Venture Capital

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Venture Capital

• Professor Sandeep Dahiya
• Georgetown University

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ONSET Ventures

• How would you compare ONSET to a more traditional
  source of capital such as a Bank? (Would TallyUp
  care if the money came from a bank instead of a
  VC?)

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What is a VC?

• (1) A VC is a financial intermediary, meaning
  that they take the investors capital and invest
  it directly in portfolio companies.
• (2) A VC will only invest in private companies.
  This means that once the investments are made,
  the companies cannot be immediately traded on a
  public exchange.
• (3) A VC takes an active role in monitoring and
  helping the companies in his portfolio.
• (4) A VCs primary goal is to maximize his
  financial return by exiting investments through a
  sale or an initial public offering (IPO).
• (5) VCs invest in order to fund the internal
  growth of companies.

Angel Investor
Mutual Fund
Corporate Investment
Buyout Fund
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ONSET Ventures

• How would you compare ONSET to a more traditional
  source of capital such as a Bank? (Would TallyUp
  care if the money came from a bank instead of a
  VC?)
• Guiding principles of ONSET Do they make sense?
• Which type of entrepreneur is or is not a good
  fit for ONSET? Why?
• Why is ONSET limiting itself to 80-95 million
  range when there is a strong demand from
  investor?

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This Course

• No easy answers Boot Camp (Up to 100pages of
  reading before class!!)
• Main Perspective
• Key aspects and practices of industry
• How these key features are a response to the
  difficult environment
• Constant comparison of the US and European
  experience

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We will follow the Venture Capital Cycle
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Raising Capital

• Highly complex and arcane legal issues
• We shall focus on high level themes
• Perspective of capital suppliers
• Structure of rewards
• Profound effect on behavior is important for
  everyone!

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ONSET Ventures

• The first fund (1984) Do you find anything
  unusual about this fund?
• Highlights from the Offering (Ex1) If you were
  investing in ONSET III what would you focus on?
  Why?

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Investing Capital

• Challenges
• Uncertainty
• Asymmetric Information
• Nature of Firms assets
• Conditions of relevant financial and product
  markets

• Responses by VCs
• Active Screening
• Stage Financing
• Syndication
• Use of Stock options/grants with strict vesting
  requirements
• Contingent control mechanisms Covenants and
  restrictions
• Strategic composition of Board of Directors

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ONSET Ventures

• Revisit the guiding principles of ONSET
• How are the applied/not applied to Tally Up
  investment?
• Analyze Tally Up using the challenges/responses
  framework we just saw

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Investing Capital

• Challenges
• Uncertainty
• Asymmetric Information
• Nature of Firms assets
• Conditions of relevant financial and product
  markets

• Responses by VCs
• Active Screening
• Stage Financing
• Syndication
• Use of Stock options/grants with strict vesting
  requirements
• Contingent control mechanisms Covenants and
  restrictions
• Strategic composition of Board of Directors

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Exiting Investments

• Failure
• Disappear
• Zombie Companies Living Dead
• Success Liquidity Event
• Critical yet controversial
• Can cause severe heartburns for an entrepreneur
• IPO
• Sale to another company

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Why Take this Course?

• There are few VC related employement
  opportunities?
• Broader perspectives
• Would be entrepreneurs know the other side
• Would be investors know the incentives and
  organizational issues
• Would be professionals (Bankers) know the
  dynamics

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Grading

• Class Participation 20
• Home Work/Quiz 30
• Final Exam 50