Private Equity and Venture Capital: Theory, Evolution and Valuation

Description

The terms venture capital and private equity may differ across countries. This book discusses venture capital not only as risk capital toward unlisted companies with the aim to enhance the investee firm, but also analyses broader forms of entrepreneurial investment: from early stage financing to buyout and turnaround transaction. This book is divided into four sections. The first section aims to shed light on the terminology and offers a comparison between private equity/venture capital, and the traditional banking sector as financing sources. The second section details the differences between private equity and venture capital transactions on the basis of firm life cycle, and summarizes the main characteristics of both private equity and venture capital investors and investee firms. The third section illustrates the evolution of the private equity and venture capital industry before and after the financial crisis by looking at three fundamental aspects: fundraising, investment and divestment, all in terms of volume and trends. The last section discusses the basic elements of corporate valuation applied to private equity and venture capital industry, with some practical examples. Acknowledgements Contents Chapter 1: Theoretical Background 1.1 Introduction 1.2 Private Equity and Venture Capital: A Brief Summary of Their History 1.2.1 The Defining Aspects of Private Equity and Venture Capital 1.3 How Do the Private Equity and Venture Capital Industry Work? 1.3.1 The Private Equity Business Model 1.3.2 Venture Capital Business Model 1.4 Differences Between Private Equity and Venture Capital and Alternative Forms of Financing 1.5 Typologies of Private Equity Investors References Chapter 2: Start-Up, Expansion and Buy-Out Financing 2.1 Introduction 2.2 Pre-financing: Business Angels, Incubators and Crowdfunding 2.2.1 Business Angels 2.2.2 Incubators 2.2.3 Crowdfunding 2.3 Early-Stage Financing 2.3.1 Seed Financing 2.3.2 Start-Up Financing 2.3.3 Early-Growth Financing 2.4 Expansion Financing 2.4.1 How Does Private Equity Work for Internal and External Growth? 2.4.2 Advantages and Disadvantages for Companies 2.5 Replacement and Buy-Out Financing 2.5.1 Leveraged Buy-Out References Chapter 3: A Snapshot of Private Equity and Venture Capital Industry: Pre- and Post-crisis 3.1 Introduction 3.2 The Development of the Private Equity and Venture Capital Market: Growth, Crisis and Decline During the Global Financial C... 3.3 The Role of Private Equity and Venture Capital During the Pre-Coronavirus Pandemic 3.3.1 The Role of Private Equity and Venture Capital During the Coronavirus Pandemic: The Uncertainty of the Future 3.4 Fundraising Trend in USA and Europe: A Comparison 3.5 Investment Process: Scouting, Closing and Volume 3.5.1 Scouting of the Target Company: The Identification of the Best Investment Opportunity 3.5.2 The Investment Decision and Closing 3.6 Divestment: Volume and Modality of Way-out 3.6.1 Modality of Way-out: Trade Sale 3.6.2 Modality of Way-out: IPO 3.6.3 Modality of Way-out: Buyback and Sale to Other Private Equity and Venture Capital Investors 3.6.4 Write-off of the Stake References Chapter 4: Highlights of Private Equity and Venture Capital Valuation 4.1 Introduction to Private Equity and Venture Capital Valuation 4.2 Valuation in Private Equity and Venture Capital: Techniques and Issues 4.2.1 Discounted Cash Flow Valuation 4.2.2 Valuing Cash Flows 4.3 Weighted Average Cost of Capital (WACC) 4.4 Leverage Buy Out Valuation Models 4.5 Case Study: A Valuation Example Using CCF and WACC References