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HU Credits:
3
Degree/Cycle:
2nd degree (Master)
Responsible Department:
Business Administration
Semester:
2nd Semester
Teaching Languages:
English
Campus:
Mt. Scopus
Course/Module Coordinator:
Mr. Shalom (Saul) Orbach
Coordinator Office Hours:
Before and after class, or by appointment
Teaching Staff:
Mr. saul orbach
Course/Module description:
This course will provide students with a deep understanding of the venture finance industry and financing types along the funding continuum from angel investing, venture capital, and private equity funds. Although our model will be the US market where the venture finance industry originated, we will also focus on, and highlight, the idiosyncrasies of the Israeli market. We will examine each type of funding from various perspectives including the entrepreneur, fund manager, and limited partner (to the extent there are) so that the student acquires a 360 degree understanding of each. This view will include fund structure and fund-raising, the relationship between general and limited partners, operational issues, evaluating opportunities and investment decisions, post investment activities and value creation, and value realization (exit). Particular attention will be paid to understanding valuation issues, cap tables and term sheets, the foundation of the actual investment.
From the entrepreneur’s perspective, you will receive insights into the VCs perspective that will help guide you in more successfully understanding the fundraising process and thus help you to more successfully raise capital. We will also examine the nature of the relationship between investors and entrepreneurs to better understand how to ensure the proper and successful alignment of interests.
Integrated into the venture material are several essential and fundamental legal topics including, founder’s agreements, fund structure, term sheets, valuation, cap tables, and due diligence.
To achieve these goals, the course will combine lectures, case studies, a project, and several highly regarded guest lecturers from the investment community who will share their vast experience with the students, and give the students the opportunity to network with these industry luminaries. The case studies will illustrate the application of the ideas learned in the real world. By doing the exercises, you will gain practical experience dealing with real issues related to market research.
The group will be divided and work in teams over the course of our time together. The term project will provide each team the opportunity to simulate the funding process as a VC investment manager through by evaluating live startup funding pitches.
Students are expected to attend class regularly and participate in class discussions as this will be a key factor in the final grade.
Course/Module aims:
• To identify and characterize the different types of investments on the funding continuum
• To understand venture capital, including being able to:
o evaluate investments and be familiar with the decision process
o value an early stage company for investment purposes
o read, understand and differentiate between the economic and control aspects of Term Sheets
o automatically identify the characteristics of various funding rounds
o describe how VCs add value post investment
o evaluate the why, when, and how of exiting a company
• To know with the fundamental legal aspects of venture capital investments
Learning outcomes - On successful completion of this module, students should be able to:
• To identify and characterize the different types of investments on the funding continuum
• To understand venture capital, including being able to:
o evaluate investments and be familiar with the decision process
o value an early stage company for investment purposes
o read, understand and differentiate between the economic and control aspects of Term Sheets
o automatically identify the characteristics of various funding rounds
o describe how VCs add value post investment
o evaluate the why, when, and how of exiting a company
• To know with the fundamental legal aspects of venture capital investments
Attendance requirements(%):
80%
Teaching arrangement and method of instruction:
Lectures, Presentations, Assignments, case studies, guest lecturers
Course/Module Content:
Session 1: Venture Finance – Overview and history
Venture Finance (or generically Private Equity):
• Definition
• History
The Funding Continuum:
• Introduction
Comparison of funding types and objectives:
• Seed stage capital-Self Funding, Family & Friend
• Incubators/Accelerators
• Angel investing (Angel)
• Venture Capital (VC)
• Corporate Venture Capital (CVC)
• Private Equity (PE), Growth and Buy Out
Session 2: The 5 Roles of a VC Overview:
Funding: Fund Creation and Fund Raising
• All about Limited Partners
Sourcing: Creating Deal Flow
• Outbound and Inbound
Investing: Evaluating and Investing in companies
• Screening, Due Diligence, Term Sheets
Supporting: Post-Investment Value Creation
• The VC Value Add
Exiting: Value Realization
• Identifying Options, Executing
The VC process and timeline
Case Assignment: How much and From Whom? An exercise in seed stage funding.
• We will examine the issues involved and methods for developing a capitalization model to reflect ownership, dilution, and pre and post money values. (due in 2 weeks)
Session 3: Funding and Sourcing
Funding
• Fund Structure
• Limited Partners
Sourcing Deals
• Creating Deal Flow
• Internal vs External
Session 4: Investing: Evaluating companies
• VC selection criteria
• The VC process and timeline
Session 5: Investing in equity: Valuation and Cap Tables
Valuation
• Understanding Valuation
• Methods to determine valuation
• Understanding Dilution
• Pre and post money valuation initially, and in future fund-raising rounds
Session 6: Cap Tables
• Definition
• Working with a Cap Table
• Understanding shares
• Option pools
• Representing rounds on the cap table
• Interpreting Cap Tables
Due Diligence, Term Sheets and Stock Transfer Agreements
Session 7: Due Diligence (DD)
• Purpose - Importance
• Various types of DD
• Timeline
Session 8: Term Sheets
• Economic Terms
• Management & Control
• Protection
• Exit & Liquidity
Stock Transfer Agreements
• Finalizing the Investment Transaction
• Overview of various agreements
• Mapping to Term Sheet
Case Assignment: Lovepop
We will examine the challenges of early-stage fundraising, plus delve into the terms, offerings, and operations of startup accelerators. (due in 2 weeks)
Funding Rounds, and Post investment Value Creation
Session 9: Funding Rounds
• Understanding a company’s need for capital
• How much, When, and Why
• Planning your funding future
• Understanding the characteristics of each round
• Partnering with other funds
Session 10: Post investment Value Creation
• Ways VCs help companies grow
• Resources available to increase portfolio value
Case Assignment: Pear VC
We will examine the perspective of an institutional venture capital firm regarding: 1) Prioritizing key investment criteria when evaluating early-stage entrepreneurs; 2) Understanding how to create and sustain strong deal flow; and, 3) Evaluating the economics of a venture capital fund. (due in 2 weeks)
Exiting, Late Stage investment, Private Equity
Session 11: Exiting, Late Stage investment
• Knowing when to Sell
• Types of Exits: IPO, Acquisition, LBO, etc.
• Understanding mechanics and pros and cons of each
• Working with I-Bankers
Private Equity
• Understanding Private Equity
Session 12: VCs and Entrepreneurs
• The Entrepreneur’s Perspective
• Aligning Interests
• Characteristics of a good fit or bad fit
• The Relationship and Responsibilities
Session 13: Summary, Closing Remarks, and
Final Test Prep.
Required Reading:
Weekly reading assignment as designated on the course Moodle page.
Additionally:
1, Startup Valuation
2, Cap Tables
3, Term Sheets
4, Convertible Debt.
Each pamphlet is available for purchase ($3,99 each) online in e-book format at www.1x1Media.com
Additional Reading Material:
Grading Scheme :
Written / Oral / Practical Exam 25 %
Essay / Project / Final Assignment / Home Exam / Referat 20 %
Presentation / Poster Presentation / Lecture/ Seminar / Pro-seminar / Research proposal 20 %
Active Participation / Team Assignment 5 %
Submission assignments during the semester: Exercises / Essays / Audits / Reports / Forum / Simulation / others 10 %
Clinical Work / Lab Work / Practical Work / Workshops 15 %
Personal Guide / Tutor / Team Evaluation 5 %
Additional information:
Final Exam 25%
You will be asked to look at a company that has been presented with two or three different funding options. Your job will be to analyze these funding options from both the Investor’s and the Entrepreneur’s perspectives while considering different conditions that will be set out in the test. This test is designed for you to demonstrate your grasp of the fundamental investment material we covered on the one hand, and your analytical abilities on the other.
Funding Evaluation Project 20%
The term project will be the culmination of the semester’s learning objectives. The students will be divided into teams from the beginning of the semester and work on the project throughout the semester. Each team will be required to simulate a VC evaluating a request for investment.
Venture Fund Project 20%
Each team will create a new venture fund presentation to fund investors.
Case assignments 15%
Read, analyze, and respond to the questions for each case. Remember, your outcome choice is less important than the rationale you develop in reaching that choice. Put emphasis and focus on rationale!
Each Team will purchase a case study package which will be available for purchase from the Harvard Business Review (hbr.org) web site. (Cost: TBD)
3 Quizzes 10%
There will be up to 3 quizzes based on materials assigned and classroom discussion. Each quiz will be 10-15 minutes long and will be administered at the beginning of the session.
Classroom participation 5%
Classroom participation will be measured by their participation and involvement in the class. This is not a contest but a measure of your engagement in the classroom discussion.
Effective participation includes: (1) providing insightful questions and comments on concepts from lectures and readings; (2) sharing your experience or point of view with the class; (3) building on points raised by others; (4) clarifying issues; and (5) relating ongoing topics to previous class discussions. Please keep in mind that I will base your score on the quality of your comments and not their quantity.
Teamwork Evaluation 5%
Each member will evaluate themselves and their teammate’s contribution to the quality and quantity of their teamwork.
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