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The new edition of the definitive guide for venture capital practitioners—covers the entire process of venture firm formation & management, fund-raising, portfolio construction, value creation, and exit strategies

Since its initial publication, The Business of Venture Capital has been hailed as the definitive, most comprehensive book on the subject. Now in its third edition, this market-leading text explains the multiple facets of the business of venture capital, from raising venture funds, to structuring investments, to generating consistent returns, to evaluating exit strategies. Author and VC Mahendra Ramsinghani who has invested in startups and venture funds for over a decade, offers best practices from experts on the front lines of this business.

This fully-updated edition includes fresh perspectives on the Softbank effect, career paths for young professionals, case studies and cultural disasters, investment models, epic failures, and more. Readers are guided through each stage of the VC process, supported by a companion website containing tools such as the LP-GP Fund Due Diligence Checklist, the Investment Due Diligence Checklist, an Investment Summary format, and links to white papers and other industry guidelines. Designed for experienced practitioners, angels, devils, and novices alike, this valuable resource:

  • Identifies the key attributes of a VC professional and the arc of an investor’s career
  • Covers the art of raising a venture fund, identifying anchor investors, fund due diligence, negotiating fund investment terms with limited partners, and more
  • Examines the distinct aspects of portfolio construction and value creation
  • Balances technical analyses and real-world insights
  • Features interviews, personal stories, anecdotes, and wisdom from leading venture capitalists

The Business of Venture Capital, Third Edition is a must-read book for anyone seeking to raise a venture fund or pursue a career in venture capital, as well as practicing venture capitalists, angel investors or devils alike, limited partners, attorneys, start-up entrepreneurs, and MBA students. 

Table of Contents

  1. Cover
  2. Title Page
  3. Copyright
  4. Dedication
  5. Foreword
  6. Preface
    1. WHY SHOULD YOU READ THIS BOOK?
    2. AND WHO AM I TO WRITE THIS BOOK?
    3. WHAT SHOULD YOU KNOW ABOUT THIS BUSINESS OF VENTURE CAPITAL?
    4. NOTES
  7. Acknowledgments
  8. Part One: The Making of a VC
    1. 1 The Business of Cash and Carry
    2. INTRODUCTION: AN OPERATIONAL PRIMER
    3. ROLES, RESPONSIBILITIES, AND COMPENSATION
    4. NOTE
    5. 2 Why Choose a Career in VC
    6. CREATIVE CONSTRUCTION
    7. INTELLECTUAL STIMULATION
    8. MENTOR CAPITALISTS
    9. ASYMMETRICAL REWARDS
    10. NOTES
    11. 3 Attributes of Successful VCs
    12. STRONG AWARENESS OF TECH TRENDS
    13. ABILITY TO PICK WINNERS
    14. OPTIMISM, PATIENCE, AND STABILITY
    15. ABILITY TO LEARN AND GROW
    16. AN INHERENT BIAS FOR ACTION
    17. 4 Welcome to the Land of Ad-Venture
    18. ROLES AND RESPONSIBILITIES OF A VC
    19. INTERNSHIPS AND CAMPUS RECRUITMENT
    20. THE FELLOWSHIP OF INVESTORS
    21. ADJACENT ENTRY POINTS
    22. GETTING LUCKY — WHEN OPPORTUNITY MEETS A PREPARED MIND
    23. NOTES
    24. 5 Developing Your Investment Career
    25. BUILDING YOUR STRENGTHS
    26. BEWARE: BIAS AND PSYCHOLOGY
    27. NOTES
    28. 6 A Business Where Enemies Accumulate
    29. CHALLENGES OF A VC CAREER
    30. VC CAREER AS A CALLING
    31. NOTES
    32. 7 Generational Transfer and Succession
    33. MANAGING SUCCESSION - NOW MY WORK IS DONE
    34. THE ART OF LETTING GO
    35. NOTE
  9. Part Two: Raising Your Venture Fund
    1. 8 LP Universe
    2. PENSION FUNDS
    3. ENDOWMENTS AND FOUNDATIONS
    4. SOVEREIGN WEALTH FUNDS
    5. FINANCE AND INSURANCE COMPANIES
    6. FAMILY OFFICES AND HIGH-NET-WORTH INDIVIDUALS
    7. CORPORATE OPERATING FUNDS
    8. COMPARISON OF LIMITED PARTNERSHIPS
    9. NOTES
    10. 9 LPs of Choice: Fund of Funds
    11. ADVANTAGES OF A FUND OF FUNDS
    12. FUND OF FUNDS INVESTMENT STRATEGIES
    13. 10 How LPs Conduct Fund Due Diligence
    14. PRIMARY AND SECONDARY INVESTMENT CRITERIA
    15. FUND SELECTION CRITERIA
    16. NOTES
    17. 11 Defining Your Fund's Investment Strategy
    18. MARKET OPPORTUNITY
    19. COMPETITIVE ADVANTAGES
    20. CASE STUDY: SOLO GP GOES INSTITUTIONAL
    21. CASE STUDY: OVERSUBSCRIBED FIRST FUND — HOW A $30M FUND ENDED UP WITH OVER $100M IN COMMITMENTS
    22. CASE STUDY: STARTING ALL OVER…
    23. CASE STUDY: WHO HAS TIME FOR THIS? I DON'T NEED NO LPS ANYMORE…
    24. NOTES
    25. 12 Investment Team Diligence
    26. EVALUATING FUND MANAGERS
    27. TEAM DYNAMICS: STABILITY, SKILL SET, AND ALIGNMENT
    28. NOTES
    29. 13 Fund Size and Portfolio Construction
    30. NOTES
    31. 14 Performance Analysis
    32. INDIVIDUAL PERFORMANCE AND ATTRIBUTION
    33. PUBLIC MARKET EQUIVALENTS
    34. FUND-LEVEL PERFORMANCE
    35. MEASURING REALIZED RETURNS
    36. SELF-SELECTION BIAS: GIANTS AMONG MIDGETS
    37. NOTES
    38. 15 Terms of Fund Investment
    39. KEY TERMS
    40. FUND FINANCIAL TERMS
    41. FUND GOVERNANCE TERMS
    42. WHAT INSTITUTIONAL LPs SEEK
    43. OFFERING SWEETENERS TO ATTRACT LPs: A DOUBLE-EDGED SWORD
    44. MOST NEGOTIATED LP–GP TERMS
    45. WHY LPs TERMINATE EXISTING RELATIONSHIPS
    46. NOTES
    47. 16 The Venture Firm's Ethos, Culture, and Values
    48. ETHOS
    49. CULTURE AND VALUES
    50. GOVERNANCE OF THE FIRM
    51. NOTES
    52. 17 Raising Your First Fund
    53. FIRST STEPS
    54. TARGETING LPs
    55. MARKET TIMING
    56. FIT WITHIN THE LP's CURRENT PORTFOLIO
    57. NOTES
    58. 18 The Fundraising Roadshow
    59. OVERVIEW: THE FUNDRAISING PROCESS
    60. GETTING IN THE LP DOOR
    61. LOCKING YOUR ANCHOR INVESTOR
    62. SELL, SELL, SELL
    63. SHOULD YOU WAREHOUSE PORTFOLIO COMPANIES?
    64. YOUR BIGGEST FUNDRAISING RISKS, AND HOW TO MANAGE THEM
    65. NOTES
    66. 19 Why LPs Seek First-Time Funds
    67. CREATIVITY, HUNGER, AND PERFORMANCE
    68. RANKING EMERGING MANAGERS
    69. A FUTURES OPTION
    70. NOTES
    71. 20 Sourcing Investment Opportunities
    72. OVERVIEW: THE SOURCING PROCESS
    73. PROACTIVE SOURCING
    74. NETWORK-BASED SOURCING
    75. ACCELERATORS
    76. ANGEL NETWORKS
    77. COMMERCIALIZING UNIVERSITY RESEARCH
    78. CORPORATE RESEARCH
    79. TRADE CONFERENCES
    80. INVESTOR PITCH SESSIONS
    81. THE AGONY OF MISSED OPPORTUNITIES
    82. NOTES
  10. Part Three: Building Your Portfolio
    1. 21 Due Diligence Cheat Sheet
    2. NOTE
    3. 22 Diligence
    4. THE CHECKLIST MANIFESTO
    5. TAILORING DILIGENCE BY STAGE
    6. CHECKLISTS — USEFUL BUT SELDOM USED
    7. NOTES
    8. 23 Management Team Diligence: Assessing the Intangible
    9. OVERVIEW
    10. VALUES AND INTEGRITY
    11. CAN THE COMPANY ATTRACT GIANTS?
    12. CAN THE CEO EXECUTE? LAMBS VERSUS CHEETAHS
    13. SERIAL ENTREPRENEURS VERSUS FIRST-TIME ENTREPRENEURS
    14. BIAS AT WORK: SEEKING ATTRACTIVE MEN
    15. BACKGROUND CHECKS: FALSE MBAS AND CRIMINAL HISTORIES
    16. VARIOUS APPROACHES TO MANAGEMENT DILIGENCE
    17. NOTES
    18. 24 Market, Product, and Business Model Analysis
    19. EVALUATING THE PRODUCT
    20. ASSESSING THE BUSINESS MODEL
    21. NOTES
    22. 25 Terms and Conditions Apply
    23. THE SPIRIT OF THE TERM SHEET
    24. NEGOTIATION STRESS POINTS
    25. 26 Structure of the Term Sheet
    26. OVERVIEW
    27. CONVERTIBLE LOANS AND SAFE
    28. KEEPING TERM SHEETS SIMPLE
    29. SAMPLE SUMMARY TERM SHEET
    30. NOTES
    31. 27 Buy Low, Sell High
    32. VALUATION METHODS AND OTHER VOODOO ARTS
    33. THE DRIVERS OF VALUATION
    34. COMPARABLE VALUATIONS OF SIMILAR INVESTMENTS (COMPS)
    35. DISCOUNTED CASH FLOW METHOD
    36. LIQUIDATION PREFERENCE
    37. ANTIDILUTION PROTECTIONS
    38. GOVERNANCE AND CONTROL: PROTECTING YOUR SECURITIES
    39. EXIT-RELATED PROVISIONS
    40. OTHER IMPORTANT TERMS
    41. SYNDICATING INVESTMENTS
    42. MILESTONE-BASED FINANCING: RISK MITIGATION OR DISTRACTION
    43. NOTES
    44. 28 The Closing Process
  11. Part Four: The Art of Value Creation
    1. 29 Serving on Boards
    2. OVERVIEW
    3. LEGAL REQUIREMENTS OF BOARD SERVICE
    4. SELF-EDUCATION: PREPARING FOR YOUR BOARD ROLE
    5. ROLES AND RESPONSIBILITIES OF A BOARD MEMBER
    6. NOTES
    7. 30 Board Culture and Orientation
    8. TOWARD A BETTER BOARD CULTURE
    9. ON-BOARDING CHECKLIST
    10. NOTES
    11. 31 Let Me Know How I Can Be Helpful: Value Creation
    12. GOOD GOVERNANCE AS THE FIRST STEP TOWARD VALUE CREATION
    13. THE CEO'S PERSPECTIVE ON VENTURE CAPITALIST VALUE ADD
    14. NOTES
    15. 32 Challenges in the Boardroom
    16. CEO TRANSITIONS
    17. BEST PRACTICES IN MANAGING CEO TRANSITIONS
    18. PERFORMANCE CHALLENGES
    19. ALIGNMENT ON EXIT
    20. BOARD EVALUATION
    21. NOTES
  12. Part Five: Exits: Liquidity Events and Champagne
    1. 33 Exit Strategies
    2. EXIT OPTIONS
    3. PRECONDITIONS FOR AN EXIT
    4. NOTES
    5. 34 Acquisitions
    6. THE PRIMARY PATH TO AN EXIT
    7. PUTTING THE COMPANY UP FOR SALE
    8. DEAL KILLERS
    9. NOTES
    10. 35 Initial Public Offering
    11. THE IPO PROCESS: THE LONG AND WINDING ROAD
    12. STEPS TO AN IPO
    13. IPO UNDERPRICING AND DUTCH AUCTIONS
    14. POST IPO: SHOULD VCs STAY ENGAGED?
    15. NOTES
    16. 36 Secondary Sales
    17. NOTES
  13. Index
  14. End User License Agreement
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