Essentials of Venture Capital

The first comprehensive guide for mastering venture capital

Essentials of Venture Capital is your guide to understanding how venture capital and technology finance works from the inside out. Author Alexander Haislip easily explains the most complex concepts in venture capital and how the business is evolving to meet modern market needs. He illuminates the opaque industry that drives innovation in Silicon Valley and beyond.

• Learn how venture capital firms are organized and managed
• Develop techniques for fundraising and making high-growth investments
• Understand preferred stock provisions and startup valuation methods
• Navigate recent regulatory changes and evaluate investment returns

The author draws on more than half a decade of experience and interviews with high-level investors in the U.S. and abroad. Whether you are contemplating a career in this industry, hoping to raise money for an entrepreneurial endeavor, or are already a seasoned veteran of venture finance, the book's insights and real-world examples will cement your understanding. Essentials of Venture Capital is the first comprehensive book to explain venture capital, how it is changing and what it will look like in the future.

Preface ix

Acknowledgments xv

1 Industry Overview 1

What Is Venture Capital? 1

How Venture Capital Works 8

Performance Expectations 16

Venture Capital in Crisis 28

Summary 37

Notes 38

2 Careers and Organization 39

Launching a Career 39

Nurturing Your Career as a Venture Capitalist 43

Firm Structure and Organization 54

Planning for the Future 60

Summary 64

Notes 66

3 Fundraising 67

Fundraising Is a Venture Capitalist’s Number-One Priority 68

What Limited Partners Want 71

Working with Limited Partners 73

Why Invest in Funds That Lose Money? 80

First-Time Funds 89

Bigger Funds 97

The Future of Fundraising 99

Summary 101

Notes 103

4 Investing Basics 105

What Makes a Good Deal? 105

Macroeconomics of Investing 109

Investment Process 114

Stock Classifications 118

Typical Preferred Stock Clauses 120

Stock During Different Stages of Development 128

Syndication 131

Valuation 133

Summary 140

Notes 142

5 Finding Investments 145

Gathering Opportunities 146

Hunting for Investments 148

Growing Your Own Investments 159

Alternative Methods 163

Missed Opportunities 169

Summary 170

Notes 172

6 Getting the Money Back 175

Gains from Investment 176

Going Public 178

Getting Acquired 188

The IPO Crisis 195

Solving the IPO Problem 197

Are Fewer IPOs a Bad Thing? 200

New Strategies and Adaptations for Liquidity 204

Summary 216

Notes 219

7 Booms, Bubbles, and Busts 223

Riding the Waves 225

Boom Beginnings 230

Bubbles 237

Busts 242

Summary 249

Notes 251

8 Going Global 253

Strategies for Foreign Investing 254

Venture Capital Outside the United States 263

Israel 264

China 270

India 277

Russia 283

Europe 288

The Rest of the World 296

Summary 300

Notes 303

About the Author 307

Index 309

ALEXANDER HAISLIP specializes in venture capital and technology investment analysis. He is a columnist for Forbes.com and has been a senior writer at Thomson Reuters's Venture Capital Journal and Private Equity Hub for the past four years. He holds an economics degree and a finance certificate from Princeton University and a master's degree from the Columbia University Graduate School of Journalism. Mr. Haislip has won awards from the New York Financial Writers Association, the National Press Foundation, and the Western Publishing Association. The London-based Management Consultancies Association recognized him as one of the "Best Young Management Writers."

In addition to researching and writing, Mr. Haislip also conducts conferences and moderates panels of experts on topics such as venture capital, cleantech, energy, buyouts, fundraising, and private equity. You can find more information about Mr. Haislip at his Web site, www.AlexanderHaislip.com.

• Learn how venture capital firms are organized
• Explore techniques for finding and making high-growth investments
• Understand preferred stock provisions and startup valuation methods
• Develop effective fundraising strategies
• Navigate recent regulatory changes
• Evaluate venture capital investment returns

Your express lane to understanding the increasingly complex and evolving business of venture capital

The venture capital industry continues to evolve at a breakneck pace. Essentials of Venture Capital gets you up to speed by providing vital insight into the incentives that drive evolution at venture capital firms.

Essentials of Venture Capital cuts to the chase to follow each step of the venture capital business, examines challenges that have emerged in the past decade, and includes numerous real-world examples to illustrate why some firms adapt … and why others fail.

From raising funds and investing in start-ups to reaping the rewards, Essentials of Venture Capital covers the gamut of this rapidly changing industry so you can always be one step ahead of the game.

Inside, you'll find:

• An overview of the basics of venture capital and the major changes and challenges the industry has faced in the past decade
• Tips for building a career as a venture investor and understanding how firms are organized
• Venture capital fundraising strategies that work even in challenging macroeconomic environments
• The basics of deal-making, legal terms, and investor protections
• Three major methods for connecting with entrepreneurs and making good investments
• Ways to cash in on a venture investment by taking a company public or finding a buyer for it
• Techniques for recognizing and investing during the Boom-Bubble-Bust cycle
• Strategies for establishing a global investment practice and a survey of venture initiatives in new markets abroad

Essentials of Venture Capital is your passport to the rapidly evolving business of investing in inven- tive entrepreneurs and ideas of the future.

The Wiley Essentials Series—because the business world is always changing...and so should you.