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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 von Ramsinghani, Mahendra (eBook)

  • Erscheinungsdatum: 14.07.2014
  • Verlag: Wiley
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The Business of Venture Capital

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. 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.


    Format: ePUB
    Kopierschutz: AdobeDRM
    Seitenzahl: 432
    Erscheinungsdatum: 14.07.2014
    Sprache: Englisch
    ISBN: 9781118926611
    Verlag: Wiley
    Größe: 1759 kBytes
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The Business of Venture Capital

The Basics

"The key to making great investments is to assume that the past is wrong, and to do something that's not part of the past, to do something entirely differently."

- Donald Valentine, Founder, Sequoia Capital 1

A day in venture capitalist's (VC's) life is like that of an entrepreneur - venture capitalists have to pitch a thousand pitches to institutional investors to raise their fund and execute a predetermined plan. If the plan goes well, rewards are distributed; egos are stroked and champagne flows. The partners then go back and raise another fund. If the plan goes really well, which is rare, the partners retire, join local nonprofit boards, or spend time aboard a fancy yacht. A VC's profession is driven by three primary functions: raise the venture fund, find investment opportunities, and generate financial returns.

VCs raise money from financial institutions (called limited partners, or LPs in industry jargon) such as pension funds, foundations, family offices, and high net-worth individuals. (See Figure 1.1 .) Investment professionals or general partners (GPs) develop an investment strategy. Based upon this thesis, its timeliness and robustness, investors commit capital to the venture fund. Investors or limited partners seek a blend of strong investment expertise, a compelling investment strategy, and supportive market conditions. Target returns for investors are typically in the range of 20 percent or more on an annualized basis.

FIGURE 1.1 Limited partners (LPs) in a venture fund.

The fund-raising process can be long and arduous, taking as much as 18 months, and is often compared to an uphill crawl on broken glass. Many a VC is humbled in this process and can empathize better with entrepreneurs when financial institutions do not return their calls, do not ask them to pitch their fund strategy in seven minutes, offer no feedback, and go dark.

A venture fund is a close-ended fund. Once the target amount is raised or the fund is subscribed, no new investors are admitted. The life of such a fund is typically 10 years. 2 The fund is dissolved after the 10th year or when all portfolio investments have been liquidated.

Successful firms do not necessarily wait until liquidation of the previous fund; they raise their next fund as soon as the majority of the capital of the current fund is invested or designated as reserved for existing portfolio companies. Leading venture firms raise a fund every three to five years. Typically, funds are labeled with Roman numerals, such as ABC Ventures Fund I, II, III, IV, and so on. Roman numerals are a soft indicator of a venture fund's ability to survive and to generate returns across the various economic cycles. A firm's true measure of success is its ability to generate consistent returns over multiple economic cycles.

Once the fund-raising process is complete, VCs are under pressure to deploy the capital. During this investment period, as seen in Figure 1.2 , any fund actively seeks Facebook-like opportunities to generate target returns. Investment periods can be three years to five years. In this period, the start-ups come in - the mating dance begins. The pitch deck, term sheets, valuations, and boards are negotiated. A venture fund has to build a portfolio of companies that promise strong returns. Each portfolio company should demonstrate the potential to generate a return that equals a multiple of 8 to 10 times the capital invested. On a portfolio-wide basis, venture funds target a 20 percent annualized rate of return or a minimum of two to three times the invested capital.

FIGURE 1.2 The J curve of venture fund investments.

A typical portfolio size fo

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