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2013/2014  KAN-CM_F91  Venture Capital and Private Equity

English Title
Venture Capital and Private Equity

Course information

Language English
Exam ECTS 7.5 ECTS
Type Elective
Level Full Degree Master
Duration One Semester
Course period Autumn
Changes in course schedule may occur
Thursdays 14.25-17.00, week 36-46
Time Table Please see course schedule at e-Campus
Max. participants 60
Study board
Study Board for MSc in Economics and Business Administration
Course coordinator
  • Claus Parum - Department of Finance (FI)
Teacher: Martin Vang Hansen
Administration: Sabrine Josephine Schmidt - sjs.fi@cbs.dk
Main academic disciplines
  • Finance
Last updated on 20-03-2013
Learning objectives
The objective of this course is to make the student familiar with the language, practices, and metrics employed by venture capital (VC) and private equity (PE) professionals. More precisely, the learning objectives of the course are:
  • Characterize the usual investors in VC and PE and analyze their investment rationale
  • Explain how the funds and the fund-raising are structured
  • Describe the features, attributes and qualities of a VC and PE fund portfolio company, respectively
  • Discuss how the portfolio company investment transactions are structured; including the rationale for and the attributes of the typical terms and conditions
  • Discuss the governance structure of a fund and of its ownership of portfolio companies
Course prerequisites
The students are required to have a standard Master’s level course in Corporate Finance.
Prerequisites for registering for the exam
Compulsory assignments (assessed approved/not approved)
4 assignments.
Venture Capital and Private Equity:
Examination form Home assignment - written product
Individual or group exam Individual
Size of written product Max. 10 pages
Assignment type Written assignment
Duration 48 hours to prepare
Grading scale 7-step scale
Examiner(s) One internal examiner
Exam period Autumn Term
Make-up exam/re-exam
Same examination form as the ordinary exam
Description of the exam procedure

There are 4 compulsory assignments during the course. Each assignment should be maximum 3 pages long, and will be graded in terms of "approved/not approved".
If one of the assignments is deemed "not approved", the student must submit a new assignment.
It is a requirement that all 4 compulsory assignments are "approved" within 3 calendar days before the final exam.
The final exam is a 48-hour individual take-home exam.

Course content and structure
Investments in privately held firms (i.e. in firms not listed on a public exchange) have received increased attention in recent years. One important subset hereof, venture capital (VC), is equity capital provided to early-stage, high-potential, high risk start-ups. Another is equity in firms taken over in leverage buy-outs, i.e., debt-based acquisitions of mature companies. The latter is often just referred to as private equity (PE), and this course will also use this term for such investments.
Venture capitalists are concerned with the financing of entrepreneurship – a popular focus of discussion among businesspeople, financiers, economists, and policymakers. At a macro level, economists and policymakers have increased their attention to the entrepreneurial enterprise because of its importance to economic growth and the significance of entrepreneurial businesses in job creation.
The capital market for financing such entrepreneurs – and private equity investing more generally – differs fundamentally from capital markets considered in standard corporate finance: First, start-ups are young, mostly unprofitable companies, with short operating histories and little capital. Young firms face exceptionally high degrees of uncertainty, constraining financing and creating difficult decisions about financial contracting. Second, capital markets for privately held companies are predominantly “deal markets” where terms and valuations are negotiated on a case-by-case basis, where investors can add value and are actively involved with the companies they finance.
It is no surprise, then, that a specialized capital market for financing the entrepreneurial business has emerged: the venture capital market. Developed from a boutique and niche-status in the US from 1960 to the 1980’s, the past 20 years the growth of the global venture capital industry has been remarkable. The reason, obviously, is that many of the most prominent and influential technology companies – e.g., Apple, Intel, Google, and Microsoft – originally were backed by venture capitalists.
But what do VCs really do? And how do they do it? How do they value a company? Do they add more than capital to the companies they invest in? If so, how? How do they raise their funds? This course will provide a comprehensive overview of the world of venture capital (VC). To a smaller extent we will also cover the world of private equity (PE), i.e., private investments in mature companies, since VC and PE taken together encompass the vast majority of active investment in privately held companies. The primary objective of the course is to provide an understanding of the concepts and institutions involved in entrepreneurial finance and private equity markets.
Teaching methods
This course uses the case method that places a strong emphasis on class participation. In effect, every class will start with a broad question relevant to the material/cases prepared by the students, and then we will get into more detailed topics as the discussion unfolds. It is important to understand that the process of arriving at a conclusion on the topics that are covered is as important as getting to the conclusion. Hence, it will be important for the students to explain positions and arguments and to try to argue for the implementation of their recommendations. While there are usually no absolutely right answers to the issues raised in the cases, we will discuss, there are good and bad arguments. This course will hopefully teach the students to distinguish between the two.

Because of the nature of this course, it is important that the students attend every class, arrive on time and are ready to participate. Also, students should bring name cards to each class.
Expected literature
Josh Lerner, Felda Hardymon and Ann Leamon: Venture Capital & Private Equity, A Casebook (fifth edition).
Various articles from economic/finance journals, including:
Andrew Metrick and Ayako Yasuda, “The Economics of Private Equity Funds”, Review of Financial Studies 23, no. 6 (2010): 2303-41.
Josh Lerner, Antoinette Schoar, and Wan Wongsunwai, “Smart Institutions, Foolish Choices: The Limited Partner Performance Puzzle”, Journal of Finance 62 (2007): 731-64.
Bernard S. Black and Ronald J. Gilson, “Venture Capital and the Structure of Capital Markets: Banks versus Stock Markets”, Journal of Financial Economics47 (1998): 243-77
Last updated on 20-03-2013