FBE 423 - Introduction to Venture Capital and Private Equity
Fall 2013 – T/Th
Professor:
Office:
Gordon Phillips
HOH 514
Office Phone: (213) 740-0598 (email contact however is best).
E-mail:
gordon.phillips@marshall.usc.edu
Lecture Class
Tues./Thurs.
2:00 – 3:50 Room: TBD
Office Hours
Tuesdays
Thursdays
4:00 – 5:00
1:00 – 2:00
Introduction and Course Objective
FBE 423 uses a combination of lectures and the case method to introduce you to venture
capital and private equity. This course is time-consuming and challenging. Do not take this course
if you are not ready to work hard, learn and participate in class. The class periods will be a
mixture of lectures and case discussion. Assigned readings must be completed prior to class.
You will learn details on how financiers view investment opportunities - including doing the
financing part of a business plan. We will explore venture capital from a number of perspectives,
beginning with the entrepreneur / issuer, moving to investors in private equity partnerships, how
private equity cashes out with IPOs and finishing with small company midmarket financing.
Learning Objectives
 Global Objectives: The objectives of this course are two-fold:
1.)
2.)

Provide an understanding of the institutions and economics of venture capital.
To develop your ability to contribute to financial decision making.
Detailed Objectives
o Understanding fundamental venture capital terms, concepts, principals, and
theories.
o Understand the securities used in venture capital
o Developing critical thinking and communication skills related to presenting
financial data.
o Working with others to evaluate a financial business plan for a new company.
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Required Materials
1) Metrick and Yasuda, Venture Capital and the Finance of Innovation, Wiley 2010
(VCFI), available at the bookstore but sometimes cheaper on Amazon.
2) Subscription to the Wall Street Journal online.
3) HBS cases - of which you will be responsible for analyzing five (you will have 2
"passes") - available in the course reader at the bookstore or from HBS at
http://www.hbs.edu/research/cases.html
Prerequisites: BUAD 215x or BUAD 306
Course Notes: Copies of lecture slides and other class information will be available through your
Blackboard account.
Grading Summary:
Case writeups (4):
Case presentation (1):
Midterm exam:
Final exam:
Participation:
30% (7.5% each)
20% (different case than the ones written up).
20%
20%
10%
I evaluate participation by the quality of your course comments on our case discussions and will
keep track of participation. You are required to bring your name card to class.
Attendance is not part of the course grade but missing more than 4 classes will result in a loss of
5% of the participation grade and of course missing classes may affect your test performance.
Final grades represent how you perform in the class relative to other students. Historically, the
average grade for this class is about a B. Three items are considered when assigning final grades:
1. Your average weighted score as a percentage of the available points for all assignments (the
points you receive divided by the number of points possible).
2. The overall average percentage score within the class.
3. Your ranking among all students in the class.
CLASS PROCEDURES AND ASSIGNMENTS DETAIL
Case Studies:
Several cases, Dynatronics & Netflix, have two parts. The first part of Dynatronics will be done
individually and turned in online. This first part represents material covered in your introductory
finance course and thus should be review for you. The second part of the Dynatronics case and the
other cases will be done with your case teams.
Note you will have several “bye” weeks. Thus you only do 5 cases (4 with written case memos,
including Dynatronics, and 1 with require a group presentation) from the list below.
Finally, the last “case” also has another different dimension. We will be analyzing a recent private
equity deal from the recent financial crisis using online data.
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Case 1: Yale University Investments Office (An introduction to venture capital and private equity).
Case 2: Dynatronics ( covered in two parts) (IT case, bank and other financing)
Case 3: Metapath Software, 9-899-160 (Venture Capital – IT case).
Case 4: Valhalla Partners, 9-805-033 (Venture Capital – IT case).
Case 5: Genzyme – Geltex (biotechnology case).
Case 6: NetFlix (covered in 2 parts). (famous IPO)
Case 7: Brazos Partners: The Co-Mark LBO
.
The objective in using case studies is to provide examples of companies or individuals that have
faced the topic at hand and to apply theoretical tools to real problems. I will distribute questions
and ideas that you may use as guidelines for analyzing the case.
In addition, for each case except Yale University Investments Office, I will assign study
questions concerning the case. For most of the class period, we will consider these questions and
the material in the case. You are allowed and encouraged, but not required, to meet in your groups
outside of class to discuss and analyze the cases. I expect that these groups will complement class
discussion well. In addition, you may discuss and analyze the cases with anyone you choose.
Each student will submit a two-page memorandum of analysis and recommendations at the
beginning of each case discussion. If you are working in a group, I will accept one memorandum
from the group and count it for all students in the group. If you choose to do this, the group
cannot exceed 4 students. Each memorandum should be typed and double-spaced. Do NOT
write up the memo as answers to the study questions. Write these as if you were writing a
executive memo with your recommendation to the major decision-maker in the case. The two-page
limit is for text only. You may attach up to 4 pages of additional excel exhibits or graphs.
Memoranda will not be accepted after the class has met. Emailed or faxed memoranda will
not be accepted. Memorandum will be given a grade of 7, 8, 9 or 10 with a median grade of
8.5.
In your memoranda, you should argue as if you are in a funding meeting rather than in a
class. The process of arriving at the answer is as important as getting the answer.
Students sometimes ask that instructors’ case analyses be handed out after the class has
discussed the case. I will not do this, because there are usually no absolute right answers. The best
cases are deliberately written to be ambiguous. While there are no right answers, there are good
arguments and bad arguments. Among other things, this course is designed to help you learn to
distinguish between sensible and senseless arguments. Handing out my analyses would reduce the
ambiguity in the cases and partially defeat the purpose of doing cases. Handouts also tend to
circulate which is a problem when I teach the case in another semester. If you are uncomfortable
with ambiguity, do not take this class.
Finally, if your name is on the report as part of the group, it means you participated in the analysis.
You are on the honor code to observe this requirement. If for some reason you are not able to
participate in the case write-up with the group, you can turn in a write-up on that case or a
different case on your own.
The content of the case memorandum is as follows:
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1. Write up your analysis as an executive memo to the major decision maker in the case. Use
an executive memo format with an introductory paragraph containing your executive
summary and recommendation. Do not answer the questions with a 1. 2. 3. Format. The
questions are merely designed to get you start thinking.
2. The case questions are designed to help you streamline the issues to be addressed. If you
believe that these questions do not effectively address the problems in the case, feel free to
go outside the parameters of the questions.
3. It is not necessary to rehash the case situation in your write-up. Do not, however, assume
that I know every single number and detail. Use your best judgment on how much of the
case to include in your write-up.
4. Most importantly, you must take a position regarding the problem in the case and make
specific recommendations on how to solve it. Support your recommendation as succinctly
and as effectively as you can.
5. The case write-up to be a double-spaced two-page (maximum) report with up to an
additional 4 pages of exhibits – for a maximum total of 6 pages. The case write-up should
be double spaced, in 12 point type with 1 inch margins.
*** I do not expect that you “kill the case” – but rather that you show a thoughtful, well-reasoned
approach. I am looking for well-structured arguments – some mistakes are fine and will of course
occur. ***
Case Presentation:
Each team will be assigned to present one case. For each case, one to two teams will present their
case presentation with their analysis to the class. Note case teams will have a maximum of 5
members. The presentation should consist of 20 PowerPoint slides MAXIMUM with 30 minutes
maximum presentation time. These guidelines are strictly enforced. Your grade will be based on
both presentation skills (25%) and also content (75%). Each team member is required to speak
and be responsible for covering a minimum of 4 slides. Please come early to class the day of your
presentation so you can load your slides onto the computer. You are also required to bring a
printed copy of your slides for me.
Non-presenting teams will be asked to bring several slides of their excel spreadsheets and I will
take a volunteer from the team to “share” their solution and methods. I have found that this aids in
focusing the discussion. What is ideal is that the teams bring one slide that states their
assumptions used and 1-2 slides of the application of the solution to the case.
CLASS GUIDELINES
Add/Drop Process
The class will remain open enrollment (R-clearance) for the first three weeks of the semester. If
there is an open seat in an FBE Undergraduate classes, students will be freely able to add the class
using Web Registration throughout the first three weeks of the term. If the class is full, students
will need to continue checking Web Registration to see if a seat becomes available. There are no
wait lists for these courses, and professors cannot add students.
There are no centralized wait lists for Marshall undergraduate courses. Although there are no wait
lists, the Undergraduate Advising Office provides a system by which students can indicate their
interest in enrolling in classes that are currently full in order to track demand and manage
classroom space effectively.
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If you do not attend the first two class sessions or the first class session of the semester for a oncea-week class, I may drop you from the course without any notification. This procedure is so that
students from any wait list can be accommodated and to ensure the class forms teams and works
constructively together. In addition, if you are absent six or more times prior to the last date to
withdraw from the course, I may ask you to withdraw by that date. These policies maintain
professionalism and ensure a system that is fair to all students.
Retention of Graded Coursework:
Final exams and all other graded work which affect the course grade will be retained for 1 year
after the end of the course if the graded work has not been returned to the student; i.e., if I returned
a graded paper to you, it is your responsibility to file it, not mine.
FBE 423 Technology Policy:
Laptop / tablet use is not permitted during academic or professional sessions unless we are working
on a case and then the use is solely for analyzing the case and no internet browsing is permitted.
Use of other personal communication devices, such as cell phones, is considered unprofessional
and is not permitted during academic or professional sessions. ANY e-devices (cell phones, PDAs,
I-Phones, Blackberries, other texting devices, laptops, I-pods) must be completely turned off during
class time. Upon request, you must comply and put your device on the table in off mode and FACE
DOWN. You might also be asked to deposit your devices in a designated area in the classroom.
Videotaping faculty lectures is not permitted, due to copyright infringement regulations.
Audiotaping is permitted in 423. Use of any recorded material is reserved exclusively for USC
Marshall students.
Statement for Students with Disabilities
Any student requesting academic accommodations based on a disability is required to register with
Disability Services and Programs (DSP) each semester. A letter of verification for approved
accommodations can be obtained from DSP. Please be sure the letter is delivered to me (or to TA)
as early in the semester as possible. DSP is located in STU 301 and is open 8:30 a.m.–5:00 p.m.,
Monday through Friday. The phone number for DSP is (213) 740-0776.
Statement on Academic Integrity
USC seeks to maintain an optimal learning environment. General principles of academic honesty
include the concept of respect for the intellectual property of others, the expectation that individual
work will be submitted unless otherwise allowed by an instructor, and the obligations both to
protect one’s own academic work from misuse by others as well as to avoid using another’s work
as one’s own. All students are expected to understand and abide by these principles. SCampus, the
Student Guidebook, contains the Student Conduct Code in Section 11.00, while the recommended
sanctions are located in Appendix A. http://scampus.usc.edu/judicial-affairs-and-communitystandards/
Students will be referred to the Office of Student Judicial Affairs and Community Standards for
further review, should there be any suspicion of academic dishonesty. The Review process can be
found at: http://scampus.usc.edu/judicial-affairs-and-community-standards/ Failure to adhere to
the academic conduct standards set forth by these guidelines and our programs will not be tolerated
by the USC Marshall community and can lead to dismissal.
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Emergency Preparedness/Course Continuity
In case of emergency, and travel to campus is difficult, USC executive leadership will announce an
electronic way for instructors to teach students in their residence halls or homes using a
combination of Blackboard, teleconferencing, and other technologies. Instructors should be
prepared to assign students a "Plan B" project that can be completed at a distance. For additional
information about maintaining your classes in an emergency please access:
http://cst.usc.edu/services/emergencyprep.html
Please activate your course in Blackboard with access to the course syllabus. Whether or not you
use Blackboard regularly, these preparations will be crucial in an emergency. USC's Blackboard
learning management system and support information is available at blackboard.usc.edu.
Incomplete Grades Explanation:
An incomplete (IN) grade may be assigned due to an “emergency” that occurs after the 12th week
of classes. An “emergency” is defined as a serious documented illness, or an unforeseen situation
that is beyond the student’s control, that prevents a student from completing the semester. Prior to
the 12th week, the student still has the option of dropping the class. Arrangements for completing
an IN course should be initiated by the student, and negotiated with the instructor. Class work to
complete the course should be completed within one calendar year from the date the IN was
assigned. The IN mark will be converted to an F grade should the course not be completed.
Assignment Submission Policy:
Assignments must be turned in on the due date/time electronically via Blackboard. Any assignment
turned in late, even if by only a few minutes, will receive a grade deduction (for example, if your
work is a B+ grade, you will be given a C+ grade). If your internet breaks down on the due date,
you must deliver a hard copy at the beginning of class on that day. If you are unable to attend class
on that day, make arrangements for it to be delivered to the classroom or to my box by the start of
class. Late or not, however, you must complete all required assignments to pass this course.
Evaluation of Your Work
You may regard each of your submissions as an “exam” in which you apply what you’ve learned
according to the assignment. I will do my best to make my expectations for the various assignments
clear and to evaluate them as fairly and objectively as I can. If, however, you feel that an error has
occurred in the grading of any assignment, you may, within one week of the date the assignment is
returned to you, write me a memo in which you request that I re-evaluate the assignment. Attach
the original assignment to the memo, and explain fully and carefully why you think the assignment
should be re-graded. Be aware that the re-evaluation process can result in three types of grade
adjustments: positive, none, or negative.
All grades assigned by faculty members are final. Students have the right to seek explanation,
guidance, counsel and reasons for the assignment of a grade. Students may appeal a grade
according to university policy as set forth in SCampus. Faculty may initiate a change in grade if
there is an error in the calculation of a grade. However, a faculty member may not change a
disputed grade outside the formal appeals process. In response to a disputed academic evaluation
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by an instructor, a student is entitled to two levels of appeal after review by the instructor: first to
the chairperson of the department and then to the appropriate dean of the school.
COURSE READINGS/CLASS SESSIONS
Daily Activities
Tasks, Readings, and Due Dates
Week 1
Dates
Week 2
Dates
Week 3
Dates
Week 4
Dates
Week 5
Dates
Week 6
Dates
Week 7
Dates
Week 8
Dates
Week 9
Dates
Introduction / Class Overview
Th: Readings: MY Chapter 1-2
Lecture / Yale Investment office case
Dynatronics case: Part 2 / Lecture on VC
Tu: Read MY, Chapter 3-4
Th: Turn Yale Investment Office case
Tu: Read MY, Chapter 5-6
Th: Turn in Dynatronics case: Part 1,
Tu: Turn in Dynatronics case: Part 2
Lectures on VC
Tu/Th Read MY, Chapter 7-10
Lectures on VC continued
Metapath Case
Valhalla Partners Case / Industry Speaker
Th: Turn in case
Finish lecture on scenario analysis and
simulation / Review Crystal Ball
Th: Do Crystal Ball tutorial
Week 10
Dates
Week 11
Dates
Week 12
Dates
Week 13
Dates
Genzyme-Geltex case
Lecture on Initial Public Offerings
Netflix Case Part 1 / Lecture
/ Lecture on convertible bonds
Netflix Case Part 2
Lecture on private equity and LBOs
Brazos Partners: The Co-Mark LBO /
Tu: Turn in case
Week 14
Dates
Week 15
Dates
FINAL
Date
Lectures on Convertible bonds and warrants
Lecture / Dynatronics case: Part 1
Tu: Turn in case
Midterm
Tu: Turn in case
Tu: Turn in case
Tu: Turn in case
Industry Speaker
Finish lecture, Course Overview.
Tu/Th: Turn in case, date depends on
which case you are assigned to present.
Please consult with the University
Final Exam Schedule
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