Оглавление
Mahendra Ramsinghani. The Business of Venture Capital
Table of Contents
List of Tables
List of Illustrations
Guide
Pages
SECOND EDITION
FIRST EDITION
THE BUSINESS OF VENTURE CAPITAL. THE ART OF RAISING A FUND, STRUCTURING INVESTMENTS, PORTFOLIO MANAGEMENT, AND EXITS
Foreword
Preface. WHY SHOULD YOU READ THIS BOOK?
AND WHO AM I TO WRITE THIS BOOK?
WHAT SHOULD YOU KNOW ABOUT THIS BUSINESS OF VENTURE CAPITAL?
NOTES
Acknowledgments
Part One The Making of a VC
1 The Business of Cash and Carry. INTRODUCTION: AN OPERATIONAL PRIMER
ROLES, RESPONSIBILITIES, AND COMPENSATION
Top Takeaways
NOTE
2 Why Choose a Career in VC
CREATIVE CONSTRUCTION
INTELLECTUAL STIMULATION
MENTOR CAPITALISTS
ASYMMETRICAL REWARDS
NOTES
3 Attributes of Successful VCs
STRONG AWARENESS OF TECH TRENDS
ABILITY TO PICK WINNERS
OPTIMISM, PATIENCE, AND STABILITY
ABILITY TO LEARN AND GROW
AN INHERENT BIAS FOR ACTION
4 Welcome to the Land of Ad-Venture
ROLES AND RESPONSIBILITIES OF A VC
A Typical Venture Capitalist's (VC's) Responsibilities
INTERNSHIPS AND CAMPUS RECRUITMENT
Interviewing for Your VC Position
Examples of questions you can ask the venture firm:
Mind Your Language … and Your Handwriting
THE FELLOWSHIP OF INVESTORS
Junior Partner, Hungry Partner
ADJACENT ENTRY POINTS
From Entrepreneur to VC
GETTING LUCKY — WHEN OPPORTUNITY MEETS A PREPARED MIND
NOTES
5 Developing Your Investment Career
BUILDING YOUR STRENGTHS
How to Hit the Ground Running
Moon Shots in Emerging Technology — Bets in Quantum Computing
What Makes a Good Investor? Comfort Ambiguity, Uncertainty, and Change
BEWARE: BIAS AND PSYCHOLOGY
What Makes a Good Investor? A Guarded Optimist
NOTES
6 A Business Where Enemies Accumulate. CHALLENGES OF A VC CAREER
Emotionally and Intellectually Demanding, a Business of Thousand Nos
High Level of Churn
Performance of Partner
Performance of Funds
The Business of Home Runs
Market Forces
No Payday
Ego, Greed, and Intellectual Dishonesty
VC CAREER AS A CALLING
Being Reasonably Nice Can Be a Competitive Advantage
NOTES
7 Generational Transfer and Succession
MANAGING SUCCESSION - NOW MY WORK IS DONE
Generational Transfer at Sequoia: Letter to LPs
We'll Turn the Lights Off When We Leave
THE ART OF LETTING GO
NOTE
Part Two Raising Your Venture Fund
8 LP Universe
PENSION FUNDS
ENDOWMENTS AND FOUNDATIONS. University Endowments
Foundations
SOVEREIGN WEALTH FUNDS
FINANCE AND INSURANCE COMPANIES
That's One Happy Family…
FAMILY OFFICES AND HIGH-NET-WORTH INDIVIDUALS
CORPORATE OPERATING FUNDS
COMPARISON OF LIMITED PARTNERSHIPS
NOTES
9 LPs of Choice: Fund of Funds
ADVANTAGES OF A FUND OF FUNDS
Fund of Funds: Bridging Institutions and Venture Firms
FUND OF FUNDS INVESTMENT STRATEGIES
10 How LPs Conduct Fund Due Diligence
PRIMARY AND SECONDARY INVESTMENT CRITERIA
FUND SELECTION CRITERIA
NOTES
11 Defining Your Fund's Investment Strategy
MARKET OPPORTUNITY
COMPETITIVE ADVANTAGES
The Top-Down Approach to Building Your Thesis: Roadmap Investing
Investment Thesis: Union Square Ventures Describes the Power of Network Effects
CASE STUDY: SOLO GP GOES INSTITUTIONAL
Lessons from a Solo VC
CASE STUDY: OVERSUBSCRIBED FIRST FUND — HOW A $30M FUND ENDED UP WITH OVER $100M IN COMMITMENTS
Following the Power-Law of Returns: Success Begets Success
PUTTING IT TO WORK
CASE STUDY: STARTING ALL OVER…
CASE STUDY: WHO HAS TIME FOR THIS? I DON'T NEED NO LPS ANYMORE…
NOTES
12 Investment Team Diligence
EVALUATING FUND MANAGERS
TEAM DYNAMICS: STABILITY, SKILL SET, AND ALIGNMENT
Stability and Alignment: Will the Family Stay Together?
Rock Star Partner Comes on Board
Identifying Complementary Skill Sets
The Importance of Soft Skills
Generalists versus Specialists
VC is a Relationship Business
NOTES
13 Fund Size and Portfolio Construction
Smaller Is Better
Key Takeaways
NOTES
14 Performance Analysis
INDIVIDUAL PERFORMANCE AND ATTRIBUTION
The Alphabet Soup of Performance: IRR, C-on-C, TVPI, DPI, or PME?
PUBLIC MARKET EQUIVALENTS
Public versus Private: Why PME Matters
FUND-LEVEL PERFORMANCE
MEASURING REALIZED RETURNS
SELF-SELECTION BIAS: GIANTS AMONG MIDGETS
NOTES
15 Terms of Fund Investment: The Limited Partnership Agreement
KEY TERMS
FUND FINANCIAL TERMS
Management Fees
Financial Commitment of the General Partners
It's Not Always About Your Fees
Carried Interests and Performance-Based Triggers
Example: Carry Calculation: Net Profits versus Gross Profits
Waterfall
Clawbacks
FUND GOVERNANCE TERMS
Investment Limitations
Conflicts of Interest
“Key Person” Provisions
No-Fault Divorce
Indemnification/Standard of Care
Confidentiality
WHAT INSTITUTIONAL LPs SEEK
OFFERING SWEETENERS TO ATTRACT LPs: A DOUBLE-EDGED SWORD
MOST NEGOTIATED LP–GP TERMS
WHY LPs TERMINATE EXISTING RELATIONSHIPS
NOTES
16 The Venture Firm's Ethos, Culture, and Values
ETHOS
CULTURE AND VALUES
Defining Your Ethos: The Sequoia Way
Core Values — New Schools Venture Fund
Diversity
Cosplay in a Café — Sequoia Hires a Partner
The Archetype of the Firm: Its Operating System
The Firm as a Group of Cowboys
The Firm as an Agency
Setting the Services Standard
The Firm as a Community Platform
GOVERNANCE OF THE FIRM
The Firm's Operational Guidelines
Administration and Operations: The Back Office
NOTES
17 Raising Your First Fund
FIRST STEPS
TARGETING LPs
MARKET TIMING
FIT WITHIN THE LP's CURRENT PORTFOLIO
NOTES
18 The Fundraising Roadshow
OVERVIEW: THE FUNDRAISING PROCESS
GETTING IN THE LP DOOR
LP Pitch Guidelines: Don't Fall Asleep or Appear Bored
Do You Need Placement Agents?
Let Me Help You Help Yourself
LOCKING YOUR ANCHOR INVESTOR
Snagging That Lead Investor: Lessons from Dick Kramlich, Founder of New Enterprise Associates (NEA)
SELL, SELL, SELL
Maybe You Are Just Not Ready for Venture Capital …
SHOULD YOU WAREHOUSE PORTFOLIO COMPANIES?
YOUR BIGGEST FUNDRAISING RISKS, AND HOW TO MANAGE THEM
NOTES
19 Why LPs Seek First-Time Funds
CREATIVITY, HUNGER, AND PERFORMANCE
RANKING EMERGING MANAGERS
A FUTURES OPTION
NOTES
20 Sourcing Investment Opportunities. OVERVIEW: THE SOURCING PROCESS
PROACTIVE SOURCING
Catch ’em Young — Dorm Room Fund
NETWORK-BASED SOURCING
When Opportunity Meets the Prepared Mind
Sourcing Advantage: Treat Every Entrepreneur with Respect
ACCELERATORS
Techstars Accelerator — from a Concept to a Global Network in a Decade
ANGEL NETWORKS
COMMERCIALIZING UNIVERSITY RESEARCH
Sourcing Advantage: How to Monetize University Startups
CORPORATE RESEARCH
TRADE CONFERENCES
INVESTOR PITCH SESSIONS
THE AGONY OF MISSED OPPORTUNITIES
First Round Capital Loses Some and Gains Some: Twitter and Square
NOTES
Part Three Building Your Portfolio
21 Due Diligence Cheat Sheet
NOTE
22 Diligence
THE CHECKLIST MANIFESTO
Importance of Checklists: Specialized Ability and Group Collaboration
TAILORING DILIGENCE BY STAGE
Elements of Enduring Companies: Sequoia Capital's View
CHECKLISTS — USEFUL BUT SELDOM USED
The Socratic Method of Conducting Due Diligence
NOTES
23 Management Team Diligence: Assessing the Intangible. OVERVIEW
VALUES AND INTEGRITY
This Is How We Change the World
CAN THE COMPANY ATTRACT GIANTS?
Andreessen Horowitz on the Art of CEO Selection
Direction: Does the CEO know what to do?
Execution: Can the CEO get the company to do what he or she knows?
Results: Did the CEO achieve the desired results against an appropriate set of objectives?
CAN THE CEO EXECUTE? LAMBS VERSUS CHEETAHS
SERIAL ENTREPRENEURS VERSUS FIRST-TIME ENTREPRENEURS
Leonardo Da Vinci Pitches the Ruler of Milan, Circa 1480
BIAS AT WORK: SEEKING ATTRACTIVE MEN
Betting on the Last One — The First-Mover Disadvantage
BACKGROUND CHECKS: FALSE MBAS AND CRIMINAL HISTORIES
But You Are Eight Months Pregnant…
Would You Like Some Fries with Your Coke?
But Nobody Asked Me If I Was a Criminal
VARIOUS APPROACHES TO MANAGEMENT DILIGENCE
Top Three Reasons Given by Venture Capitalists for Bad Hiring Decisions
Fast Electric Cars, Rocket Ships, and Mars Colonization — Would You Invest in This Pot-Smoking Entrepreneur?
NOTES
24 Market, Product, and Business Model Analysis
EVALUATING THE PRODUCT
Ethics and Diligence: Avoid This Move
ASSESSING THE BUSINESS MODEL
Pricing Power
What Business Model? We Are Just a Bunch of Kids Farting Around …
NOTES
25 Terms and Conditions Apply: The Art of Structuring Investment Transactions
THE SPIRIT OF THE TERM SHEET
NEGOTIATION STRESS POINTS
26 Structure of the Term Sheet. OVERVIEW
CONVERTIBLE LOANS AND SAFE
Just Don't F— It Up
KEEPING TERM SHEETS SIMPLE
SAMPLE SUMMARY TERM SHEET
NOTES
27 Buy Low, Sell High: Equity Preferred Stock
VALUATION METHODS AND OTHER VOODOO ARTS
THE DRIVERS OF VALUATION
COMPARABLE VALUATIONS OF SIMILAR INVESTMENTS (COMPS)
Valuation in 13 Short Tweets — Elizabeth Yin of Hustle Fund
Options Trading
DISCOUNTED CASH FLOW METHOD
How to Value Intel: Lessons from Arthur Rock
LIQUIDATION PREFERENCE
ANTIDILUTION PROTECTIONS
Dividends
Pay-to-Play
Preemptive Rights/Right of First Refusal
The Contentious Challenge — Right of First Refusal, Super Pro-Rata, and Future Financings
Options and Warrants
Springing Warrants
GOVERNANCE AND CONTROL: PROTECTING YOUR SECURITIES
EXIT-RELATED PROVISIONS
Redemption
Drag-Along Rights/Tagalong Rights and Co-Sale Agreements
Conversion to Common at Public Offering, Registration Rights, and Piggyback Rights
OTHER IMPORTANT TERMS
Employment-Related Terms
SYNDICATING INVESTMENTS
Those Clever Financiers …
MILESTONE-BASED FINANCING: RISK MITIGATION OR DISTRACTION
Key Takeaways
NOTES
28 The Closing Process: After the Term Sheet
Part Four The Art of Value Creation
29 Serving on Boards
OVERVIEW
LEGAL REQUIREMENTS OF BOARD SERVICE. Fiduciary Duties
Confidentiality and Disclosure
SELF-EDUCATION: PREPARING FOR YOUR BOARD ROLE
ROLES AND RESPONSIBILITIES OF A BOARD MEMBER
NOTES
30 Board Culture and Orientation
On-Boarding a New Member
TOWARD A BETTER BOARD CULTURE
Establish Trust with the CEO
Build a Cadence of Healthy Communication
Ensure Alignment of Interests
Avoid Complacency
ON-BOARDING CHECKLIST
NOTES
31 Let Me Know How I Can Be Helpful: Value Creation
On Value Creation
GOOD GOVERNANCE AS THE FIRST STEP TOWARD VALUE CREATION
Board Best Practices
THE CEO'S PERSPECTIVE ON VENTURE CAPITALIST VALUE ADD
Hands Off
Effective Board Meetings, the Sequoia Capital Way
Industry Expertise as a Value Driver
Customer Relationships as a Value Driver
Work Product as a Value Driver
Business Strategy as a Value Driver
NOTES
32 Challenges in the Boardroom
CEO TRANSITIONS
BEST PRACTICES IN MANAGING CEO TRANSITIONS
PERFORMANCE CHALLENGES
Cash Flow–Related Matters
Follow-on Funding Challenges
ALIGNMENT ON EXIT
Performance versus Governance: The Challenge of Rock Star CEOs
Fraud
BOARD EVALUATION
NOTES
Part Five Exits: Liquidity Events and Champagne
33 Exit Strategies
EXIT OPTIONS
PRECONDITIONS FOR AN EXIT
Alignment of Interests of Stakeholders
Aligning the Board and the Management Team
Alignment of Exit Value: What's a Few Hundred Million, Anyway?
The Greatest Teacher, Failure Is
NOTES
34 Acquisitions. THE PRIMARY PATH TO AN EXIT
A Big Fish Swallows a Small Fish
Three Hidden Motivators of Acquisitions
PUTTING THE COMPANY UP FOR SALE
Step 1: Test the Market Conditions
Step 2: Formalize the Process — Hire an Investment Banker
Step 3: Do Your Due Diligence
Step 4: Negotiate/Structure the Transaction
Step 5: Approvals and Closing
DEAL KILLERS
NOTES
35 Initial Public Offering
THE IPO PROCESS: THE LONG AND WINDING ROAD
STEPS TO AN IPO
Hire an Underwriter: The “Bake-Off”
File the S-1/Prospectus and Avoid the Media
The Road Show: Which City Are We In, Again?
Great Demand, or Put It on Ice?
Not an Endgame but a Financing Event
Timing the Market
IPO UNDERPRICING AND DUTCH AUCTIONS
Information Asymmetry: The Bigger Fool Theory of IPO Underpricing
The Dutch Auction: Eliminate the Pop and Those Middlemen
POST IPO: SHOULD VCs STAY ENGAGED?
NOTES
36 Secondary Sales
NOTES
Index
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