B2815 - Private Equity and Venture Capital

Learning outcomes

The purpose of this course is to analyze the steps of the evaluation process and value creation employed by private equity and venture capital investors in the investment proposals they receive, and subsequently in companies where they decide to invest. A special focus is reserved to the role that institutional investors such as venture capital funds have in assisting these companies during this process. At the end of this course students should be able to: 1. Understand why venture capital and private equity investors are important and how are they structured 2. Comprehend the different phases of the venture capital and private equity cycle, namely: fundraising, selection and evaluation, business and financial planning, negotiation, deal structure, monitoring and exit 3. Analyze the different methods that these investors employ to evaluate investment opportunities 4. Understand the difficult process of deal negotiation between the target company and the institutional investor 5. Explore the different type of key securities and relative terms employed in venture capital and private equity transactions 6. Construct and apply a comprehensive buyout model and perform a leveraged buy-out analysis for a specific company

Course contents

The course provides a comprehensive exploration of private equity and venture capital, covering key aspects of the investment lifecycle. It begins with an introduction to the definitions, significance, and historical evolution of private equity and venture capital. Additionally, students will learn how to structure a business canvas for entrepreneurial ventures and address challenges in measuring private equity performance.

 

Core Topics:

• Foundations of Private Equity and Venture Capital

• Definition, importance, and historical evolution.

• Key themes in private equity and venture capital.

• Structuring a business canvas for investment proposals.

• Challenges in measuring private equity performance.

• The Private Equity Cycle: Fundraising, Investment Selection, and Due Diligence

• Types of private equity investments.

• Limited partnerships, fund structures, and investor incentives.

• Strategies for deal sourcing and screening.

• Due diligence processes and investment decision-making.

• Valuation and Deal Structuring

• Key valuation techniques: Net Present Value (NPV), Adjusted Present Value (APV), and the Venture Capital (VC) method.

• Monte Carlo simulations and options analysis in private equity. valuation

• Private equity securities: terms, covenants, and anti-dilution provisions.

• Structuring leveraged buyouts (LBOs) and venture debt.

• Post-Investment Management and Exit Strategies

• Board governance and its role in value creation.

• Staging of financing and monitoring investments.

• Crisis management and restructuring in private equity deals.

• Exit strategies: IPOs, acquisitions, and liquidity events.

• Measuring private equity performance: IRR, cash-on-cash returns, benchmarking, and portfolio diversification.

 

Practical Applications:

• Mid-Term Assignment:

• Analyze a real private equity deal and assess its valuation.

• Develop and present a restructuring plan.

• Final Project – Start-up Creation and Investor Pitch:

• Develop a business model canvas for a new venture.

• Prepare an elevator pitch to attract investors.

• Present the start-up concept before a simulated investor panel.

 

This structured approach ensures that students acquire both theoretical knowledge and hands-on experience in venture capital and private equity, preparing them for roles in investment analysis, financial structuring, and entrepreneurial finance.

Readings/Bibliography

Course Materials

• Primary Textbook: Josh Lerner and Ann Leamon (2024). Venture Capital, Private Equity, and the Financing of Entrepreneurship. Second Edition. Wiley. (Covered Chapters: 1-9, excluding Chapter 8).

• Supplementary Materials: Teaching notes provided by the instructor and additional readings including articles on venture capital and private equity, case studies on real-world investments, and research papers on private equity performance and valuation techniques.

Teaching methods

The course is interactive and gives the opportunity to the students to apply theoretical concepts in real world cases where the point of view of institutional investors (VCs) and entrepreneurs regarding specific deals is compared.

Assessment methods

Policies and Expectations.

• Attendance is not mandatory but strongly recommended for successful comprehension.

• Assignments must be submitted by deadlines; late submissions may be penalized.

• Collaboration is encouraged for discussion and learning, but all submitted work must be original.

• Class Participation: Students should engage in constructive discussions and apply critical thinking skills.

Assessment & Grading (Attending students)

• Midterm Assignment (15%) - Deal analysis and valuation exercise.

• Elevator Pitch (35%) - Development of a start-up business model and delivery of a structured investor pitch.

• Exams (50%) - Comprehensive written exam covering course topics.

• Non attending students - 100% of the evaluation is based on a written exam of 11 multiple choice questions and 3 open questions in 50 minutes. They need to follow carefully the themes and the framework explained in the textbook suggested for this course.

The passing grades for students are in the range 18-30 cum laude (30L). These grades are based on the following evaluation criteria:

18-23: The student has sufficient preparation and analytical skills, spread however, over just few topics taught in the course, the overall jargon is correct.
24-27: The student shows an adequate preparation at a technical level with some doubts over the topics. Good, yet not too articulated analytical skills with the use of a correct jargon.
28-30: Great knowledge about most of the topics taught in the course, good critical and analytical skills, good usage of the specific jargon.
30 cum laude (30L): Excellent and in depth knowledge of all the topics in the course, excellent critical and analytical skills, excellent usage of specific jargon.

For more information on the course, please, log-in with your Unibo Credentials at the Virtuale Page for this course.

Teaching tools

Case studies and teaching notes provided by the instructor.

Office hours

See the website of Giovanni Cardillo

See the website of Paolo Zagaglia