Venture_Capital_Winter_2010

Venture_Capital_Winter_2010 - BusM 401 Venture Capital...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
BusM 401 Venture Capital
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Venture capital funding Venture capital is an important source of financing, particularly for firms that are high risk and that require substantial investment A fairly small percentage of startups receive VC financing – less than 1% But firms that have relied on VC funding include some of the most successful firms in the U.S., such as: VCs focus on good industries – those that are less competitive with high growth potential
Background image of page 2
3 What do venture capitalists do? VCs act as intermediaries between investors and entrepreneurs. They decide which new firms to fund, and then monitor and assist those firms through growth stages. Investors Entrepreneurs VC Returns Funds Financing 1. Business plans 2. Ownership stake
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 What do entrepreneurs want? Getting enough money to fund their vision The opportunity to implement the vision without excessive interference Some help implementing and financing the vision as the company evolves Financial rewards if the vision turns out to be a good one Eventually, off-loading some of the risk
Background image of page 4
5 What do VCs want? Getting a high enough return to justify the risk and effort involved in funding a company. The ability to ensure that the company is using investment funds in the best possible way -- that the strategic direction and management of the company is the best it can be. Eventually, achieving “exit,” i.e., being able to sell their stake in the company in an IPO or merger.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 VC financing mechanism #1 Convertible preferred stock Typically if startup meets targets, then VC can convert into non- controlling block of common stock. If startup doesn’t meet targets, VC can convert into controlling block of common. Preferred feature means that VCs are paid before any common shareholders Financing contract also comes with other terms such as antidilution clauses (rachets) and upside provisions
Background image of page 6
7 VC financing mechanism #2 Staged Capital Commitment VCs fund companies in multiple “rounds”: Seed (earliest stage) Start-up (ready to commence operations) First stage (on-going business; perhaps not profitable) Second stage (expansion; hopefully profitable)
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 19

Venture_Capital_Winter_2010 - BusM 401 Venture Capital...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online