Venture capital quiz #1 Flashcards Quizlet PDF

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Tags related to this set High Tech Industries

Initial Public Offering

Markets

Terms in this set (34)

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What is a Venture Capital

A financial intermediary in which they take the investors capital and invest it directly in portfolio companies

How is a Venture capital

a Venture capital fund is organized as a

firm organized?

limited partnership, with the venture capitalist acting as the general partner (GP) of the fund and the investors acting as the limited partners (LP)

What are angel

Angel investors, often just called angels,

investors?

are similar to VC's in some ways but differ because angels use their own capital.

How do angel investors

Although the total flow of capital is similar,

and VC's differ in what

angels tend to focus on younger

companies they invest in

companies than do VCs and make a larger

and what type of

number of smaller investments.

investments?

What kind of role does a

A VC takes an active role in monitoring

VC take in its portfolio

and helping the companies in its portfolio.

companies?

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Forms of Help from VC's

-A professional board member: VCs can take at least one position on the board of directors, so that they can provide advice and support. -Unofficial recruiters/matchmakers: Young firms often have a difficult time drawing human capital and VCs can mitigate this by making use of their reputation and industry networks.

What is a VC's primary

A VC's primary goal is to maximize his

goal?

financial return by exiting investments through a sale or an initial public offering (IPO).

How does a Strategic

-A strategic investor may be similar to VCs,

investor differ from a

but without the need to exit,

VC?

he will choose and evaluate investments very differently from VCs. A corporation may set up an internal VC division. -They often have strategic objectives other than financial returns and might not expect that capital will be returned within a set time period.

What do VC's Invest in?

-VCs invest in small businesses only if these firms have a realistic chance to grow enough to become a large entity within 5-7 years. -VCs tend to focus on high-tech industries to attain such rapid growth.

Early Stage companies https://quizlet.com/364099889/venture-capital-quiz-1-flash-cards/

Early-stage companies include everything 3/9

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through the initial commercialization of a product Mid Stage Companies

-Companies represent the vast landscape between early-stage and late-stage. -Mid-stage investments make up the majority of VC investment. (more details later in the slide)

Late Stage Companies

-businesses with a proven product and either profits or a clear path toward profitability -should be able to see a plausible exit on the horizon

What are the four main

-Venture Capital

types of private equity

-Mezzanine

investing?

-Buyout -Distress

What is Growth Capital?

a form of late-stage venture capital -Some VCs do this kind of investing (intersection) -But so do other financial intermediaries, including hedge funds, banks, insurance companies, specialty finance corporations, and non-VC private equity funds

What is The form of

Subordinated debt with some additional

Financing?

equity options to buy common stock -This subordinated debt with some equity participation provides another layer of

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debt financing for highly leveraged Buyout Funds

buyout (LBO) transactions. -Buyout is the largest category of Private Equity -Almost always take majority control of portfolio firms. - Buyout as equity investing

What are LBO's

In large buyouts, the investors put up the equity stake (20-40% of the total purchase price) and then borrow the rest from banks, public markets ("junk bonds"), and mezzanine investors.

Middle Market

-Many of these firms may lack the growth

companies

potential to generate much interest from public markets. - The firm is in an older industry with more stable cash flows and limited potential for internal growth.

buy-and-build" growth

a buyout investor acquire a series of

investment strategy

firms to achieve the optimal industrial scale.

Distress Investing

-Distress investors focus on troubled companies. - Many distress investments are buyouts (intersection). -Some PE investors do both leveraged buyouts and distress buyouts, but most investors specialize in either one or the other. (specialization)

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- They intend to gain control of the distressed firm. Then operate and restructure the firm before reselling it to another investor or to the public markets.

Hedge Funds

Limited partnership structure, GP compensation (what similar to PEFs) - HFs tend to invest in public securities. (main difference) -HFs mainly trade in the public securities of distressed firms to make a trading profit by quickly reselling these securities.

4 essential things

1.Investing

Venture Capitalists do

Screen: For every investment made, a VC

during Investing

may screen hundreds of possibilities. - Term Sheet: -A few would get detailed attention with prelim offers with a term sheet - including proposed valuation, control rights for the VC, & type of security. -Due Diligence: VC does broad due diligence to analyze every aspect of the firm - Closing: All parties negotiate the final set of terms to close the deal.

What do Venture

working with the firm - board meetings,

Capitalists do during

recruiting, and regular advice

monitoring

- Monitoring activities do not lend themselves well to quantitative analysis.

Exiting an Investment https://quizlet.com/364099889/venture-capital-quiz-1-flash-cards/

-Exiting: VCs need to return capital to their 6/9

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investors - Exiting needs distinct know-how and skills from investing/monitoring activities - usually consult with investment bankers -IPO: typically sells $50M of new stock with total equity value of at least $200M - Or a sale to a large strategic buyer

What percentage of the

80%

VC Market is being controlled by Independent VC firms?

What are Limited

The limited partners (LPs) of VC funds are

Partners?

mostly institutional investors: such as pension funds, university endowments, and large corporations.

What is committed

the total amount of capital promised over

Capital?

the lifetime

What happens when a

GP has raised the full amount of CC and is

fund is closed?

ready to invest

What happens during

Once the fund has been closed, the

the Investment Period

typical fund will invest in portfolio companies and draw down capital over its first five years.

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Follow on investments

After the investment period is over, the VC can only invest in current portfolio companies.

Committed Capital by LP

-Since 1980, pension plans have provided

type

44% of the committed capital. including those of government entities, private companies, and nonprofit organizations

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effective and fun! the most successful investors with incomparable returns (∵ the earliest LPs since the late 1960s) --Individuals (11%) As compared to other investment classes, the participation by individuals is low. a long horizon of VC investment and liquidity constraint of individual investors -Corporations (9%) - should not be confused with direct corporate investment (CVC)-

Fund of funds

-An FOF is typically organized as a limited partnership. -Main difference: invests in other privateequity funds (not directly in companies) -FOFs appeal to wealthy individuals and small institutions that are not large enough to diversify their portfolios and commitments as traditional LPs.

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Pooling Resources

a group of smaller investors can access to a diversified portfolio of funds with specialized skills of FOFs

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