Venture Capital and Corporate Venturing Quiz
32 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the primary goal of corporate venturing programs?

  • Maximizing profitability through investments
  • Increasing market share of the parent company
  • Accelerating the growth of established businesses
  • Gaining strategic benefits for the parent company (correct)

    • Which of the following statements best describes the characteristics of venture capital investments?

  • They typically use high levels of leverage
  • They invest in high growth start-ups (correct)
  • They have a long investment horizon of over ten years
  • They focus on mature, established companies

    • What is the defining trait of a Limited Partner (LP) in a venture capital or private equity fund?

  • They allocate money to VC/PE funds (correct)
  • They are responsible for raising capital
  • They conduct due diligence on potential investments
  • They manage the investments made by the fund

    • How does an in-house corporate venturing program typically differ from traditional R&D?

    <p>It can move faster and more cheaply in developing opportunities</p> Signup and view all the answers

    What is a common characteristic of successful entrepreneurs?

    <p>Strong interpersonal relationships</p> Signup and view all the answers

    Which of the following best describes the median life span of a corporate venturing initiative?

    <p>Around 1 year</p> Signup and view all the answers

    What is the role of a General Partner (GP) in a venture capital firm?

    <p>They raise money for the fund and manage investments</p> Signup and view all the answers

    Which of the following is a benefit of Internal Corporate Venturing compared to External VC investments?

    <p>Lower operational costs and quicker decision-making</p> Signup and view all the answers

    What is a key factor that influences the success of deal sourcing in private equity?

    <p>The strength of the partners' network and relationship skills</p> Signup and view all the answers

    Which of the following best describes the investment process in a venture capital fund?

    <p>Sourcing, due diligence, negotiation, post-investment monitoring</p> Signup and view all the answers

    What is the primary disadvantage of general enquiry as a deal sourcing method?

    <p>It leads to a lack of quality control over opportunities</p> Signup and view all the answers

    What essential characteristic do many partners in private equity usually possess?

    <p>A background of over 20 years in related industries</p> Signup and view all the answers

    Which of the following sources is NOT typically considered a reliable deal sourcing channel for VC firms?

    <p>Corporate finance departments</p> Signup and view all the answers

    Which method of deal sourcing is primarily characterized by having no effort yet offering high volumes of opportunities?

    <p>General enquiry</p> Signup and view all the answers

    What is a common strategy for PE firms to enhance deal sourcing?

    <p>Establishing relationships with banks and advisory firms</p> Signup and view all the answers

    In which circumstance might co-investors pose risks to deal sourcing?

    <p>They expect to invest in future deals with the firm</p> Signup and view all the answers

    How do operational backgrounds influence partners in private equity?

    <p>They provide advantages in operational assessments of investment opportunities</p> Signup and view all the answers

    What is a typical outcome when using a standardized deal screening process?

    <p>Improved efficiency in managing deal flow</p> Signup and view all the answers

    What is the primary characteristic of a Leveraged Buyout (LBO)?

    <p>It requires the acquisition of a controlling interest in a company using significant leverage.</p> Signup and view all the answers

    Which strategy focuses on governance improvements and operational enhancements in Private Equity?

    <p>Value Creation</p> Signup and view all the answers

    What is the main financial goal of Private Equity General Partners (GPs) when investing?

    <p>Earning IRRs of more than 20% for their investors.</p> Signup and view all the answers

    Which of the following roles do Limited Partners (LPs) primarily serve in Private Equity?

    <p>Providers of capital for the PE funds.</p> Signup and view all the answers

    How does the 'waterfall distribution' feature function in a Private Equity fund?

    <p>LPs receive their invested capital back before GPs earn carried interest.</p> Signup and view all the answers

    What type of Private Equity fund strategy involves investing in private companies preparing for an IPO?

    <p>Growth/Pre IPO Funds</p> Signup and view all the answers

    What typical return structure is expected from Private Equity investments over a 10-year horizon?

    <p>A J-curve cash flow pattern.</p> Signup and view all the answers

    Which entity often acts as the General Partner (GP) in a Private Equity fund?

    <p>Independent finance professionals or firms.</p> Signup and view all the answers

    What is the purpose of having a Preferred Return in a Private Equity fund's distribution structure?

    <p>To ensure LPs receive a minimum return before GPs can share in profits.</p> Signup and view all the answers

    Which of the following is a common operational improvement strategy in Private Equity?

    <p>Optimizing sales and marketing strategies.</p> Signup and view all the answers

    What distinguishes the American waterfall structure from the European waterfall in Private Equity?

    <p>American waterfalled structures allow a catch-up feature for GPs.</p> Signup and view all the answers

    What is the main reason for Private Equity funds being known for performance persistence?

    <p>Top quartile managers replicate superior returns over time.</p> Signup and view all the answers

    In Private Equity, which factor can have a significant impact on the J curve effect?

    <p>The timeframe in which capital is returned to investors.</p> Signup and view all the answers

    What makes venture capital different from private equity?

    <p>Venture capital involves providing funding for relatively new businesses.</p> Signup and view all the answers

    Study Notes

    Course Information

    • Course title: Entrepreneurial Finance
    • Course code: FNCE213
    • Instructor: Dr Victor Ong DBA
    • Affiliation: Lee Kong Chian School of Business, SMU

    Course Format

    • Presentation style lectures coupled with interactive discussions
    • Video clips of private equity and venture capital topics from YouTube
    • Case studies reviewed throughout the course
    • Guest speaker session from the private equity and venture capital industry
    • Assessments include:
      • Case studies
      • Midterm exam
      • Group project presentations
      • Final exam

    Course Readings

    • Ramsinghani: The business of venture capital (2nd Edition)
    • Ippolito: Private capital investing: The handbook of private debt and private equity
    • De Maria: Introduction to Private Equity, Debt and Real assets (3rd edition)
    • Puca: Early Stage Valuation – A Fair Value Perspective
    • Lecture slides available on ELEARN every Friday

    Grading

    • Class Participation: 10%
    • Case Studies: 10%
    • Midterm exam: 20%
    • Group Project: 20%
    • Final Exam: 40%
    • Total: 100%

    Instructor's Background

    • Over 20 years of experience in energy and infrastructure investment (buy-side and advisory)
    • Worked in multinational corporations (e.g., Royal Vopak, Trelleborg) and private equity firms
    • Experience advising multilateral government-sponsored infrastructure funds
    • Teaching experience at SMU, including courses on private equity, venture capital, and entrepreneurial finance
    • Holds degrees from National University of Singapore, Alliance Manchester Business School, and Singapore Management University

    Personal Hopes for the Class

    • Sharing knowledge about private equity and venture capital
    • Motivating students to pursue post-graduate degrees in the field
    • Providing opportunities for internships in the private equity and venture capital industries
    • Encouraging students to develop into PE fund managers or deal advisors/consultants

    Life Cycle of a Venture

    • Stages of new venture development: founding, seed, growth, and harvest
    • Graph showing revenue, net income, and cash flow trends over time

    Sources of New Venture Financing

    • Chart showing various sources of funding for new ventures at different stages (R&D, Start-up, Early, Rapid Growth, and Exit)

    Sources of Venture Financing

    • Diagram showing overlapping circles for different sources of venture capital funding for different stages of a venture (e.g., friends and family, angel investors, seed funds, venture funds, private equity, etc.) at different investment amounts

    Un-intermediated Finance

    • Business angels and corporate venture capital (CVC) investing directly into portfolio companies

    Business Angels

    • Affluent individuals providing capital for start-ups
    • Usually in exchange for ownership equity or convertible debt
    • Investment gap between friends and family financing and venture capital
    • Investment amounts range from thousands to millions
    • Typically shorter investment horizons than venture capital firms

    Incubators and Accelerators

    • Supporting new businesses to attract VC investment
    • Incubators focus on disruptive ideas; accelerators focus on scaling existing companies

    Corporate Venturing

    • In-house VC programs (funds, incubators, and accelerators)
    • Facilitating the development of new businesses in a quicker and more flexible manner than traditional R&D
    • Aimed at gaining strategic benefits rather than maximizing profits for VC strategies

    Intermediated Finance

    • Venture capital funds invest in high-growth startups with little or no leverage
    • Buyout funds invest in mature, established companies, employing significant leverage
    • Limited partners (LPs) invest in funds; general partners (GPs) manage the fund
    • Entrepreneurs receive funding through a fund vehicle

    Introduction to Entrepreneurial Finance (Session 1)

    • No dedicated information

    PE and VC Investment Industry Definitions

    • No dedicated information

    Private Equity Industry Snapshot

    • Global PE assets under management are projected to reach 8.5 trillion by 2028
    • 2024 alternative reports

    Private Equity Deal Flow and Realizations

    • Figures visualizing PE deal flow and realizations trends over time

    Venture Capital Fund Raising and Dry Powder Status

    • Charts showing fundraising trends and dry powder in venture capital

    Private Equity Stakeholders

    • General partners (GPs) manage PE funds; limited partners (LPs) invest in them
    • Compensation for GPs typically includes management fees and carried interest
    • Key stakeholders also include pension funds, endowments, financial institutions, insurance companies and sovereign funds

    Private Equity Returns and Business Model

    • PE funds typically have a 10-year investment horizon
    • Top-quartile PE managers have demonstrated performance persistence

    Top 20 PE Firms by Capital Raised

    • Table listing leading private equity firms and their capital raised in the last 10 years

    PE Remains as the Highest Performing Asset Class

    • Graph illustrating PE's historical outperformance of other asset classes

    Outperformance of Private Equity 

    • Data visualizing Private Equity's outperformance relative to other investments

    Annual PE Returns

    • Correlation analysis reveals negative correlation between PE returns and S&P 500 returns

    Correlation Analysis of Traditional and Alternative Asset Classes

    • Tables displaying correlation analysis data for various assets, including private equity

    PEVC Fund Structure

    • Diagram illustrating the structure of a PE/VC fund (Warburg, Pincus & Company; Limited Partners; Insurance Pension Funds; Other Venture Funds)

    Private Equity Structure

    • Diagram illustrating the 2 & 20 fee structure of a Private Equity firm

    How a Waterfall Distribution Works

    • Illustrative diagram depicting how distributions are made to LPs and GPs based on hurdle rates

    Waterfall Distribution with Catch Up Feature

    • Detailed example illustrating LP and GP payouts with a catch-up mechanism

    J Curve Effect in PE

    • Chart demonstrating a J-curve pattern in PE investments, starting with negative returns, then eventually showing positive returns

    PE Fund Types and Strategies

    • Detailed summary of various PE fund types and strategies (Buyout funds, Growth/Pre IPO, Co-investment, Secondaries, PIPE, Infrastructure and Real estate PE Funds, Fund of funds)

    PE Strategies (Continued)

    • Explanation of various PE strategies, including different types of buyout funds, growth investments, co-investments, secondaries, and PIPE investments into public equity.

    PE Strategies (Continued 2)

    • Description of private investment into public equity, infrastructure and real estate investments

    Overview of PE Fund Strategy Performance

    • Charts comparing performance of different PE strategies using different performance metrics such as multiple and DPI

    Investor Preferences on Fund Strategies

    • Graph showing investor preferences for different fund strategies in Asia

    Venture Capital

    • Startup financing through capital exchange for equity
    • Methods of exit include sale, IPO and strategic partnerships
    • Various VC firms are discussed: Cisco and Intel capital, Singtel ventures, SPH ventures

    Choosing a Venture Capitalist

    • Guidelines and considerations for selecting a VC (financial strength, management style, network, exit strategy, VC with Singapore presence)

    Venture Capital Investment Stages

    • Stages in venture capital investment: seed, early, Series A & B, and Late Stage (Series C)

    Top 20 VC Firms by Capital Raised

    • Firms and their respective capital raised in the past 10 years

    Venture Capital Deal Numbers by Stage

    • Charts displaying VC deal numbers across different stages over time, highlighting the relative number of funding deals in earlier stages

    Family Offices

    • Investment vehicles set up by family-owned or controlled businesses
    • Aim for long-term sustainability and diversification outside the core business
    • Primarily focused on lower amounts of investments
    • Employing mostly family members in some cases and hiring professionals in many cases

    Multilaterals and Sovereign Investors

    • Institutions supported by state governments
    • Multilaterals like the World Bank and IFC invest directly in infrastructure projects
    • Sovereign wealth funds have a significant presence in the PE market

    Top 10 Sovereign Wealth Funds Globally

    • Table listing the top 10 Sovereign wealth funds and their assets, inception date, and origin

    PE Investment Process (Overview)

    • Cyclical process: sourcing, selection, negotiation, and monitoring

    Steps from First Contact to Deal Conclusion

    • Detailed steps from initial contact to deal completion stages

    PE and VC Governance - Investment Committee

    • Structure and functions of an investment committee
    • Key tasks for deal approval and oversight

    Class Activity 1

    • Hypothetical scenario: setting up a PE investment program with $500 million allocation

    Performance Measurement

    • Different tools for PE fund performance evaluation
    • Importance of understanding how the different tools work
    • Comparison of PE versus Mutual funds & listed funds

    Performance Measurement (Continued)

    • Further exploration of Net IRR, Multiple, DPI, RVPI, and PME metrics

    Performance Measurement (Continued 2)

    • Further exploration of these valuation metrics for PE funds within investment horizons

    Performance Persistence in PE

    • Academic research and persistence of top-quartile PE performance findings

    Performance Persistence in PE(Continued)

    • Concerns from academic research on PE performance measurements

    Class Activity 2

    • Hypothetical scenario: an LP evaluating investments across different PE funds

    Concluding Remarks

    • Course wrap up, expectations, and Q&A session

    Fund Raising and Deal Sourcing Process (Session 2)

    • Fund raising process as not a glamourous process
    • Steps in Fund Raising Process: Prepare- Soft-Launch - First Close - Final Close

    PE and VC Fund Raising Issues

    • Difficult and stressful for GPs.
    • Steps in Fund Raising: Private Placement Memorandum; Subscription agreement; Limited Partnership Agreement; General Partner agreement; Side letters;

    Fund Raising Process - Not a Fun Process

    • Common concerns for fund managers

    Fund Raising Process Stages

    • Preparing for a fund raise
    • Soft launch: Meeting with investors, seeking feedback and obtaining soft commitments
    • First close: Reaching the target or percentage set for the fund to be fully invested
    • Final close: occurs within 12 months of the first close

    Fund Raising Process - The Mechanics

    • Details of paperwork and procedures in a fundraise

    Fund Marketing Materials - PPM

    • Preparation of a Private Placement Memorandum (PPM)

    Fund Marketing Materials - PPM (Continued)

    • Sections of a PPM, emphasizing the importance of the presentation deck and executive summary

    Presentation Slide Deck

    • Presentation guidelines for fund raising

    Key Fund Terms

    • Fund Size, Commitments, Investment Strategy, Industry Focus, Geographic Focus, Term, Investment Structures, and Portfolio construction and governance are all analyzed

    IPO Underpricing Issues

    • IPOs generate strong returns but can be underpriced
    • The goal is for the stock price to rise on the first day for the benefit of investors and underwriters

    IPO Underpricing Issues (Cont'd)

    • Money left on the table: company to investors

    Private Exchanges

    • Description of private exchanges (intermediaries)

    Special Purpose Acquisition Company

    • IPO structure for acquiring or merging with other companies

    Exits through Secondaries PE Transactions

    • Secondary transactions in the PE market

    Valuing Secondary Stakes

    • Methods of estimating the secondary price of a PE transaction through discounting future cash flows

    Example of a Secondaries Deal Valuation

    • Hypothetical secondary market valuation example

    Process and multiple skillsets in PE and VC

    Investment stages

    • Illustration of the skillsets required at different stages of PE and VC investment lifecycles

    Bloomberg Article Discussion

    • Discussion points based on a Bloomberg article focused on IPOs

    Class Activity 1

    • Hypothetical scenario: A seasoned PE fund manager team setting up their own fund

    Class Activity 2 (Cont'd)

    • Further hypothetical scenarios: How to negotiate the scope of engagement and fee structure for deal advisory firms

    Concluding Remarks

    • Course wrap-up, expectations, and Q&A session

    Course Wrap Up and Review (Session 11)

    • Recap of the course coverage
    • Hypothetical case studies and discussion questions

    Case Study 4 - Discussion

    • Case study: Usertip - startup that provides training modules for company staff

    Course Coverage and Focus Areas (Cont'd)

    • Review of the course structure & important topics

    Group Project Presentation Briefing

    • Presentation guidelines and requirements for group presentations

    Final Exam Briefing

    • Exam guidelines are laid out (length, specifics)

    Hopes and Expectations for the Course

    • Student expectations for the overall course
    • Opportunities for future engagement in the PE/VC sector

    PE Performance and LBO Analysis (Session 6 and 7)

    • Principles of Performance Attribution
    • Value Attribute Analysis

    Performance Metrics

    • Overview of metrics used to evaluate PE fund performance (Net IRR, Multiple, DPI, RVPI, PME)

    LBO Method and Analysis

    • Background information on Leveraged Buyouts (LBOs)

    Video Clips Time – LBOS during the 80s

    • Visual aids showing examples of LBOs via videos

    Different Types of LBO

    • Different types of LBO situations

    Typical LBO Candidate

    • Characteristics of companies that are commonly acquired via LBOs

    LBO Scenarios

    • Scenarios under which LBOs occur

    Some more reasons for LBO deals

    • Various reasons why companies initiate an LBO

    LBO Capital Structure - Sources and Uses

    • Different sources of capital for an LBO
    • How capital is utilized in an LBO transaction

    Financing Instruments in an LBO

    • Financing instruments typically used in LBOs (Senior Debt, Subordinated Debt, Mezzanine Financing, Equity)

    Recapitalization Definition

    • Description of leveraged recap

    Management Buyout (Envy Ratio)

    • Applying the Envy Ratio in a buyout context – relationship between equity ownership prices by private equity investors versus the managers.

    LBO Analysis: Buy-side and Sell-side

    • Discussion of the analysis from both sides of an LBO context

    Procedural Steps of an LBO Analysis

    • Qualitative and Quantitative steps required for valuing companies acquiring through LBOs.

    A Simple Example of an LBO Deal

    • Walkthrough of a hypothetical deal based on the characteristics identified previously

    More Advanced LBO Model (Excel Model Run)

    • Details about running a more advanced LBO model in excel

    How Can Sponsors Boost LBO Returns?

    • Various strategies for promoting LBO returns

    Case Study: Acquisition of RJR Nabisco 1988

    • Detailed analysis of one particular successful LBO case

    Case Study: Acquisition of Celanese by Blackstone

    • Detailed case analysis of a major buy-out

    Attempted MBO of a Listed SGX Company

    • Detailing another major case analysis (MBO)

    Private Capital Investment Differences

    • Comparison of VC, Growth Equity/Pre-IPO, and LBO deals

    Class Activity 2

    • Discussion points to consider for a later LBO and VC analysis

    Concluding Remarks

    • Course wrap-up, expectations, and Q&A session

    Case Study: Mobike

    • Detailing a case study on Mobike – a bike sharing business in China

    Case Study: Mobike (Discussion Board)

    • Discussion around the implications of Mobike-related investments

    Case Study: Actis

    • Detailed analysis of the Actis case study – detailed scenario-based approach and considerations

    Case Study: Actis (Cont'd)

    • Further discussion points related to the Actis case study

    Case Study: Actis (Discussion Board)

    • Continued discussion relating to Actis case

    Extra Knowledge: PE Performance (Doctoral Research)

    • Focus on dissertation coverage topic

    Proposed Research Hypotheses

    • Research hypotheses for a study on PE fund returns

    Data and Methodology

    • Data handling: Data sources, variables used (including detailed variables)

    OLS Baseline Regression Model

    • Details of regression model for testing hypotheses

    OLS Baseline Regression Model Findings

    • Summarizing major findings from the regression model in respect of PE fund performance

    OLS Main Regression Model

    • Details of the main, more complex regression model

    OLS Main Regression Model Findings (Cont'd)

    • Additional findings from the main regression model, including detailed statistics

    Geographical Diversification and PE Returns

    • Analysis of various findings using various data visualization methods relating to graphical representation of data

    Deal Structuring in PE and VC (Session 9)

    • How deal structuring works in PE and VC, as well as the factors of deal structuring

    Stress Points: Differing Goals of Entrepreneur and Investor

    • Potential stress points in deal structuring between investors and entrepreneurs

    Investment Structure in VC Deals

    • Different forms of VC investments

    Structuring to Generate Target Returns

    • Key factors in structuring a PE or VC deal

    Deal Documentation

    • Detailing important documentation types in a deal sourcing
    • Importance of legal documentation for a PE transaction

    Share Purchase Agreement (SPA)

    • Describing the elements of a Share Purchase Agreement

    Share Purchase Agreement (SPA) Cont'd

    • Further detailing about the SPA process

    Shareholders Agreement (SHA)

    • Provisions common to Shareholders Agreements

    Shareholders Agreement (SHA) (Cont'd)

    • Further details related to Shareholders Agreements

    Case Study: Brazos Partners

    • Detailed analysis of a case study on Brazos Partners in relation to leveraged buyouts

    Case Study: Brazos Partners (Cont'd)

    • Discussion points relating to the Brazos Partners case study and its implications

    Some Best Practices in PE and VC Management

    • General best practices during investment (fund governance, management, and operations)

    Bloomberg Article Discussion

    • Discussion points on the shift of PE focus

    Class Activity

    • Specific case study exercises used to analyze real-life PE and VC transactions

    Concluding Remarks

    • Last session summary

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Related Documents

    FNCE213 Entrepreneurial Finance Course - PDF

    Description

    Test your knowledge on the key concepts of venture capital and corporate venturing programs. This quiz covers characteristics of investments, roles of partners, and successful entrepreneurial traits. Discover how corporate venturing differs from traditional R&D and more.

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser