11-6-08 - Entrepreneurship Class Notes VC firms will take...

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Entrepreneurship – Class Notes – 11/6/08 VC firms – will take an equity stake in private startup companies in exchange for funding – often have experience in a particular area General partners – o 2% managing fee and 20% of the profits Limited partners o 80% (the rest) of the profits o Schools o Universitities Investment funds – where does the fund come from? Limited partners o Foundations o Universities o Pension funds Institutional investors – can sometimes invest their own funds Gatekeepers – investment advisory companies o Point investors in the direction of specific VC funds Long-run rate of return (1980-2004) in terms of common stocks 15% rate of return VC firms - about 20% return Wide variation on return 1 or 2 companies are Homerun – a company with an IPO What is the ideal rate of return double or triple the investment
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McClean Palmer Case Study He is about to start a VC firm What was the opportunity – what set him apart o Funding for minorities (ethnic minority startups) o He could provide them with what? His network is very important – network of people who have experience with minority owned business He could fill the gaps in startup ventures with people from his extensive network o Role of government – 10% of contracts, by law, have to go to minorities Unusually time to start a VC firm August 2000 Dotcom structure How is the VC firm structured? General partners: McClean and 4 partners They manage fund ($ hundreds of millions) that invests in promising startups VC firm will have 3-4 different funds Limited partners General Partners Add Value to Portfolio companies Provide expert advice Network for the startups – find just the right people
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11-6-08 - Entrepreneurship Class Notes VC firms will take...

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