FIE436 Venture Capital, Private Equity and IPO's
After completing this course, students will understand valuation methods and deal structures for both VC and LBO investments.
Valuation methods in PE differ substantially from traditional methods used in Corporate Finance as they have to deal with higher uncertainty and risk. Hence the first part of the course will focus on this aspect. Another difference to other areas of corporate finance is that contracts between financiers and firms/entrepreneurs play a much larger role and are relevant for firm valuation. Students learn to analyse these contracts both qualitatively and quantitatively. The course also focuses on developing the student's formal modelling skills, in particular financial statement modelling.
Students will also learn about performance measurement and performance evaluation of VC and PC funds in order to make sensible investment decisions. The specific nature of Private Equity makes performance measure much more difficult than in cases of Public Equity and force students to rethink their approach to performance management. We also cover specific issues in fund raising and performance measurement and students will be exposed to the current research frontier during the course.
The course will also provide students with a first understanding of how IPOs and IPO markets work.
The course is formally structured into four modules:
- Introduction to Private Equity
- Section - Valuation, Deal Structures and Exits in Venture Capital and Buyouts
- Section - IPOs
- Section - Fund Management and Fund Performance Evaluation
Give students a basic understanding of the complete Venture Capital/Private Equity Cycle from raising funds to investing and harvesting the investment both in Europe and the US.
Knowledge - The candidate...
- has advanced knowledge within Venture Capital, Private Equity and Initial Public Offerings;
- has thorough knowledge of the scholarly theories and methods in Corporate Finance and Asset Pricing related to Venture Capital, Private Equity and Initial Public Offerings;
- can apply this knowledge to new areas within the above mentioned topics.
Skills - The candidate...
- can analyze and deal critically with various deal structures in Venture Capital and Private Equity;
- understands the principles listing firms on exchanges;
- is able to conduct a valuation of a start-up or levered buyout deal and is able to explain the differences to traditional valuation methods and is able to produce consistent pro-forma statements;
- Is able to value advanced financial instruments used in Venture Capital Financing;
- Is able to conduct a liquidity analysis in buyouts;
- is able to understand the structure and impact of contracts and specific contractual clauses on valuations;
- understands the issues in performance measurement in the Private Equity industry and is able to deal critically with the;
- is able to understand the steps involved in taking a firm public and able to understand the scholarly issues in this field.
- can understand the latest research in this area.
Competence - The candidate...
- can apply his/her knowledge and skills in new areas in order to carry out advanced assignments and projects;
- can identify relevant ethical dilemmas in data collection and carry out his/her research with scholarly integrity.
Teaching will consist out of lectures (50%) and cases (50%). Students are expected to prepare each case for the class. As this is a case course that requires extensive class discussion, the course will not be filmed.
- Corporate Finance at the level of Berk DeMarzo (any edition) or Brealey, Myers and Allen (any edition).
- A basic understanding of Statistics and Econometrics.
Corporate Finance at the Master's level
Hand-in: Students will be required to work in groups of up to 3 students on one particular case in detail. The answer has to be handed in prior to the case being taught.
Mandatory Attendance: This is a case course and builds on active participation by students. Hence the course requires students to be present in the classroom during teaching.
The grade is based on a portfolio consisting of class participation (approximately 33%), a written term paper (approximately 33%) and the presentation of this term paper (approximately 33%). One grade is given for the entire portfolio. Grading scale A-F.
Oral participation is an individual effort. The evaluation of oral participation will primarily reflect the quality of a student's comments and insights, as well as the intensity of participation. There is no makeup for a missed class.
The term-paper can only be written in English. All parts have to be taken in the same semester. Since this is a case-based course with several cases reappearing year after year, students can take the course only one time. It is possible to retake the course only if a student fails. As the grading in this course is given as one total grade, based on a combination of written and oral elements, it is by nature non-reproducible, and, in accordance with the University and University Colleges Act §5-3, may not be appealed.
A - F
There is no textbook. Cases will be made available via a course pack.
- Josh Lerner, Felda Hardymon and Ann Leamon, "Venture Capital and Private Equity and the Financing of Entrepreneurship". Wiley, 2012 - Best textbook but at a much lower technical level than what we will do in the course.
- Metrick - "Venture Capital and the Finance of Innovation" for the first third of the course.
- Jenkinson and Ljungvist - "Going Public: The Theory and Evidence on How Companies Raise Equity Finance" - Second Revised Edition.
- Brealey, Myers and Allen - "Corporate Finance" - any recent edition OR
- Berk and DeMarzo, "Corporate Finance", any recent edition.
- Lerner - "The Boulevard of Broken Dreams"
- ECTS Credits
- Teaching language
Spring. Offered spring 2023.
Part of studies
Associate Professor Carsten Bienz, Department of Finance, NHH.
Professor Uwe Walz (Goethe University Frankfurt) will teach the course in Spring 2023.