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Venture Capital and the Finance of Innovation

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ISBN-10: 0470074280

ISBN-13: 9780470074282

Edition: 2007

Authors: Andrew Metrick

List price: $186.95
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Description:

Beginning with a comprehensive guide to understanding Venture Capital, Metrick uses this background to present an understanding of the application of Valuation. Included are comprehensive coverage and understanding of Total Valuation, Partial Valuation, and the Finance of Innovation.
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Book details

List price: $186.95
Copyright year: 2007
Publisher: John Wiley & Sons, Incorporated
Publication date: 9/22/2006
Binding: Hardcover
Pages: 592
Size: 6.25" wide x 9.25" long x 0.75" tall
Weight: 1.694
Language: English

VC Basics
The VC Industry
What Is Venture Capital?
What Do Venture Capitalists Do?
The History of Venture Capital
Patterns of VC Investment in the United States
Investments by Stage
Investments by Industry
Investments by U.S. Region
Summary
Key Terms
References
VC Players
Firms and Funds
The Limited Partners
VC Partnership Agreements
Management Fees
Carried Interest
Restrictive Covenants
Summary
Key Terms
References
Exercises
EarlyBird Ventures I
Talltree Ventures IV
Owl Ventures IX
VC Returns
Industry Returns
Definitions
A Gross-Return Index
A Net-Return Index
Fund Returns
Definitions
Evidence
Summary
Key Terms
References
Exercises
The Cost of Venture Capital
The Capital-Asset-Pricing Model
Beta and the Banana Birds
Estimating the Cost of VC
Summary
Key Terms
References
Exercises
The Best VCs
The Economics of VC
The Best VCs: A Subjective List
VC Value Added and the Monitoring of Portfolio Firms
Summary
Key Terms
References
VC Around the World
The Global Distribution of VC Investing
The Cost of International Venture Capital
Baseline Model: The Global CAPM
Objections and Extensions to the Global CAPM
A Global Multifactor Model for Venture Capital
Summary
Key Terms
References
Exercises
Total Valuation
The Analysis of VC Investments
VC investments: The Historical Evidence
The Investment Process
Summary
Key Terms
References
Term Sheets
The Basics
Investors
Price Per Share
Pre-money and Post-money Valuation
Capitalization
The Charter
Dividends
Liquidation Preference
Voting Rights and Other Protective Provisions
Mandatory Conversion
Redemption Rights
Investor Rights Agreement
Registration Rights
Matters Requiring Investor-Director Approval
Employee Stock Options
Other Items
Rights and Restrictions
Founders' Stock
Summary
Key Terms
References
Exercises
Preferred Stock
Types of Preferred Stock
Antidilution Provisions
Summary
Key Terms
References
Exercises
The VC Method
The VC Method: Introduction
Exit Valuation
Target Returns
Expected Retention
The Investment Recommendation
The Standard VC Method
The Modified VC Method
Summary
Key Terms
References
Exercises
Discounted-Cash-Flow Analysis of Growth Companies
DCF Analysis: Concepts
DCF Analysis: Mechanics
Graduation Value
DCF Analysis: The Reality-Check Model
Baseline Assumptions for the Reality-Check DCF
Summary
Key Terms
References
Exercises
Comparables Analysis
Introduction to Comparables Analysis
Choosing Comparable Companies
Using Comparable Companies to Estimate the Cost of Capital
Summary
Key Terms
References
Exercises
Potential Comparables for Semico
Partial Valuation
Option Pricing
European Options
Pricing Options using a Replicating Portfolio
The Black-Scholes Solution
American Options
Random-Expiration Options
Reading Exit Diagrams
Carried Interest as an Option
Summary
Key Terms
References
Exercises
RE Options: Technical Details
The Valuation of Preferred Stock
Base-Case Option-Pricing Assumptions
RP Valuation
Excess Liquidation Preferences
Dividends
CP Valuation
CP with Excess Liquidation Preferences or Dividends
Combining RP and CP
Comparing RP and CP
Summary
Key Terms
References
Exercises
Later-Round Investments
Series B
A Conversion Shortcut
Series C
Dividends in Later Rounds
Accrued Cash Dividends
PIK Dividends
Beyond Series C
Summary
Key Terms
Exercises
Participating Convertible Preferred Stock
Binary Options
The Valuation of PCP
The Valuation of PCPC
Series B and Beyond
Summary
Key Terms
References
Exercises
Implied Valuation
Post-Money Valuation Revisited
Measurement of Portfolio Value
Down Rounds?
How to Avoid Valuation Confusion
Summary
Key Terms
Exercises
Complex Structures
Management Carve-outs
Dealing with Partners
A Complex Example
Summary
Key Terms
Exercises
The Finance of Innovation
R&D Finance
R&D Around the World
Two Touchstones
Drug Development
Energy Innovation
How Is R&D Financed?
Where Do We Go from Here?
Summary
Key Terms
References
Monte Carlo Simulation
Event Trees
Simulation with Continuous Probability Distributions
Simulation with Multiple Sources of Uncertainty
Summary
Key Terms
Exercises
Real Options
Decision Trees
Real Options in R&D
The Valuation of Real Options
Risk-Neutral Probabilities
Drugco, revisited
Summary
Key Terms
Exercises
Binomial Trees
The Black-Scholes Equation, Revisited
Multiple Strike Prices and Early Exercise
Dividends
Summary
Key Terms
References
Exercises
Game Theory
What Is Game Theory?
Simultaneous Games
Sequential Games
Game Theory and Real Options
Summary
Key Terms
Exercises
R&D Valuation
Drug Development
Energy
The Forest and the Trees
Summary
References
Exercises
Information Sources for Venture Capital
Sample Term Sheet
The VCFI Spreadsheets
Guide to Crystal Ball
Glossary
Index
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