COMMERCE 4FV3 Venture Capital and Private Equity Fall 2012 Course Outline

Transcription

1 COMMERCE 4FV3 - Fall of 11 COMMERCE 4FV3 Venture Capital and Private Equity Fall 2012 Course Outline COURSE OBJECTIVE Finance and Business Economics Area DeGroote School of Business McMaster University This course focuses on the availability and use of venture capital and private equity by smalland medium-sized and growing companies. The course is recommended for students considering careers in the venture capital and private equity industries and merchant and investment banking, as well as those who anticipate careers as entrepreneurs. Topics include issues in the financing of entrepreneurial companies, business assessment and valuation, transaction and negotiation strategies, and exit strategies. This course will cover a range of industries and financing structures. INSTRUCTOR AND CONTACT INFORMATION Class Timing: Wednesdays, 11:30 pm to 2:20 pm All times referenced in this document are Eastern. Adeel Mahmood, CA, CFA, MBA Instructor amahmoo@mcmaster.ca Class Location: DSB/B105 Tel: (647) Office Hours: After class or by appointment COURSE ELEMENTS Credit Value: 3 Leadership: Yes IT skills: No Global view: Yes Avenue: No Ethics: No Numeracy: Yes Written skills: Yes Participation: Yes Innovation: Yes Group Work: Yes Oral skills: Yes COURSE PREREQUISITES AND COMPLEMENTS Students should have the academic credit of 3FA3 (Managerial Finance) or equivalent prior to the start of this course. A complementary course offered in the winter term, 4FO3 (Small Business/Entrepreneurial Finance), focuses on the general financial management issues facing small businesses, including early-stage, growing, and private companies.

2 COMMERCE 4FV3 - Fall of 11 Certain entrepreneurship courses offered by the Areas of Marketing and Management are also complementary to this course. COURSE DESCRIPTION This course focuses on the availability and use of venture capital and private equity by smalland medium-sized and growing companies. The style of instruction is centred on the case method and project work but will also include lectures and discussions. It may also be supplemented by the participation in class of guest speakers. The course is centred on early-stage, growing, and private companies and will be of interest to those considering careers in finance or as entrepreneurs. The course follows the arc of the private investment process: due diligence; valuation; negotiation of deal terms; working with the investee company; and exiting the investment. In addition, from the perspective of an entrepreneur, the course will allow students to research and potentially implement the valuation and financing of an early-stage, growing, or private company, including a family business. LEARNING OUTCOMES There are both individual and team learning aspects of this course. Individual Learning Outcomes Upon completion of this course, students will be able to exhibit sound knowledge of the following key topics: Assess the risk/reward of an investment in an entrepreneurial company; Identify the material that an entrepreneur must provide to an investor; Conduct the necessary due diligence to decide if an investment is warranted; Perform the financial analysis necessary to support an investment decision (as an investor) or prepare the necessary financial materials for submission to an investor; Determine an appropriate valuation for making an investment (as an investor) or accepting private capital (as an entrepreneur); Understand a term sheet for investment and analyze the related legal terms; and Determine the best course for exiting an investment, including IPO or private sale, and understand the steps of doing so. Team Learning Outcomes The learning keystone of this course is an investment-focused valuation and financing project centred on an actual business. Working in teams, students will research the valuation and

3 COMMERCE 4FV3 - Fall of 11 financing of an early-stage, a growing, or a private business, including a family business. While the focus of the project will be on analyzing and presenting the valuation and financing analysis of an investment case, teams can incorporate this project in a broader business plan or a start-up they may be pursuing elsewhere. The definition of a business that can be analyzed is fairly broad in the context of this course. Please refer to the Evaluation section of this document for more details. Students, including full teams, can continue to work on the project as a part of formal business plans in the winter term either on their own or as a part of the Small Business/Entrepreneurial Finance course. REQUIRED COURSE MATERIALS AND READINGS Course content and class communication available on Avenue: COMMERCE 4FV3 - Custom Courseware: Available from the university bookstore OPTIONAL COURSE MATERIALS AND READINGS Leach and Melicher, Entrepreneurial Finance, Fourth (4th) Edition; CENGAGE Learning, 2012: ISBN: Metrick and Yasuda, Venture Capital and the Finance of Innovation, Second (2nd) Edition; Wiley, 2010: ISBN: EVALUATION Individual learning in this course results primarily from in-class discussions based on thorough preparation in advance of the assigned cases. The balance of the individual learning results from lectures on specific topics, student research, and industry speakers. Team learning focus of this course is on an investment-focused valuation and financing project centred on an actual business. Working in teams, students will research the valuation and financing of an early-stage, a growing, or a private business, including a family business.

4 COMMERCE 4FV3 - Fall of 11 The final grade will be calculated as follows: Components and Weights Participation In-class contribution (individual) 20% Venture Capital (VC) Test Written in the 8 th class (individual) 25% Leveraged Buyout (LBO) Test Written in the 12 th class (individual) 25% Private Equity Project Due one week after the last class (group) 30% Total 100% Participation Name cards are used to help give credit for class participation and contribution to in-class case discussion. Students must have name cards with their full first and last names clearly written and displayed in front of them for every class. It is imperative that students prepare for every class. Class participation marks are primarily based on the quality of contribution. No class attendance results in zero mark. A student missing a class during the term, excluding a class where a test or an exam is held, must follow the policies outlined in the section Requesting Relief for Missed Academic Term Work below if he or she wishes to avoid getting a zero (0) participation grade for that class. If the policies allow the relief, the student s participation grade for the classes with relief requests will be re-assigned to the graded classes. Refer to the Participation Details document available online in Avenue for more details on the evaluation aspects of this course component.

5 COMMERCE 4FV3 - Fall of 11 Venture Capital Test The Venture Capital (VC) Test an open-book, open-notes test will be written in the 5 th class of the term. More details of the format, structure, and content coverage will be provided during the course of the term. A student missing the VC Test is required to contact the ASO and obtain an official approval of relief if he or she wishes to avoid getting a zero (0) grade for the test. If the ASO adjudicates that relief be provided, the student s grade for the test will be re-assigned proportionately to the graded components of the course. Leveraged Buyout Test The Leveraged Buyout (LBO) Test an open-book, open-notes test will be written in the 8 th class of the term. More details of the format, structure, and content coverage will be provided during the course of the term. A student missing the LBO Test is required to contact the ASO and obtain an official approval of relief if he or she wishes to avoid getting a zero (0) grade for the test. If the ASO adjudicates that relief be provided, the student s grade for the test will be re-assigned proportionately to the graded components of the course. Private Equity Project The learning keystone of this course is an investment-focused valuation and financing project centred on an actual business. Working in teams, students will research the valuation and financing of an early-stage, a growing, or a private business, including a family business. Group Formation Students will form groups of two or three of their choice. Each group will have the Project Proposal and Final Project to complete. All group members will be assigned identical grades for the group work. You have a choice to do either a venture capital (VC) project or a leveraged buyout (LBO) project. VC Project In the VC Project, you will approach an existing start-up or an existing small business and complete a valuation and financing plan for the company. Alternatively, you can approach an

6 COMMERCE 4FV3 - Fall of 11 existing VC or investment firm and help the firm analyze a target company from a valuation and financing perspective. The target company must have less than $50 MM in total annual revenues for the most recent fiscal year. (The company may have no revenue at all.) The target company must be a private company. Your task will be to analyze the target company from the perspective of a VC firm. LBO Project You can choose a company listed on a major stock exchange in North America (NYSE, NASDAQ, AMEX, or TSX) and with a market capitalization of between $100 MM and $500 MM as of September 30, Alternatively, you can approach an existing LBO or investment firm and help the firm analyze a target public company (within the above parameters) from an LBO perspective. Your task will be to analyze the target company from the perspective of an LBO firm. Project Proposal A one-page project proposal containing your team member names, the project type (that is, VC or LBO), and a brief project description is due by the 4 th class in Avenue. Details of the Project The details of the work to be completed are contained in a formal project document available on the course website. The project is due by the end of the term in Avenue. COMMUNICATION AND FEEDBACK Students who are uncomfortable in directly approaching an instructor regarding a course concern may send a confidential to the respective Area Chair (chambert@mcmaster.ca) or the Associate Dean (adbusac@mcmaster.ca). Students who wish to correspond with instructors or TAs directly via must send messages that originate from their official McMaster University account. This protects the confidentiality and sensitivity of information as well as confirms the identity of the student. s regarding course issues should NOT be sent to the Area Administrative Assistants. Instructors are required to provide evaluation feedback for at least 10% of the final grade to students prior to Week #8 in the term. Instructors may conduct an informal course review with students by Week #4 to allow time for modifications in curriculum delivery

7 COMMERCE 4FV3 - Fall of 11 Students who wish to have a course component re-evaluated must complete the following form: In order for the component to be re-read: the component must be worth 10% or more of the final grade in the course students pay a fee of $50 in Gilmour Hall #209 (receipt is then brought to APO) the Area Chair will seek out an independent adjudicator to re-grade the component an adjustment to the grade for the component will be made if a grade change of three points or greater on the 12 point scale (equivalent to 10 marks out of 100) has been suggested by the adjudicator as assigned by the Area Chair if a grade change is made, the student fee will be refunded CONVERSION In this course, cases may be graded using different marking and reporting techniques. For example, cases may be graded on an index of 10. This does not mean that 7/10 represents 70%. Similarly, when percentages are reported, they should not be interpreted as letter grades. Please note, then, that when students work is returned after grading, students will be informed of how their performance should be interpreted for that particular item. At the end of the course, the overall percentage grade will be converted to the letter grade in accordance with the following conversion scheme. LETTER GRADE PERCENT LETTER GRADE PERCENT A C A C A C B D B D B D ACADEMIC DISHONESTY F It is the student s responsibility to understand what constitutes academic dishonesty. Please refer to the University Senate Academic Integrity Policy at the following URL: This policy describes the responsibilities, procedures, and guidelines for students and faculty should a case of academic dishonesty arise. Academic dishonesty is defined as to knowingly act

8 COMMERCE 4FV3 - Fall of 11 or fail to act in a way that results or could result in unearned academic credit or advantage. Please refer to the policy for a list of examples. The policy also provides faculty with procedures to follow in cases of academic dishonesty as well as general guidelines for penalties. For further information related to the policy, please refer to the Office of Academic Integrity at: REQUESTING RELIEF FOR MISSED ACADEMIC WORK 1. Students may request relief from a regularly scheduled midterm, test, assignment or other course component in the following two ways: a) for absences from classes lasting up to five (5) days; or b) for absences from classes lasting more than five (5) days. a) For absences from classes lasting up to five (5) days Students must use the MSAF (McMaster Student Absence Form). This is an on-line, selfreporting tool, for which submission of medical or other types of supporting documentation is normally not required. Students may use this tool to submit a maximum of one (1) request for relief of missed academic work per term as long as the weighting of the component is worth 29% of the final grade or less. Students must follow up with their course instructors regarding the nature of the relief within two days of submitting the form. Failure to do so may negate the opportunity for relief. It is the prerogative of the instructor of the course to determine the appropriate relief for missed term work in his/her course. If the value of the component is worth 30% or more, students must report to the APO to discuss their situation and will be required to provide appropriate supporting documentation. b) For absences from classes lasting more than five (5) days Students cannot use the MSAF. They MUST report to the APO to discuss their situation and will be required to provide appropriate supporting documentation. Students who wish to submit more than one request for relief of missed academic work per term cannot use the MSAF. They must report to the APO and discuss their situation with an academic advisor. They will be required to provide supporting documentation and meet with the Director. The MSAF cannot be used during any final examination period. Students who require accommodations to meet a religious obligation or to celebrate an important religious holiday must make their requests in writing within three weeks of the start of term to the APO. Students seeking relief due to: work-related (for part-time students only) commitments; representing the university at an academic or varsity athletic event; and/or conflicts between two (or more) overlapping scheduled midterm exams, have the option of applying for special exam

9 COMMERCE 4FV3 - Fall of 11 arrangements. Such requests must be made to the APO at least ten (10) working days before the scheduled exam along with acceptable documentation. There will be only one common sitting for the special exam. Instructors cannot themselves allow students to unofficially write make-up exams/tests. Adjudication of the request must be handled by the APO. STUDENT ACCESSIBILITY SERVICES Student Accessibility Services (SAS) offers various support services for students with disabilities. Students are required to inform SAS of accommodation needs for examinations on or before the last date for withdrawal from a course without failure (please refer to official university sessional dates). Students must forward a copy of such SAS accommodation to the instructor immediately upon receipt. If a student with a disability chooses NOT to take advantage of an SAS accommodation and chooses to sit for a regular exam, a petition for relief may not be filed after the examination is complete. The SAS website is: POTENTIAL MODIFICATIONS TO THE COURSE The instructor and university reserve the right to modify elements of the course during the term. The university may change the dates and deadlines for any or all courses in extreme circumstances. If either type of modification becomes necessary, reasonable notice and communication with the students will be given with explanation and the opportunity to comment on changes. It is the responsibility of the student to check their McMaster and course websites weekly during the term and to note any changes. RESEARCH DATA Any research data obtained by a student from publicly available sources for the purposes of completing term work (including data used in assignments, projects, and tests) are the joint property of the student, the instructor, and the university. All parties are free to use the research data subject to the original copyright of such data. Students hereby agree not to use in their term work any proprietary data or data subject to copyright protection without the prior written approvals of the instructor and the owner of any such copyright.

10 COMMERCE 4FV3 - Fall of 11 COURSE SCHEDULE CLASS DATE CONTENT PREPARE 1 Wed. Sep 12 2 Wed. Sep 19 Introduction Read: Ch. 1 An Introduction to Private Equity (Courseware) Valuation of Private Companies Venita Fields What Private Equity Professionals Really Do (Courseware) 2 Wed. Sep 26 4 Wed. Oct 3 5 Wed. Oct 10 6 Wed. Oct 17 Read: Valuation of Private Companies (Avenue) Due Diligence and Financial Instruments Read: Ch. 2 Financial Instruments in Venture Capital (Courseware) Term Sheets Read: Ch. 3 Venture Capital Term Sheets (Courseware) Venture Investment Model Read: Ch. 4 The Venture Investment Model (Courseware) Application: Social Networking Ventures Valhalla Partners Due Diligence (Courseware) How Venture Capitalists Evaluate Potential Venture Opportunities (Courseware) Half & Full: Questions 1 to 3 (Courseware) Project Proposals Due by the End of the Class Half & Full: Questions 4 to 5 (Courseware) Entrepreneurs at Twitter: Building a Brand, a Social Tool or a Tech Powerhouse? (Courseware) 7 Wed. Oct 24 8 Wed. Oct 31 Read: Twitter Cap Table (Avenue) Application: Biotech Ventures Proto5 Phase II (Courseware) Read: Note on Valuing a Biotech Company (Courseware) VC Test To Be Written in Class (No Lecture or Case Discussion)

11 COMMERCE 4FV3 - Fall of 11 CLASS DATE CONTENT PREPARE 9 Wed. Nov 7 Leveraged Buyouts: Debt Layers, Revolvers, and Capacity Half & Full: Question 6 (Courseware) 10 Wed. Nov 14 Read: Ch. 5 An Introduction to Leveraged Buyouts (Courseware) Leveraged Buyouts: LBO Model, Cash Flow Waterfall, and Return Metrics Half & Full: Questions 7 to 10 (Courseware) 11 Wed. Nov Wed. Nov Wed. Dec 5 Fri. Dec 7 Read: Ch. 6 The Leveraged Buyout Model (Courseware) Exit Strategies Course Review + Final Thoughts Workbrain Corp A Case in Exit Strategy (Courseware) LBO Test To Be Written in Class (No Lecture or Case Discussion) (To Be Announced) Private Equity Project Due by PM Class schedule may be revised during the course of the term.