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Venture Capital and the Finance of Innovation 2nd Edition Metrick Solutions Manual
The document provides an overview of a two-day workshop on venture capital led by Douglas Abrams. It summarizes Abrams' background and experience in venture capital. The workshop will cover understanding the venture capital mindset around risk and return, evaluating startup scalability and business models, forecasting financials, valuing startups, and understanding the investment process and deal structures. Case studies will also be discussed, such as Facebook, Instagram, Google, and YouTube, highlighting high returns for early investors despite risks of failure.
Venture capital is equity or equity-featured capital that seeks investments in new companies, products, processes or services that offer potential for high returns. Venture capital firms invest mostly in early stage companies focused on technology, biotech and cleantech. Venture capital acquires a minority stake, usually less than 50%, in companies. Private equity buys mature companies across all industries, acquiring 100% ownership. Private equity deals are larger, ranging from $100 million to $10 billion, compared to under $10 million for venture capital.
This document provides an overview of private equity as an asset class. It describes the history and development of private equity, which originated in the 1940s in the US. It discusses the industry structure, including institutional investors, funds of funds, private equity funds, and operating companies. It also covers the various forms of private equity like leveraged buyouts, growth/expansion capital, and venture capital. The document outlines the roles of associates within the investment cycle and profiles some major private equity firms and investment banks. It provides additional resources for further reading on private equity careers and funds.
This document provides an overview of different forms of private equity funding. It discusses why companies need funds and when equity financing is preferred over debt. It then describes various forms of private equity including angel investors, venture capital, growth-stage private equity, buyout funds, and mezzanine debt. The document reviews recent trends in private equity deals and sectors. It also outlines the general private equity investment process, valuation methods, deal structures, exit options, and considerations for private equity funding. In the conclusion, it notes that private equity is operating in a challenging environment with a large pipeline of future exits.
Introduction to Venture Capital and Private Equityguest89b446
I was invited to speak at the HR College of Commerce in Mumbai today as part of their "Corporate Dialogue" lecture series. This deck introduces freshman and sophomore students in commerce, economics and finance to venture capital, private equity and entrepreneurship. It also presents a primer on career options in finance for college graduates in India.
This document summarizes the collapse of Polly Peck, a company controlled by Asil Nadir. It describes Polly Peck's expansion through acquisitions in the 1980s, financed through debt. In 1990, the share price collapsed amid allegations of financial irregularities, liquidity problems emerged, and administrators were appointed. Nadir was later charged with theft and false accounting related to Polly Peck.
Private equity involves long-term investing to strengthen and grow companies. It provides capital for companies in need, creates jobs, and drives economic growth and innovation while delivering steady returns for investors. Private equity managers purchase stakes in private companies and work to increase their value through strategies like leveraged buyouts, venture capital, growth investments, and turnarounds. The private equity industry invests over $1.6 trillion in thousands of companies each year.
Want to make professional looking PPT related to Crowdfunding? We bring you our Crowd Funding PowerPoint Presentation Slides having readymade 57 slides to correctly showcase crowdfunding strategies. Our PPT presentation supports to underline the important challenges and strategies required to achieve the crowdfunding target. This Crowd Funding PPT deck has slides like agenda, what is crowdfunding, outline of crowdfunding, crowdfunding timeline, how it works, crowdfunding process, forms of crowdsourcing, types of crowdfunding, crowdfunding escalator and many more such slides to name a few. With help of our PowerPoint presentation motivate workforce to maintain the crowdfunding process on track. Furthermore, using this PowerPoint presentation slide deck model you can brief employees about the ways to develop strategies among team members as well as to run a successful crowdfunding campaign. Above all, unique presentation slides like reward vs equity, equity crowdfunding, reward and donation-based crowdfunding, researching target audience, setting a budget, marketing collateral etc. are included to touch all aspects of successful crowdfunding. So, what’s holding you back? Click and download our pre-made Crowd Funding presentation sample deck for better understanding and managing crowdfunding at your workplace. Our Crowd Funding PowerPoint Presentation Slides encourage bonding. They can be an effective glue.
The document provides an overview of a two-day workshop on venture capital led by Douglas Abrams. It summarizes Abrams' background and experience in venture capital. The workshop will cover understanding the venture capital mindset around risk and return, evaluating startup scalability and business models, forecasting financials, valuing startups, and understanding the investment process and deal structures. Case studies will also be discussed, such as Facebook, Instagram, Google, and YouTube, highlighting high returns for early investors despite risks of failure.
Venture capital is equity or equity-featured capital that seeks investments in new companies, products, processes or services that offer potential for high returns. Venture capital firms invest mostly in early stage companies focused on technology, biotech and cleantech. Venture capital acquires a minority stake, usually less than 50%, in companies. Private equity buys mature companies across all industries, acquiring 100% ownership. Private equity deals are larger, ranging from $100 million to $10 billion, compared to under $10 million for venture capital.
This document provides an overview of private equity as an asset class. It describes the history and development of private equity, which originated in the 1940s in the US. It discusses the industry structure, including institutional investors, funds of funds, private equity funds, and operating companies. It also covers the various forms of private equity like leveraged buyouts, growth/expansion capital, and venture capital. The document outlines the roles of associates within the investment cycle and profiles some major private equity firms and investment banks. It provides additional resources for further reading on private equity careers and funds.
This document provides an overview of different forms of private equity funding. It discusses why companies need funds and when equity financing is preferred over debt. It then describes various forms of private equity including angel investors, venture capital, growth-stage private equity, buyout funds, and mezzanine debt. The document reviews recent trends in private equity deals and sectors. It also outlines the general private equity investment process, valuation methods, deal structures, exit options, and considerations for private equity funding. In the conclusion, it notes that private equity is operating in a challenging environment with a large pipeline of future exits.
Introduction to Venture Capital and Private Equityguest89b446
I was invited to speak at the HR College of Commerce in Mumbai today as part of their "Corporate Dialogue" lecture series. This deck introduces freshman and sophomore students in commerce, economics and finance to venture capital, private equity and entrepreneurship. It also presents a primer on career options in finance for college graduates in India.
This document summarizes the collapse of Polly Peck, a company controlled by Asil Nadir. It describes Polly Peck's expansion through acquisitions in the 1980s, financed through debt. In 1990, the share price collapsed amid allegations of financial irregularities, liquidity problems emerged, and administrators were appointed. Nadir was later charged with theft and false accounting related to Polly Peck.
Private equity involves long-term investing to strengthen and grow companies. It provides capital for companies in need, creates jobs, and drives economic growth and innovation while delivering steady returns for investors. Private equity managers purchase stakes in private companies and work to increase their value through strategies like leveraged buyouts, venture capital, growth investments, and turnarounds. The private equity industry invests over $1.6 trillion in thousands of companies each year.
Want to make professional looking PPT related to Crowdfunding? We bring you our Crowd Funding PowerPoint Presentation Slides having readymade 57 slides to correctly showcase crowdfunding strategies. Our PPT presentation supports to underline the important challenges and strategies required to achieve the crowdfunding target. This Crowd Funding PPT deck has slides like agenda, what is crowdfunding, outline of crowdfunding, crowdfunding timeline, how it works, crowdfunding process, forms of crowdsourcing, types of crowdfunding, crowdfunding escalator and many more such slides to name a few. With help of our PowerPoint presentation motivate workforce to maintain the crowdfunding process on track. Furthermore, using this PowerPoint presentation slide deck model you can brief employees about the ways to develop strategies among team members as well as to run a successful crowdfunding campaign. Above all, unique presentation slides like reward vs equity, equity crowdfunding, reward and donation-based crowdfunding, researching target audience, setting a budget, marketing collateral etc. are included to touch all aspects of successful crowdfunding. So, what’s holding you back? Click and download our pre-made Crowd Funding presentation sample deck for better understanding and managing crowdfunding at your workplace. Our Crowd Funding PowerPoint Presentation Slides encourage bonding. They can be an effective glue.
White Star Capital Germany Venture Capital Landscape 2020JeandeLencquesaing
We are pleased to publish the second edition of our German Venture Capital report and hope you will enjoy reading it. 2019 was a year where Germany has really played to its strengths and cemented its position as one of the European leaders in tech venture capital, and we are more excited than ever about the development of this ecosystem.
Our report unpacks the current progress and outlook for the German ecosystem using our ecosystem model to highlight Germany’s unique positioning in an increasingly global playing field for startups.
So what did we find?
- Germany had a record year in VC reaching $5.7bn in funding with 49% yoy growth, the second best funded country in Europe
- Germany leverages its global industrial leadership to retain its place as the top destination for European mobility VC investment in 2019, reaching $1.3bn in funding, representing 26% of total funding. Its corporate strengths also drive investments in fintech and B2B software, representing 23% and 20% of total funding, respectively.
- Corporate Venture Capital plays a key role and participates in 58% of the total funding, the highest level worldwide. Next47 (Siemens), IFB Hamburg, Bosch are some of the most active German CVCs. As LPs (investors in VCs), corporates represent 28% of total German VC funds raised, the highest level in Europe, further boosting the local ecosystem
In addition to sharing our excitement about Germany and expressing our belief that the ecosystem is stronger than ever we look at robust business networks, the continued government support via entities such as KfW and the vibrant founder community.
White Star Capital has made landmark investments in Germany and seen many of the findings play out with our portfolio companies. Tier has raised Series B in 2019 led by international investors such as Mubadala, Goodwater and ourselves, while Clark has benefited from a large domestic market for insurance.
Private equity funds are investment vehicles comprised of limited partners who invest capital and general partners who manage the funds. They have a limited lifetime of typically 10 years to make investments and then another 2 years to sell investments and return profits to investors. General partners receive management fees of around 1-2% of assets under management as well as carried interest, usually 20% of profits above an 8% hurdle rate. This structure allows for investors and managers to benefit from private equity returns without incurring multiple layers of taxation.
Private Equity 101: Anatomy of an Investmentpegccouncil
This document provides an overview of private equity, summarizing that it is a long-term investment approach used to purchase stakes in non-public companies in order to build them into stronger, more competitive businesses through strategic interventions. Private equity benefits investors through high returns, companies through value creation, and the broader economy by fueling innovation and job growth.
Venture Capital 101 presentation on the basics of VC such as what venture capital is, and how it works. I delivered this presentation to a student group called InSITE that I belong to (mix of Columbia and NYU MBA and Law students). Enjoy!
-Brian Rothenberg
www.brianrothenberg.com
The document discusses how to build a hedge fund. It begins by explaining what hedge funds are and why they exist, noting they promise higher returns than traditional asset managers in exchange for higher fees. It then discusses the key characteristics of hedge funds, such as their fee structure, use of leverage and derivatives, and promise of uncorrelated returns. The document outlines the rapid growth of the hedge fund industry in terms of assets under management and number of funds since the 1990s. It also discusses some sceptical perspectives about whether hedge funds truly deliver alpha. Finally, it examines the various entities and jurisdictions involved in building a hedge fund structure.
This document provides an overview of private equity, including:
- The structure of private equity funds and typical players like PE companies, banks, and management teams.
- Common private equity transactions like leveraged buyouts, management buyouts, and buy-and-build strategies.
- The private equity deal process from finding investments to exiting.
- Factors that make a company suitable for private equity investment and reasons for buyouts from owner and management perspectives.
- How private equity deals are structured, financing is arranged, and returns are evaluated differently than corporate acquisitions.
- Potential ethical issues around conflicts of interest, employee vulnerability, restructuring impacts, and tax avoidance.
Introduction to venture capital mvca event-25 feb 2016intrescapital
Venture capital is more than just money - it provides resources like talent, connections and advice to help businesses succeed. Venture capitalists work closely with companies, providing guidance and networking opportunities. They invest in stages from seed funding through expansion and growth. Companies seek venture capital when they need significant funding to scale up and reach large revenues. Venture capitalists want sizable returns from investments and prefer companies that could achieve big outcomes through an IPO or acquisition.
The secondary market for private equity investments is growing rapidly. As public market values decline, some investors are forced to sell alternative assets like private equity interests to rebalance their portfolios. This creates opportunities for secondary buyers to purchase portfolio interests at discounts of 40-50% of net asset value. While most secondary transactions involve the sale of limited partnership interests, direct sales of portfolio companies are also occurring. The transaction process requires fund manager consent and involves issues like legal reviews, tax implications, and expense allocations. With many sellers unwilling to accept steep discounts currently, the secondary market is expected to see increased deal volume in the second half of 2009 as pricing gaps narrow.
A comprehensive report evaluating Netflix, Inc. viability, stability, and profitability for future investment. The analysis provides an assessment of the firm's strategy, accounting, financial, prospective, and comes up with a buy/sell recommendation.
Robert Maxwell built a large media empire through heavy acquisition debt but faced financial difficulties in 1991. After his death, it was revealed that Maxwell had misappropriated over £500 million from employee pension funds to prop up his failing businesses. This led to the collapse of Maxwell Communication Corporation and the loss of many employee pensions. The aftermath revealed flaws in corporate governance under Maxwell's domination, including ineffective boards, lack of transparency, and audit failures.
This document discusses dividend policy and related topics. It begins by outlining different approaches to dividend policy, such as passive versus active policies. It then examines factors that influence dividend policy decisions, including legal rules, funding needs, and debt restrictions. The document also covers topics such as dividend stability, different types of dividends including stock dividends and stock splits, and stock repurchases. It provides examples of how accounting entries would be made for various dividend-related transactions.
This document provides an overview and introduction to private equity. It begins with an introduction of the speaker and his background in private equity investments. It then defines private equity and discusses the two broad classes of buyouts and venture capital. Next, it provides an overview of the private equity market and landscape. It discusses fund structure and organization. Finally, it discusses various career options in private equity and provides a high-level question and answer agenda.
What Is Private Equity?
Private equity refers to firms that put big chunks of cash from sources such as pension funds or endowments into buying not publicly traded and (often) faltering businesses or assets and selling them for a profit. Private equity invests in a wide variety of industries. It is an asset class consisting of equity securities and debt in operating companies that are on a stock exchange. A private equity investment will generally be made by a private equity firm, a venture capital firm or an angel investor.
Just over six years after the Dodd-Frank Act became effective, private equity firms impacted by the law could get some relief if a bill they’ve championed makes it through an upcoming vote in the House of Representatives. (September, 2016).
After the 2008 financial crisis, private equity took a hit from federal regulators. Beforehand, they faced little oversight. Afterward, they suddenly found themselves with a bunch of new regulatory exams and reporting obligations. While they can play some risky games PEs aren’t as regulated as your normal bank.
PE firms make money off of deals by taking 2 percent of the money it manages and a 20 percent (commission) of the profits above a certain baseline.
What Is Dodd-Frank?
Dodd-Frank was a Wall Street reform bill that was thought up after the 2008 financial crisis to try and avoid a repeat of that disaster. It was the first major change to federal financial regulations in the United States since reforms that came just after the Great Depression.
While it had plenty of critics, it has been championed by many who point out that it succeeded in at least some ways. The SEC reportedly has been taking action against private equity firms lately, including at least one crack down on an adviser who decided not to register as a broker (brokers with more than 15 clients need to register). That case was settled.
Opponents of the House bill point to those successes as reason to keep the rules how they are and not to loosen them.
What Does This New Bill Do?
OK, so it isn’t a repeal of Dodd-Frank, but it does loosen requirements for private equity firms when it comes to what information they have to provide to the SEC. That includes, most importantly, loosened rules for reporting what types of commodities the firms are buying and who is running the show as an adviser.
The documentary "Inside Job" examines the 2008 global financial crisis over five parts: (1) how the crisis began through deregulation and risky financial practices, (2) the housing bubble, (3) the crisis and collapse, (4) lack of accountability as executives were paid bonuses, and (5) ongoing economic weaknesses. Directed by Charles Ferguson, it won the 2011 Oscar for best documentary and critiques the roles of banks, credit agencies, government officials, and economists in igniting and failing to prevent the crisis.
Venture capital (VC) is a form of private equity and a high-risk, high-return investment. VCs typically invest in startups that cannot raise traditional financing. They expect to lose their entire investment in 1/3 of companies, break even in 1/3, and generate returns from 1/3. VCs raise funds in cycles and have time-bound commitment and investment periods. They earn management fees and carried interest. Associates source deals and manage investments while partners make decisions. VCs prefer different stages and seek influence, liquidation preferences, and exist their investments through dilution or acquisition. There are also angel investors, accelerators, incubators, and corporate VCs that startups may encounter.
The document discusses Robert Maxwell's rise and fall, and the collapse of his business empire. It provides background on Maxwell's career building a publishing empire in the 1980s. It then describes how Maxwell misused funds from employee pension funds and engaged in fraudulent accounting practices. The collapse of Maxwell's businesses in 1991 had significant impacts and revealed flaws in corporate governance. It led to reforms aimed at increasing transparency and accountability in business.
Gs503 venture capital financing intro 120115Stephen Ong
This document provides an introduction to venture capital financing for technology startups. It discusses various sources of equity financing like venture capital and business angels. Venture capital firms invest large sums of money in high-growth potential companies, but undergo a rigorous review process and only fund a small percentage of proposals. Business angels provide an important source of early-stage "seed" capital. The document also examines the characteristics that venture capitalists look for in potential investments, such as strong management teams and large market opportunities. It uses examples and case studies to illustrate different funding scenarios.
1. Venture capital is a type of private funding used to support risky startups and businesses with high growth potential, usually involving the business owner giving up equity in return for funding from venture capitalists.
2. Venture capital firms are typically structured as partnerships between individuals and institutions, and focus on selectively investing in young companies in innovative industries like technology and biotech that require large capital investments.
3. Venture capitalists provide funding in multiple stages as companies grow and develop, and eventually aim to profit from exiting investments through events like IPOs or acquisitions within 7-10 years.
Introduction to private equity & venture capitalist fundManish Poddar
Venture capital refers to investments made in startup companies and small businesses with growth potential. Venture capitalists provide funding to companies in exchange for equity and play an active role in monitoring and advising the companies. The document discusses various aspects of venture capital including the types of investors, stages of financing, activities of venture capitalists like investing, monitoring and exiting investments, and key terms in a term sheet like liquidation preferences and founders' shareholding. It provides an overview of how venture capital works and the roles and considerations of venture capitalists and the companies they fund.
White Star Capital Germany Venture Capital Landscape 2020JeandeLencquesaing
We are pleased to publish the second edition of our German Venture Capital report and hope you will enjoy reading it. 2019 was a year where Germany has really played to its strengths and cemented its position as one of the European leaders in tech venture capital, and we are more excited than ever about the development of this ecosystem.
Our report unpacks the current progress and outlook for the German ecosystem using our ecosystem model to highlight Germany’s unique positioning in an increasingly global playing field for startups.
So what did we find?
- Germany had a record year in VC reaching $5.7bn in funding with 49% yoy growth, the second best funded country in Europe
- Germany leverages its global industrial leadership to retain its place as the top destination for European mobility VC investment in 2019, reaching $1.3bn in funding, representing 26% of total funding. Its corporate strengths also drive investments in fintech and B2B software, representing 23% and 20% of total funding, respectively.
- Corporate Venture Capital plays a key role and participates in 58% of the total funding, the highest level worldwide. Next47 (Siemens), IFB Hamburg, Bosch are some of the most active German CVCs. As LPs (investors in VCs), corporates represent 28% of total German VC funds raised, the highest level in Europe, further boosting the local ecosystem
In addition to sharing our excitement about Germany and expressing our belief that the ecosystem is stronger than ever we look at robust business networks, the continued government support via entities such as KfW and the vibrant founder community.
White Star Capital has made landmark investments in Germany and seen many of the findings play out with our portfolio companies. Tier has raised Series B in 2019 led by international investors such as Mubadala, Goodwater and ourselves, while Clark has benefited from a large domestic market for insurance.
Private equity funds are investment vehicles comprised of limited partners who invest capital and general partners who manage the funds. They have a limited lifetime of typically 10 years to make investments and then another 2 years to sell investments and return profits to investors. General partners receive management fees of around 1-2% of assets under management as well as carried interest, usually 20% of profits above an 8% hurdle rate. This structure allows for investors and managers to benefit from private equity returns without incurring multiple layers of taxation.
Private Equity 101: Anatomy of an Investmentpegccouncil
This document provides an overview of private equity, summarizing that it is a long-term investment approach used to purchase stakes in non-public companies in order to build them into stronger, more competitive businesses through strategic interventions. Private equity benefits investors through high returns, companies through value creation, and the broader economy by fueling innovation and job growth.
Venture Capital 101 presentation on the basics of VC such as what venture capital is, and how it works. I delivered this presentation to a student group called InSITE that I belong to (mix of Columbia and NYU MBA and Law students). Enjoy!
-Brian Rothenberg
www.brianrothenberg.com
The document discusses how to build a hedge fund. It begins by explaining what hedge funds are and why they exist, noting they promise higher returns than traditional asset managers in exchange for higher fees. It then discusses the key characteristics of hedge funds, such as their fee structure, use of leverage and derivatives, and promise of uncorrelated returns. The document outlines the rapid growth of the hedge fund industry in terms of assets under management and number of funds since the 1990s. It also discusses some sceptical perspectives about whether hedge funds truly deliver alpha. Finally, it examines the various entities and jurisdictions involved in building a hedge fund structure.
This document provides an overview of private equity, including:
- The structure of private equity funds and typical players like PE companies, banks, and management teams.
- Common private equity transactions like leveraged buyouts, management buyouts, and buy-and-build strategies.
- The private equity deal process from finding investments to exiting.
- Factors that make a company suitable for private equity investment and reasons for buyouts from owner and management perspectives.
- How private equity deals are structured, financing is arranged, and returns are evaluated differently than corporate acquisitions.
- Potential ethical issues around conflicts of interest, employee vulnerability, restructuring impacts, and tax avoidance.
Introduction to venture capital mvca event-25 feb 2016intrescapital
Venture capital is more than just money - it provides resources like talent, connections and advice to help businesses succeed. Venture capitalists work closely with companies, providing guidance and networking opportunities. They invest in stages from seed funding through expansion and growth. Companies seek venture capital when they need significant funding to scale up and reach large revenues. Venture capitalists want sizable returns from investments and prefer companies that could achieve big outcomes through an IPO or acquisition.
The secondary market for private equity investments is growing rapidly. As public market values decline, some investors are forced to sell alternative assets like private equity interests to rebalance their portfolios. This creates opportunities for secondary buyers to purchase portfolio interests at discounts of 40-50% of net asset value. While most secondary transactions involve the sale of limited partnership interests, direct sales of portfolio companies are also occurring. The transaction process requires fund manager consent and involves issues like legal reviews, tax implications, and expense allocations. With many sellers unwilling to accept steep discounts currently, the secondary market is expected to see increased deal volume in the second half of 2009 as pricing gaps narrow.
A comprehensive report evaluating Netflix, Inc. viability, stability, and profitability for future investment. The analysis provides an assessment of the firm's strategy, accounting, financial, prospective, and comes up with a buy/sell recommendation.
Robert Maxwell built a large media empire through heavy acquisition debt but faced financial difficulties in 1991. After his death, it was revealed that Maxwell had misappropriated over £500 million from employee pension funds to prop up his failing businesses. This led to the collapse of Maxwell Communication Corporation and the loss of many employee pensions. The aftermath revealed flaws in corporate governance under Maxwell's domination, including ineffective boards, lack of transparency, and audit failures.
This document discusses dividend policy and related topics. It begins by outlining different approaches to dividend policy, such as passive versus active policies. It then examines factors that influence dividend policy decisions, including legal rules, funding needs, and debt restrictions. The document also covers topics such as dividend stability, different types of dividends including stock dividends and stock splits, and stock repurchases. It provides examples of how accounting entries would be made for various dividend-related transactions.
This document provides an overview and introduction to private equity. It begins with an introduction of the speaker and his background in private equity investments. It then defines private equity and discusses the two broad classes of buyouts and venture capital. Next, it provides an overview of the private equity market and landscape. It discusses fund structure and organization. Finally, it discusses various career options in private equity and provides a high-level question and answer agenda.
What Is Private Equity?
Private equity refers to firms that put big chunks of cash from sources such as pension funds or endowments into buying not publicly traded and (often) faltering businesses or assets and selling them for a profit. Private equity invests in a wide variety of industries. It is an asset class consisting of equity securities and debt in operating companies that are on a stock exchange. A private equity investment will generally be made by a private equity firm, a venture capital firm or an angel investor.
Just over six years after the Dodd-Frank Act became effective, private equity firms impacted by the law could get some relief if a bill they’ve championed makes it through an upcoming vote in the House of Representatives. (September, 2016).
After the 2008 financial crisis, private equity took a hit from federal regulators. Beforehand, they faced little oversight. Afterward, they suddenly found themselves with a bunch of new regulatory exams and reporting obligations. While they can play some risky games PEs aren’t as regulated as your normal bank.
PE firms make money off of deals by taking 2 percent of the money it manages and a 20 percent (commission) of the profits above a certain baseline.
What Is Dodd-Frank?
Dodd-Frank was a Wall Street reform bill that was thought up after the 2008 financial crisis to try and avoid a repeat of that disaster. It was the first major change to federal financial regulations in the United States since reforms that came just after the Great Depression.
While it had plenty of critics, it has been championed by many who point out that it succeeded in at least some ways. The SEC reportedly has been taking action against private equity firms lately, including at least one crack down on an adviser who decided not to register as a broker (brokers with more than 15 clients need to register). That case was settled.
Opponents of the House bill point to those successes as reason to keep the rules how they are and not to loosen them.
What Does This New Bill Do?
OK, so it isn’t a repeal of Dodd-Frank, but it does loosen requirements for private equity firms when it comes to what information they have to provide to the SEC. That includes, most importantly, loosened rules for reporting what types of commodities the firms are buying and who is running the show as an adviser.
The documentary "Inside Job" examines the 2008 global financial crisis over five parts: (1) how the crisis began through deregulation and risky financial practices, (2) the housing bubble, (3) the crisis and collapse, (4) lack of accountability as executives were paid bonuses, and (5) ongoing economic weaknesses. Directed by Charles Ferguson, it won the 2011 Oscar for best documentary and critiques the roles of banks, credit agencies, government officials, and economists in igniting and failing to prevent the crisis.
Venture capital (VC) is a form of private equity and a high-risk, high-return investment. VCs typically invest in startups that cannot raise traditional financing. They expect to lose their entire investment in 1/3 of companies, break even in 1/3, and generate returns from 1/3. VCs raise funds in cycles and have time-bound commitment and investment periods. They earn management fees and carried interest. Associates source deals and manage investments while partners make decisions. VCs prefer different stages and seek influence, liquidation preferences, and exist their investments through dilution or acquisition. There are also angel investors, accelerators, incubators, and corporate VCs that startups may encounter.
The document discusses Robert Maxwell's rise and fall, and the collapse of his business empire. It provides background on Maxwell's career building a publishing empire in the 1980s. It then describes how Maxwell misused funds from employee pension funds and engaged in fraudulent accounting practices. The collapse of Maxwell's businesses in 1991 had significant impacts and revealed flaws in corporate governance. It led to reforms aimed at increasing transparency and accountability in business.
Gs503 venture capital financing intro 120115Stephen Ong
This document provides an introduction to venture capital financing for technology startups. It discusses various sources of equity financing like venture capital and business angels. Venture capital firms invest large sums of money in high-growth potential companies, but undergo a rigorous review process and only fund a small percentage of proposals. Business angels provide an important source of early-stage "seed" capital. The document also examines the characteristics that venture capitalists look for in potential investments, such as strong management teams and large market opportunities. It uses examples and case studies to illustrate different funding scenarios.
1. Venture capital is a type of private funding used to support risky startups and businesses with high growth potential, usually involving the business owner giving up equity in return for funding from venture capitalists.
2. Venture capital firms are typically structured as partnerships between individuals and institutions, and focus on selectively investing in young companies in innovative industries like technology and biotech that require large capital investments.
3. Venture capitalists provide funding in multiple stages as companies grow and develop, and eventually aim to profit from exiting investments through events like IPOs or acquisitions within 7-10 years.
Introduction to private equity & venture capitalist fundManish Poddar
Venture capital refers to investments made in startup companies and small businesses with growth potential. Venture capitalists provide funding to companies in exchange for equity and play an active role in monitoring and advising the companies. The document discusses various aspects of venture capital including the types of investors, stages of financing, activities of venture capitalists like investing, monitoring and exiting investments, and key terms in a term sheet like liquidation preferences and founders' shareholding. It provides an overview of how venture capital works and the roles and considerations of venture capitalists and the companies they fund.
The document provides an overview of venture capital, including:
- Venture capital is a means of financing for high-potential startups and growth companies. It involves investing capital in these companies in exchange for equity stakes.
- Venture capital firms pool funds from institutional and individual investors and invest in companies across different sectors like IT, biotechnology, healthcare, etc.
- The venture capital process includes deal origination, screening, due diligence, structuring, and post-investment support with an exit strategy like IPO or acquisition in mind.
This document provides an overview of venture capital. It defines venture capital as a means of equity financing for rapidly growing private companies. Venture capital firms invest funds professionally, often focusing on specific sectors like IT, biotechnology, or healthcare. They provide capital needed for startups, development, or expansion of companies. Venture capital involves high risk but can help innovative entrepreneurs and growing companies that are too small for public markets or bank loans. The document discusses venture capital stages, objectives, methods of financing, and exit strategies. It also outlines regulations for venture capital in India.
Introduction to Private Equity and Venture Capital_aifsession6.pptxssuser4f8f8e
The document provides an introduction to private equity and venture capital. It defines private equity as capital invested in private companies rather than through public stock exchanges. Private equity comes from institutional and individual investors and can be used to fund new technologies, acquisitions, working capital, or strengthening a company's balance sheet. The document also outlines the typical business lifecycle stages and common private equity investment types like venture capital, growth capital, leveraged buyouts, and mezzanine financing. It concludes by defining some common private equity/venture capital terminology.
Flipkart is an Indian e-commerce company founded in 2007. It started as an online book retailer and has since expanded to sell a wide range of products. Flipkart gained popularity among Indian consumers as it offered access to a large catalog of products at low prices. The company raised over $3 billion from prominent investors, demonstrating strong growth and potential in the Indian e-commerce market. However, Flipkart now faces increasing competition from other players like Amazon that are looking to capitalize on the large untapped e-commerce opportunity in India.
Private equity consists of investors and funds that make direct investments in private companies or conduct buyouts of public companies. Capital is raised from retail and institutional investors to fund new technologies, expand working capital, make acquisitions, or strengthen balance sheets. Private equity firms partner with investment banks, investors, and management teams. Private equity investments are geared towards long-term strategies in illiquid assets, allowing more control over operations compared to hedge funds which focus on liquid securities. Exits can occur via IPOs, mergers and acquisitions, or recapitalizations. The global private equity industry manages over $2 trillion in assets and invests hundreds of billions annually.
The document discusses venture capital finance and the venture capital process. It explains that venture capital is a form of financing provided to startups and growing companies. Venture capital investments go through several stages from seed funding to help get a company started, to multiple rounds of funding as the company grows and achieves milestones. The document outlines the typical stages a company goes through to acquire venture capital financing and the roles that venture capitalists play in supporting the growth of portfolio companies beyond just providing money.
The document discusses venture capital finance and the venture capital process. It explains that venture capital is a form of financing provided to startups and growing companies. Venture capital investments go through several stages from seed funding to help establish an idea, to multiple growth stages where capital is used to expand operations and marketing. The final stage is an initial public offering where the company sells shares to the public and founders can gain liquidity. In addition to funding, venture capital firms provide operational support and access to networks to help portfolio companies succeed.
This document provides an overview of venture capital, including:
1) It discusses the origins of venture capital dating back to funding provided to Christopher Columbus and the development of the modern venture capital industry post-World War 2.
2) It defines venture capital as providing seed funding, start-up funding, and first stage funding to companies with growth potential that don't have access to public markets.
3) It describes venture capitalists as fund managers who invest in companies and provide strategic support to help generate returns for their investors. Venture capitalists consider factors like management strength, growth potential, financial projections, and the entrepreneur's financial stake.
4) It outlines the different stages of venture capital funding including early-
Private equity involves investing in companies that are not publicly traded, with the goal of improving financial performance and selling at a profit. There are various private equity strategies based on a company's stage of development, including venture capital for early stage companies, growth capital for fast-growing firms, buyouts of mature companies, and distressed debt investments in struggling firms. While high risk, private equity aims to generate above-average returns. Most exits are trade sales to other companies in the same industry, rather than initial public offerings. Private equity requires active involvement to create value through specialization, flexibility, and strong performance incentives.
The document discusses various sources of financing available to entrepreneurs for starting and growing new ventures. It describes personal financing options like savings, loans from friends and family ("love money"), and bootstrapping. It also explains how to prepare for raising debt or equity financing through developing an elevator pitch and business plan. Specific sources of financing covered include business angels, venture capital, initial public offerings, bank loans, SBA loans, leasing, government grants, and strategic partnerships.
1) Venture capital is financing provided to startup companies and small businesses with uncertain chances of success. It typically involves taking equity stakes in companies and providing guidance to management.
2) One of the earliest organized venture capital funds was formed in 1946 to provide startup financing, including to Digital Equipment Corporation in 1958.
3) Venture capital financing occurs in stages from early seed funding through expansion and later stage financing as a company grows and requires additional capital. Venture capitalists aim to earn returns primarily through capital gains when companies are successful.
Meaning
characteristics
Advantage
Stages of financing
risk in each stage
Method of venture financing
Development of venture capital in india
Rules and regulation
critical factor for the success of VC
Venture capital (VC) funds provide financing to young private companies that are not ready or willing to tap public financial markets. VC investments involve high-growth potential businesses with medium- to long-term horizons, high risks and returns, and active post-financing involvement. The VC appraisal process emphasizes management team assessment, strategic strengths, and liquidity potential. Valuation converts projected performance into equity stakes. Deal structuring chooses funding instruments and terms. Post-financing agreements define investor rights and controls. Current concerns in India include competition, valuations, economic uncertainty, contract enforcement, and manager shortages.
Venture capital involves investing in companies with undeveloped products or revenue in order to attain high returns. There are four stages of venture capital financing: seed, startup, expansion, and replacement. Venture capitalists provide funding to entrepreneurs who have new ideas or technologies in exchange for equity and control over company operations. The goal of venture capital financing is to increase company value and provide investors returns through supporting emerging companies to become leaders in their fields.
Venture capital refers to investments made in startup companies and small businesses with perceived long-term growth potential. Venture capital comes from well-off individuals and investment firms seeking high returns. It is a high-risk investment made in exchange for equity in a company. Venture capital investments go through various stages from seed funding for new ideas to expansion funding for growing companies. Incubation allows investment firms to privately test new fund concepts with their own capital before a full public launch.
This document provides an overview of private equity and venture capital. It begins by defining private equity as a source of financing for non-public companies through investment in their equity. It then discusses why companies may seek private equity or venture capital funding, including certification, network, knowledge, and financial benefits. The document outlines the different stages of a company's lifecycle and the corresponding types of private equity investments, including seed financing, startup financing, early growth financing, expansion financing, replacement financing, and vulture financing. Venture capital refers specifically to early-stage investments.
PRIVATE EQUITY AND VENTURE CAPITAL week1JooMoura93
This document discusses private equity and venture capital. It begins with definitions of private equity and venture capital, noting that private equity includes venture capital. It then discusses why companies may need private equity or venture capital, outlining four key benefits: certification, network, knowledge, and financial benefits. The document proceeds to categorize private equity investments according to a company's lifecycle stage, including seed financing, startup financing, early growth financing, expansion financing, replacement financing, and vulture financing. It notes that seed, startup, and early growth financing fall under venture capital. The discussion then focuses on seed financing as the most complex and risky private equity investment.
Gs503 VC industry players lecture 1 120115Stephen Ong
This document provides an overview of the venture capital industry and players. It defines what a venture capital firm is and explains their role in investing in private companies and actively monitoring portfolio companies. The document outlines the typical stages of venture capital funding and discusses key terms like limited partners, committed capital, and carried interest. It also examines trends in the global venture capital industry and remaining challenges for international venture capital markets.
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Strategies for Effective Upskilling is a presentation by Chinwendu Peace in a Your Skill Boost Masterclass organisation by the Excellence Foundation for South Sudan on 08th and 09th June 2024 from 1 PM to 3 PM on each day.
11. 2.2
Solution 2.2
There are two main ways to approach this problem. One is via algebra the other is by constructing a set of calculations that captures the relationships outlined in the question,
with the annual investment amount unknown. Then, you can use the goalseek function to set the contributed capital (cell L15) to 1000 by changing the annual investment (cell C8)
Year 1 2 3 4 5 6 7 8 9 10
annual investment 169.81$ 169.81$ 169.81$ 169.81$ 169.81$
cummulative annual investment 169.81$ 339.62$ 509.43$ 679.25$ 849.06$
Beg Bal of NIC -$ 169.81$ 339.62$ 509.43$ 679.25$ 849.06$ 679.25$ 509.43$ 339.62$ 169.81$
mgmt fee 20.00$ 20.00$ 20.00$ 20.00$ 20.00$ 16.98$ 13.58$ 10.19$ 6.79$ 3.40$
change in NIC 169.81$ 169.81$ 169.81$ 169.81$ 169.81$ (169.81)$ (169.81)$ (169.81)$ (169.81)$ (169.81)$
End Bal of NIC 169.81$ 339.62$ 509.43$ 679.25$ 849.06$ 679.25$ 509.43$ 339.62$ 169.81$ -$
accum mgmt fee 20.00$ 40.00$ 60.00$ 80.00$ 100.00$ 116.98$ 130.57$ 140.75$ 147.55$ 150.94$
contrib capital 189.81$ 379.62$ 569.43$ 759.25$ 949.06$ 966.04$ 979.62$ 989.81$ 996.60$ 1,000.00$
Lifetime fees = 150.94$
Investment capital = 849.06$
Assumptions
commited capital = total amount of capital promised by the LPs over a lifetime of a fund
management fees = fees to keep lights on
net invested capital = invested capital LESS cost basis of realized investments
Page 2 of 19
12. 2.3
Solution 2.3
Carried Interest Under Structure 1 = X% * (z - 250)
Carried Interest Under Structure 2 = Y% * (z - 250 - (250*2%*10)
Carried Interest Under Structure 2 = Y% * (z - 200)
The easiest way to solve this problem is algebraically.
Page 3 of 19
13. committed capital 250
gross returns 10.0%
carry 20.0%
management fee 2.0%
priority return 8.0%
Year 1
investments 50.0
portfolio value 50.0
total returned capital 0.0
carried interest 0.0
returned capital to LPs 0.0
cumulative returned capital to LPs 0.0
port value after capital returned 50.0
management fee 5.0
cash flows to GP 5.0
cash flows to LPs -55.0
contributed capital 55.0
running NPV with hurdle, not counting this periods returned capital -55.0
catch up amount
Clawback 0
16. committed capital 250
gross returns 10.0% (for most years)
carry 20.0%
management fee 2.0%
priority return 8.0%
… …
Year 1 2 3 4 5 6
investments 50.0 50.0 50.0 50.0 0.0 0.0
portfolio value 50.0 200.0 72.0 129.2 50.0 33.0
total returned capital 0.0 180.0 0.0 0.0 20.0 13.2
carried interest 0.0 14.0 0.0 0.0 0.0 0.0
returned capital to LPs 0.0 166.0 0.0 0.0 20.0 13.2
cumulative returned capital to LPs 0.0 166.0 166.0 166.0 186.0 199.2
port value after capital returned 50.0 20.0 72.0 129.2 30.0 19.8
management fee 5.0 5.0 5.0 5.0 5.0 5.0
cash flows to GP 5.0 19.0 5.0 5.0 5.0 5.0
cash flows to LPs -55.0 111.0 -55.0 -55.0 15.0 8.2
contributed capital 55.0 110.0 165.0 220.0 225.0 230.0
contributed capital in each year 55.0 55.0 55.0 55.0 5.0 5.0
contributed capital + compound
priority return
year 1 55.0 59.4 0.0 0.0 0.0 0.0
year 2 55.0 0.0 0.0 0.0 0.0
year 3 55.0 59.4 64.2 47.7
year 4 55.0 59.4 64.2
year 5 5.0 5.4
year 6 5.0
year 7
year 8
(1) One key thing here is that priority return starts accumulating once LPs contribute
capital to GPs. Not all of committed capital is contributed on the first day of the fund,
however. Instead, investments are paced over the first four years, and management
fees (part of contributed capital) are paced over the 10 years of fund's life. This means
priority return is computed for different durations for each year's contribution. Another
key thing is to compute the catch-up amount for GPs.
(2) What happens if a large early distribution occurs and the fund returns capital in
excess of contributed capital (to date)+ priority returns? Can such early excess
distributions be used to offset against future priority return payments or not? The fund
terms described in the Appendix of the text are sufficiently ambiguous. Therefore making
either assumption seems equally valid here. (see below for two versions)
17. year 9
year 10
amount owed to LPs v1: allowing for
early return to offset priority return -0.7 54.2 63.6 52.0
early return (if allowed to offset future
priority returns) 51.6 55.7 60.2 65.0 70.2
Amount owed to LPs v2: not allowing
early return to offset future priority
return 55.0 114.4 55.0 114.4 128.6 122.2
carry test (1 if carry occurs) 1.0 0.0 0.0 0.0 0.0
amount in excess of cont. cap +
priority 65.6 0.0 0.0 0.0 0.0
catch up amount 1.1 0.0 0.0 0.0 0.0
catch up test (1 if catchup ends this
period) 1.0 0.0 0.0 0.0 0.0
additional cary amount 12.9 0.0 0.0 0.0 0.0
total carry 14.0 0.0 0.0 0.0 0.0
returned capital to LPs 0 166.0 0.0 0.0 20.0 13.2
cumulative returned capital to LPs 0 166.0 166.0 166.0 186.0 199.2
clawback
20. Year 2010 2011 2012 2013 2014
Beginning Value 10000 10300 13105 5563 6332
New Investments 2000 2000 2000 2000 2000
Ending Value (before distributions) 13800 16605 9063 9832 12498
Distributions to LPs 3000 3000 3000 3000 3000
Distributions to GPs 500 500 500 500 500
Management Fees 200 200 200 200 200
Gross Return 15.0% 35.0% -40.0% 30.0% 50.0%
115.0% 135.0% 60.0% 130.0% 150.0%
Net Return 9.0% 28.8% -44.1% 20.2% 40.6%
109.0% 128.8% 55.9% 120.2% 140.6%
gross compound 81.6%
gross annualized 12.7%
net compound 32.8%
net annualized 5.8%
21.
22. GVM = K
From Example 3.3 we know that Lifetime fees = $20M and investment capital = $80M.
a)
Carried interest = 0.20 * (K * $80M - $100M)
From Equation (3.8) we have,
Value Multiple = ((K * $80M) - 0.20 * (K * $80M - $100M)) / $100M
From Equation (3.15) we have,
GP% = 0.20 * (K * $80M - $100M) / (K * $80M)
b)
Solve for a value multiple > 3
((K * $80M) - 0.20 * (K * $80M - $100M)) / $100M > 3
0.80 * K * $80M + $20M > $300M
check
K > 4.375 3
c) NOTE that the formulas must change when we use ivnestment capital as the basis.
Redoing all the answers to (a) and (b) yields
Carried interest = 0.20 * (K * $80M - $80M) = 0.20 * (K-1) * $80M
Value Multiple = ((K * $80M) - 0.20 * (K-1) * $80M)) / $100M
GP% = (0.20 * (K-1) * $80M) / (K * $80M)
Solve for a value multiple > 3
((K * $80M) - 0.20 * (K-1) * $80M)) / $100M > 3
0.80 * K * $80M + $16M > $300M
check
K > 4.4375 3
23. 3.3
Solution 3.3
EBV Owl
Commited Capital $100.00 $500.00
Mgmt Fee $20.00 $83.75
Investment Capital $80.00 $416.25
Carry 20% 25%
One approach to solving this question is to solve for the VM's of EBV and OWL algebraically.
Following the definition of VM, we derive the following two linear equations.
Value Multiple of EBV
= (total distributions - carried interest) / commited capital
= [(GVM)(80) - (.2)(GVM)(80) + (.2)100] / 100
= .64(GVM) + .2
Value Multiple of Owl
= (total distributions - carried interest) / commited capital
= [(GVM)(416.25) - (.25)(GVM)(416.25) + (.25)500] / 500
= .624(GVM) + .25
These linear equations have different slopes. By setting the equations equal to each other,
we can derive that GVM equals 3.125.
.64(GVM) + .2 = .624(GVM) + .25
.016(GVM) =.05
GVM = 3.125
For GVM's less than 3.125, Owl has the higher value multiple. For GVM's greater than 3.125, EBV has the
higher value multiple. Thus, the answer is UNCERTAIN.
Page 14 of 19
24. 3.4
Solution 3.4
The data below is given in exhibit 3.10. The shaded cells show how to calculate the cash flows to Accel and LPs.
The "ending year" data gives us a terminal value assuming the portfolio is liquidated that year.
year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 9 year 10
investments 50.0$ 100.0$ 100.0$ 150.0$ 100.0$ -$ -$ -$ -$ -$
portfolio value 50.0$ 167.5$ 326.1$ 387.8$ 353.5$ 381.8$ 412.3$ 445.3$ 480.9$ 519.4$
carried interest -$ -$ -$ -$ -$ -$ 15.9$ 17.8$ 19.2$ 103.9$
returned capital to LPs -$ -$ 150.0$ 200.0$ 70.7$ 76.4$ 66.6$ 71.2$ 76.9$ 415.5$
cumulative returned capital to LPs -$ -$ 150.0$ 350.0$ 420.7$ 497.1$ 563.6$ 634.9$ 711.8$ 1,127.3$
port value after capital returned 50.0$ 167.5$ 176.1$ 187.8$ 282.8$ 305.4$ 329.8$ 356.2$ 384.7$ -$
management fee 10.0$ 10.0$ 10.0$ 10.0$ 10.0$ 10.0$ 10.0$ 10.0$ 10.0$ 10.0$
cash flows to XYZ 10.0$ 10.0$ 10.0$ 10.0$ 10.0$ 10.0$ 25.9$ 27.8$ 29.2$ 113.9$
cash flows to LPs (60.0)$ (110.0)$ 40.0$ 40.0$ (39.3)$ 66.4$ 56.6$ 61.2$ 66.9$ 405.5$
if ending year (10.0)$ 57.5$ 216.1$ 227.8$ 243.5$ 371.8$ 386.4$ 417.5$ 451.7$ 405.5$
NOTE: DO NOT FORGET TO ADD THE "PORT VALUE" AT THE END OF EACH YEAR AS A TERMINAL CASH FLOW -- MANY PEOPLE FORGOT TO DO THIS
IRR
At year end 1 0.00%
At year end 2 (60.0)$ 57.5$ -4.17%
At year end 3 (60.0)$ (110.0)$ 216.1$ 19.10%
At year end 4 (60.0)$ (110.0)$ 40.0$ 227.8$ 22.78%
At year end 5 (60.0)$ (110.0)$ 40.0$ 40.0$ 243.5$ 24.36%
At year end 6 (60.0)$ (110.0)$ 40.0$ 40.0$ (39.3)$ 371.8$ 25.85%
At year end 7 (60.0)$ (110.0)$ 40.0$ 40.0$ (39.3)$ 66.4$ 386.4$ 25.95%
At year end 8 (60.0)$ (110.0)$ 40.0$ 40.0$ (39.3)$ 66.4$ 56.6$ 417.5$ 26.02%
At year end 9 (60.0)$ (110.0)$ 40.0$ 40.0$ (39.3)$ 66.4$ 56.6$ 61.2$ 451.7$ 26.09%
At year end 10 (60.0)$ (110.0)$ 40.0$ 40.0$ (39.3)$ 66.4$ 56.6$ 61.2$ 66.9$ 405.5$ 24.56%
If we count year 0 as "zero" then this is an example of a J-curve
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
1 2 3 4 5 6 7 8 9 10
Page 15 of 19
25. Month Ri Rm Rf Ri-Rf Rm-Rf
January 1.51% 2.24% 0.07% 1.44% 2.17%
February 1.34% 1.49% 0.06% 1.28% 1.43%
March -0.39% -1.16% 0.09% -0.48% -1.25%
April -2.45% -2.50% 0.08% -2.53% -2.58%
May 1.74% 1.35% 0.06% 1.68% 1.29%
June 2.33% 2.08% 0.08% 2.25% 2.00%
July -3.81% -3.87% 0.10% -3.91% -3.97%
August 0.32% 0.16% 0.11% 0.21% 0.05%
September 2.25% 1.95% 0.11% 2.14% 1.84%
October 2.01% 1.67% 0.11% 1.90% 1.56%
November 3.76% 4.68% 0.15% 3.61% 4.53%
December 2.43% 3.36% 0.16% 2.27% 3.20%
monthly alpha = 0.07% (not significant) Performance evaluation gives a point estimate of 7 basis points per
beta = 0.88
cost of capital 10.1%
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.977137
R Square 0.954798
Adjusted R Square0.950277
Standard Error 0.00484
Observations 12
ANOVA
df SS MS F Significance F
Regression 1 0.004949 0.004949 211.2268 4.73E-08
Residual 10 0.000234 2.34E-05
Total 11 0.005183
CoefficientsStandard Error t Stat P-value Lower 95%Upper 95%Lower 95.0%Upper 95.0%
Intercept 0.000702 0.00149 0.471132 0.647656 -0.00262 0.004022 -0.00262 0.004022
X Variable 1 0.878059 0.060416 14.53364 4.73E-08 0.743445 1.012673 0.743445 1.012673
26. FALSE
Failure rates have nothing to do with the cost-of-capital. The cost of capital applies to
expected values, and expected values already take into account the probability of failure.
As an illustration, remember the Boxco and Drugco example from the chapter. Drugco has
a high failure rtate but also hasd a zero beta, so its cost of capital is equal to the riskfree rate.
27. 4.3
Solution 4.3
Higest cost of capital: Gasco
Middle cost of capital: Combco
Lowest cost of capital: Fuelco
If cost of capital is driven by non-diversifiable market risk, then Gasco
will have the highest because fuel consumption is correlated to overall
economic activity. Fuelco will have the lowest cost of capital because
its returns are the least correlated and if we assume its risk is
idiosyncratic, then it can be diversified in a portfolio of other companies.
Combo will have a moderate cost of capital because it combines the
operations of both.
Page 18 of 19
28. 4.4
Solution 4.4
a) Invalid, survivor bias is not an issue because they have the whole portfolio.
Survivor bias typically comes into play in evaluating industry returns.
Common mistakes:
Not addressing survivor bias while discussing reasons for alpha value.
b) Valid. Stale value applies because reported returns are not adjusted frequently
enough. Fix is to put in lags.
Common mistakes:
Misunderstood definition of stale value.
Failure to provide fix.
c) Invalid. Probability of failure already incorporated in returns.
Common mistakes:
Assigning probability to beta
d) Valid. Illiquidity is an issue for venture investments. One would apply the
Pastor Stambaugh Model (PSM) to adjust.
Common mistakes:
Correct answers either named PSM or provided the appropriate formula.
Confuse LP liquidity with portfolio company liquidity.
e) Valid. Model missed Fama and French factors for value and size.
Common mistakes:
Confusing portfolio company size with size of dollar investment.
Page 19 of 19