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Raising venture capital

Author: Pearce, Rupert ; Barnes, SimonPublisher: Wiley, 2006.Language: EnglishDescription: 242 p. ; 26 cm.ISBN: 9780470027578Type of document: BookBibliography/Index: Includes bibliographical references
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Item type Current location Collection Call number Status Date due Barcode Item holds
Book Europe Campus
Main Collection
Print HG4751 .P43 2006
(Browse shelf)
001195290
Available 001195290
Book Europe Campus
Main Collection
Print HG4751 .P43 2006
(Browse shelf)
001195282
Available 001195282
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Includes bibliographical references

Digitized

Raising Venture Capital Contents Preface Part I The Business of Venture Capital 1 Entrepreneurs and Venture Capitalists 1.1 Introduction 1.2 Entrepreneurs and business creation 1.3 Why entrepreneurs need external capital 1.4 Venture capitalists 1.5 How to read this book 2 Other People's Money 2.1 Introduction 2.2 The fund-raising cycle 2.3 Relationship with LPs 2.4 Identity of the LPs 2.5 Conclusions 3 The Limited Partnership 3.1 Introduction 3.2 The primacy of a limited partnership 3.3 Facets of a limited partnership 3.4 Partnership terms 3.4.1 Life 3.4.2 Capital commitments 3.4.3 GP management 3.4.4 Profit share 3.4.5 Investment restrictions 3.4.6 Transaction costs and fees 3.4.7 Further funds 3.4.8 Transfer of LP interests 3.5 Conclusion: The venture capital business in a nutshell xiii 1 3 3 3 4 6 7 9 9 10 11 11 13 15 15 15 17 19 19 20 20 21 21 21 22 22 22 4 The Competitive Environment 4.1 Introduction 4.2 Capital competition 4.2.1 Vintage years 4.2.2 Sector and geography 4.2.3 IRRs and cash-on-cash metrics 4.3 Deal competition 4.4 Conclusions 5 The VC's Investment Model 5.1 Introduction 5.2 Fundamentals of VC risk 5.3 Extreme caution over the act of investment 5.3.1 Focus on proprietary deal flow 5.3.2 Early exclusivity 5.3.3 Due diligence 5.3.4 Drip-feed approach to investment 5.3.5 Syndication 5.3.6 Internal investment process 5.4 Exit obsession 5.5 High reward for high risk 5.6 Downside risk management 5.6.1 Tranching of investments 5.6.2 Price protection 5.6.3 Follow-on capability 5.6.4 Information and veto rights 5.6.5 Special exit rights 5.7 Dynamic capital allocation 5.8 The human element 5.9 Conclusions Part II Accessing Venture Capital 6 Introduction to Part II 7 Is Venture Capital the Right Option? 7.1 Introduction 7.2 What do I want my business to become? 7.3 Can my business match those ambitions? 7.4 How much capital does my business require? 7.5 Do I want to control my business for a long time? 7.6 What kind of life do I want to lead? 7.7 Am I comfortable with an exit? 8 Choosing a VC Firm 8.1 Introduction 8.2 Substantial long-term resources 25 25 25 25 26 27 28 28 31 31 31 33 33 34 34 35 35 36 38 39 40 41 41 43 44 45 45 46 48 49 51 53 53 53 54 54 55 56 56 59 59 59 8.3 Long and relevant experience 8.4 A leader, not a follower 8.5 Scaling the business 8.5.1 Powerful proprietary networks 8.5.2 Portfolio community 8.5.3 International capability 8.5.4 Additional skills leverage 8.6 Successful reputation 8.7 Personal chemistry 9 The Entry Point 9.1 Introduction 9.2 Which qualified access route? 9.2.1 9.2.2 9.2.3 9.2.4 9.2.5 9.2.6 A personal contact A portfolio company contact Industry gurus Professional advisors Professional intermediaries Cold calling 61 62 62 62 62 63 63 63 63 65 65 65 66 66 66 66 66 67 67 67 68 68 69 69 70 71 71 72 72 73 74 74 75 76 76 77 79 79 80 80 81 81 82 9.3 Generating a qualified access point 9.3.1 Portfolio company access 9.3.2 The great and the good 9.3.3 Personal contacts 9.4 Communicating the initial message 9.5 What is the VC firm looking for? 9.6 Conclusion 10 The Investment Process 10.1 Introduction 10.2 Phase one ­ initial engagement with the VC firm 10.2.1 The kick-off meeting 10.2.2 The initial presentation 10.3 Phase two ­ preliminary due diligence to term sheet 10.3.1 Preliminary due diligence 10.3.2 Term sheet negotiations 10.4 Phase three ­ from term sheet to completed investment 10.4.1 Final due diligence 10.4.2 Legal documentation 10.4.3 Syndication 10.4.4 Special situations 10.4.5 Internal approvals 10.5 Afterwards 11 Preparing for the Investment Process 11.1 Introduction 11.2 Timing 11.2.1 Timing the approach 11.2.2 Raising enough funds 11.3 Valuation 11.3.1 Introduction to valuation 11.3.2 Valuation bases ­ the entrepreneur's perspective 11.3.3 Valuation bases ­ the VC's perspective 11.3.4 Why value is important 11.3.5 Conclusions for an entrepreneur 11.4 Choosing an investor 11.5 Grooming the business 11.5.1 Revisiting timing and value assumptions 11.5.2 Ensuring management stability 11.5.3 Spring cleaning 11.6 Transaction structure 11.7 Transaction logistics 11.7.1 Confidentiality 11.7.2 Non-solicitation 11.7.3 Preparing for site visits 11.7.4 Poison pills 11.8 Conclusion Part III The VC Term Sheet 12 Introduction to Term Sheets 12.1 Purpose 12.2 What is a term sheet? 12.3 Why have term sheets at all? 12.3.1 Risk management 12.3.2 VC policy 12.3.3 Deal syndication 12.4 What happens to a term sheet? 12.5 Methodology of Part III Pro forma term sheet 13 Business Valuation 14 Investment Structure 15 Syndication 15.1 Introduction to syndication 15.2 Reward for syndicate leadership 15.3 The entrepreneur's response 16 Investment Milestones 16.1 Introduction to investment milestones 16.1.1 Milestone definitions 16.1.2 Milestone waivers 82 82 82 82 84 85 86 87 88 88 89 90 91 92 95 95 96 97 97 98 99 101 101 101 102 102 103 103 104 104 106 121 123 125 125 126 127 129 129 129 130 16.2 Attractions for the VC firm 16.3 Attractions for the entrepreneur 16.3.1 Protected committed funding 16.3.2 Guaranteed subscription price 16.3.3 Fund-raising without milestones 16.4 Areas to watch out for 16.4.1 Sizing each tranche 16.4.2 Careful drafting of milestones 16.4.3 Syndicate decision-making 16.4.4 Enforcement teeth 16.4.5 Negotiation approaches 16.4.6 Earn-ins and ratchets as an alternative 17 Corporate Governance 17.1 Introduction to corporate governance 17.2 VC board representation 17.2.1 Composition of the board 17.2.2 Nominations to the board 17.3 Board process 17.3.1 Regularity and quorum 17.3.2 Committees 17.3.3 Board veto rights 17.4 Shareholder information 17.5 Shareholder veto powers 18 Equity Participation 18.1 Introduction to equity participation 18.2 Voting rights 18.2.1 Introduction to voting rights 18.2.2 Attractions of voting rights to the VC firm 18.2.3 Attractions for the entrepreneur 18.2.4 Voting rights ­ areas to watch out for 18.3 Dividend rights 18.3.1 Introduction to dividend rights 18.3.2 Attraction of dividend rights to the VC firm 18.3.3 The entrepreneur's response 18.4 The preference cascade 18.4.1 Preference shares 18.4.2 "Double-dipping" preferred shares 18.4.3 "High watermark" preferred shares 18.4.4 The best type of preference? 18.4.5 Application of the preference 18.4.6 Legal considerations 18.5 Redemption features 18.5.1 Attractions of a redemption feature to the VC firm 18.5.2 Events of default 131 132 132 133 133 134 134 135 135 136 137 137 139 139 139 139 140 142 142 142 143 144 145 147 147 147 147 147 149 149 150 150 150 151 152 152 154 157 159 159 161 162 162 163 18.5.3 Default 18.5.4 The decision-making process 18.5.5 Legal issues 18.5.6 Alternatives to redemption 18.6 Conversion rights 18.6.1 Voluntary conversion rights 18.6.2 Compulsory conversion rights 18.6.3 Adjustment to conversion rights 19 Share Incentives 19.1 Introduction to share incentives 19.2 Sizing of incentive programmes 19.3 Who bears the dilution? 19.4 Ratchets 20 Share Vesting 20.1 Introduction to share vesting 20.2 Attractions of vesting to the VC firm 20.3 'The entrepreneur's response 20.4 Vesting ­ areas to watch out for 20.4.1 Pace and level of vesting 20.4.2 Good/bad leaver provisions 20.4.3 Acceleration on exit events 20.4.4 Treatment of vested shares 20.4.5 Repurchase mechanics 21 Pre-emption Rights on Securities Issues 21.1 Introduction to share issue pre-emption rights 21.2 Attractions of share issue pre-emption rights to a VC firm 21.3 The entrepreneur's response 21.4 Areas to watch out for 21.4.1 What triggers pre-emption rights? 21.4.2 Reference terms of pre-emption 21.4.3 Partial pre-emption? 21.4.4 Who gets pre-emption rights? 21.4.5 Pre-emption top-ups 21.4.6 Administration of pre-emption rights 22 Anti-dilution Rights 22.1 Introduction to anti-dilution rights 22.1.1 Full ratchet anti-dilution 22.1.2 Weighted average anti-dilution 22.1.3 Mechanism of action 22.2 Attraction of anti-dilution to a VC firm 22.3 The entrepreneur's response 163 163 164 164 165 165 166 167 169 169 170 171 172 175 175 175 176 178 178 180 181 183 184 185 185 185 186 186 187 188 188 189 189 190 191 191 191 192 192 193 194 22.3.1 Fundamental unfairness 22.3.2 Limitation of anti-dilution in practice 22.3.3 Shareholder double advantage 22.4 Pay to play 22.4.1 What is "pay to play"? 22.4.2 Determining the amount to pay 22.4.3 Consequences of not paying... 22.4.4 New developments 22.5 Areas to watch out for 22.5.1 Carve-outs 22.5.2 Pricing considerations 22.5.3 Proxies for value 22.5.4 Price benchmarks 22.5.5 Who squeezes who? 22.5.6 Differential pricing 22.5.7 Syndicate dangers 23 Provisions Relating to Share Transfers 23.1 Introduction to share transfers 23.2 Transfer restrictions 23.2.1 General restrictions 23.2.2 IPO restrictions 23.2.3 Mandatory sales 23.3 Transfer pre-emption rights 23.3.1 Nature of pre-emption 23.3.2 Partial pre-emption? 23.3.3 Who gets pre-emption rights? 23.3.4 Pre-emption top-ups 23.3.5 Buyer of last resort 23.3.6 Administration of pre-emption rights 23.3.7 Exclusion of certain transactions 23.4 Drag-along rights 23.4.1 What are drag-along rights? 23.4.2 Why is drag-along needed? 23.4.3 Drag-along implementation 23.4.4 Further issues to consider 23.4.5 Enforcement of drag-along rights 23.5 Tag-along rights 23.5.1 Introduction to tag-along rights 23.5.2 Nature of tag-along rights 23.5.3 Partial tag-along? 23.5.4 Timing of subsequent sale 23.5.5 Different classes of shares 23.5.6 Who gets tag-along rights? 23.5.7 Pre-emption top-ups 23.5.8 Administration of pre-emption rights 23.5.9 Exclusion of certain transactions 194 194 195 196 196 196 197 198 198 198 199 199 200 200 200 201 203 203 203 203 204 205 205 206 206 207 207 208 208 208 209 209 209 211 212 213 214 214 214 216 216 216 217 218 218 218 24 Deal Management Terms 24.1 Introduction 24.2 Conditions precedent 24.2.1 VC firm's strategy 24.2.2 Entrepreneur's strategy 24.3 Exclusivity 24.3.1 VC firm's strategy 24.3.2 Entrepreneur's strategy 24.4 Cost reimbursement 24.4.1 VC firm's strategy 24.4.2 Entrepreneur's strategy 24.4.3 Financial assistance Index 219 219 219 220 220 222 222 223 225 225 226 228 229

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