITE SECTIONS 2 3 3 RESEARCH POINTS OF LAW 2 3 3 LEGAL STYLE 2 3 3 ARGUMENTS 2 3 3 SYNDICATIONS AND LAWYERS 4 23 INVOLVEMENT 9 23 MAJOR POLICY DECISIONS 240 MONTHLY REPORTS 240 MONTHLY WRITTEN REPORT 2 4 2 B O A R D MEETINGS/INVESTOR OTHER DISCUSSION ITEMS MEETINGS 2 4 3 244 MAINTAINING G O O D R E C O R D S 4 5 2 LEGAL E C O R D S2 4 5 R CORRESPONDENCE FILE 2 4 6 FINANCIAL RECORDING FILE 2 4 6 BOARD MEETING FILES 2 4 7 TRACKINGFILE % 247 WARNING SIGNS 246 LATE PAYMENTS248 LOSS OF PROFITS 249 LATE FINANCIAL REPORTS 249 POORLYPREPAREDFINANCIAL REPORTS 249 LARGE CHANGES IN BALANCE SHEET ITEMS 5 0 2 UNAVAILABLE ENTREPRENEUR 2 5 0 LARGE THEFTS 2 5 0 MAJOR ADJUSTMENTS IN SIGNIFICANT FIGURES 5 1 2 CHANGES IN MANAGEMENT 2 5 1 MAJOR CHANGES IN SALES AND ORDER BACKLOGS2 5 1 INVENTORY CHANGES 2 5 2 LACK F PLANNING 2 5 2 O CHANGES IN ACCOUNTINGMETHODS 253 LOSS OF A MAJOR CUSTOMER, SUPPLIER. OR LENDER 5 3 2 LABOR PROBLEMS 2 5 3 CHANGES IN PRICES AND MARKET S H A R E 2 5 4 EXTERNALWARNING SIGNS TECHNICAL CHANGE 2 5 4 254 C O N T E N T S GENERAL INDUSTRYDECLINE 2 5 4 GOVERNMENT CHANGES 2 5 5 RATIO ANALYSIS AS A WARNING INDICATOR 2 5 5 OUR PERSONAL FAVORITES OF EARLY WARNING SIGNALS 2 5 5 WHY ENTREPRENEURS HAVEFINANCIAL PROBLEMS 258 THE FINANCIAL CONTROL PROBLEM 258 THE UNDERCAPITALIZATION PROBLEM 2 59 WHY ENTREPRENEURS HAVEPEOPLE PROBLEMS 259 P O O R JOBDEFINITION 2 6 0 P O O R SELECTIONPROCESS260 POOR INCEandJTIVESTO MANAGEMENT 260 POOR REVIEW PROGRAM 6 1 2 POOR DEVELOPMENT R O G R A M 6 1 P 2 WHAT TO DO WITH PROBLEMS 26 1 WHAT I S YOUR NEXT STEP? 2 6 3 SECRET OF A SUCCESSFUL RELATIONSHIP DEGREE OF INVOLVEMENT BY THE VENTURE CAPITALIST 266 268 AMOUNT INVESTED 2 6 8 NEED FOR ASSISTANCE 2 6 8 MANAGEMENT'SWILLINGNESS TO ACCEPT ADVICE 2 6 8 EXPERIENCEIN CERTAIN AREAS 2 6 8 LEAD INVESTOR 2 6 9 DISTRESS OF COMPANY2 6 9 RELATIONSHIP WITH THE ENTREPRENEUR269 TIME AVAILABILITY 2 6 9 TIPS ON MONITORING 2 7 0 PITFALLS O F MONITORING2 7 2 VENTURE CAPITALIST OBdECTIVES 273 EXIT ONE: GOING PUBLIC 2 7 6 WHEN TO GO PUBLIC 2 7 6 UNDERWRITER'S FEES IN THE SELECTION OF A PUBLICOFFERING 277 BROKERAGE HOUSE FOR A PUBLIC OFFERING 278 SELLING THE STOCK IN THE COMPANY FOR CASH 280 SELLING STOCKS FOR NOTES 8 0 2 28 1 SELLING STOCK FOR STOCK SELLING ASSETS FOR CASH 28 1 'L SELLING ASSETS FOR NOTES2 8 2 SELLING ASSETS FOR STOCK 282 EXIT THREE:SALE BACK TO THE COMPANY 284 PURCHASE EMPLOYEE BY STOCK OWNERSHIP TRUST 2 8 5 EXIT BY PUTSAND CALLS 2 8 6 EXlT FOUR: SALE TO CORPORATE ANOTHER INVESTOR 290 PARTNER 290 NEW VENTURE CAPITAL PARTNER 29 1 WHEN YOU ARE IN A WORKOUT 2 9 4 THE BUSINESS L A N 2 9 5 P THE TYPE OF MONEY YOU HAVE TO INVEST 3 0 0 STAGEOF DEVELOPMENT 1 30 SPECIALTY INVESTING 3 0 2 TIMING OF YOUR INVESTMENT EXIT 3 0 2 LIQUIDITY PREFERENCE 304 RISK PROFILE304 ACTIVITY LEVEL3 0 4 lNDUSTRlAL AND PROFESSIONAL TRADE 309 ORGANIZATIONS LOCAL CHAMBERS OF COMMERCE3 1 0 FRIENDS AND ASSOCIATES 1 0 3 VENTURE CAPITAL COLD CALLS 3 COMPANIES AND L B O FUNDS3 10 10 ADVERTISING AND DIRECT MAIL 3 1 1 SUPPLIERS 3 11 OTHER GROUPS 311 PROACTIVITY 1 2 3 H A N D L I N G INVESTMENT U P P O R T U N I T I E S 31 2 USING BROKERS QUALITIES TO 31 4 I N A BROKER LOOKF O R 31 4 AGREEMENT WITH SOME BROKERS3 1 5 TIPS O N DEALING I T H BROKERS3 1 7 W FINAL W O R D 31 7 APPENDIX D EVALUATION AN ENTREPRENEUR OF BY A N I N D U S T R I A L PSYCHOLOGIST 9 46

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