Venture Capital
Professor Sandeep Dahiya
Georgetown University
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?)
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.
Angel
Investor
(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.
Mutual
Fund
(3) A VC takes an active role in monitoring and
helping the companies in his portfolio.
(4) A VC’s primary goal is to maximize his financial
return by exiting investments through a sale or
an initial public offering (IPO).
Corporate
Investment
(5) VCs invest in order to fund the internal growth
of companies.
Buyout
Fund
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?
This Course
• No easy answers – Boot Camp (Up to
100+pages 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
We will follow the “Venture Capital
Cycle”
Investing Capital
Fund
raising
Exit
and
returning
capital
6
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!
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?
Investing Capital
• Challenges
– Uncertainty
– Asymmetric
Information
– Nature of Firm’s
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
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
Investing Capital
• Challenges
– Uncertainty
– Asymmetric
Information
– Nature of Firm’s
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
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
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
Grading
• Class Participation 20%
• Home Work/Quiz 30%
• Final Exam 50%