Course 2023-2024 a.y.

The course is split in two parts. The first part is focused on financial features that mark target companies for VC, the VC industry characteristics and the management of VC companies. The second part devotes attention to carry out a comprehensive analysis of an investment opportunity from the VC investor’s point of view.

· What is Venture and Development Capital (VC) and why it exists.

· What differs entrepreneurial finance from corporate finance

· Why are VC target firms special? Why and when are they not able to raise capital in the debt market?

· Which are the solutions offered by venture capitalists to the firm’s financial needs. The relationships between the entrepreneur (the firm) and the outside investor (the VC company).

· How to read and analyse a business plan from a target company. Business models and revenue forecast.

· How to invest: organizational framework, strategies and investment vehicles.

· Investor categories who place funds in the VC industry (financial institutions and pension funds, family offices, corporations, government and local authorities, informal investors).

· How to regulate the relationship between general and limited partners ring fenced in investment schemes: disclosure and accountability; incentives schemes; how to share returns between parties.

· Investment criteria and investment styles (round-financing, milestones, venture debt, portfolio leverage and exit way).

· Investment valuation: valuation criteria, relevant cash flow and cost of capital measures.

· Investment valuation: valuation model, explicit and implicit values.

· How to put valuation model in practice.

· Investment decision process: terms of the deal, share price, expected IRR and investment recommendation.

3. Intended Learning Outcomes (ILO)

• Explain how the fundamental financial theories work, or don’t work, inside the venture capital industry.
• Dig deeper on venture capital as an asset class and motivation to investment.
• Recognize which are the target companies venture capitalists wish to invest in.
• Read the financial forecast inside the venture's business plan and indicate what VC looks for.
• Explain investment schemes and management of the investor.
• Know and apply topics affecting new venture valuation for fully diversified financial investors.
• Describe the investment decision process in the eyes of the risk-return combination.
• Become proficient enough to successfully sustain a job/internship in the field of VC industry

• understand the financial requirements and fund raising process for starting and developing a venture;
• understand the structure and behaviour of the venture capital industry and players;
• apply relevant criteria and models used in the VC industry for screening opportunities effectively;
• understand what a business plan is and know how to carry out its screening (including information needed to carry out a feasibility study of a business opportunity, how to look for them, how to structure the study in a written format);
• understand the investment policies, the assessment criteria and the IRR objectives for fully diversified financial investors, such as venture capital investors;
• be able to carry out a financial analysis in a group of peers and manage the relations inside the group

• Exercises (exercises, database, software etc.)
• Case studies /Incidents (traditional, online)
• Group assignments

Exercises

In the first part of the course some numerical analysis will support the explanation of key concepts and applications, such as business life cycle, investment scheme economics and return sharing, portfolio analysis,

… In the second part of the course the investment analysis will be supported by several spreadsheets that will be applied for both understanding the theoretical framework and putting in practice the valuation and decision taking models.

Case studies/Incidents

The course is fully supported by the analysis of a pivotal case study in order to show examples referred to the main contents of the course. Moreover, in the first part of the course a bunch of case studies will allow to discuss and put in practice some key features affecting the VC industry.

Group Assignment

Students who join the group assignment will have the opportunity to enter in touch with a real target firm and carry out a real financial analysis, in the eyes of a VC company, starting from the business plan provided by the entrepreneur. The assignment offers the opportunity to put in practice the know how learnt during the course and it is the ideal complementary activity to lectures attendance. Group members will work together for the final goal and they will be able to contribute to each single task also in relation to their individual background. The assignment also allows students to develop soft skills such as problem solving, time management, present in front of an audience and write a report in a given format. The enrolment of the assignment is limited to a given number of students.

ATTENDING STUDENTS

For attending students, the assessment process is divided into three parts.

a) written exam (a test with multiple choice questions, weight 60%);

Assessment criteria: ability to recognize and critically review all the topics covered inside the syllabus as well as practice main criteria for the investor management and the investment selection and decision process.

b) group assignment (weight 30%);

Assessment criteria: the assignment output refers to a written report (a final-investment report) and a pitch presentation of the report. The assessment of the presentation relies also on soft skills such as the quality of the show, the ability to argue, … The assessment of the report refers more on the ability to put in practice the know how learnt during the course and the consistency of the analysis carried out.

c) class attendance and participation (weight 10%).

Assessment criteria: ability to actively participate in discussions; ability to generate original contributions and ideas; ability to present short topics to peers.

NON-ATTENDING STUDENTS

For students who do not joint the assignment there is a written exam at the end of the course.

Assessment criteria: ability to recognize and critically review all the topics covered inside the syllabus as well as practice main criteria for the investor management and the investment selection and decision process.

Textbook: Smith, Smith and Bliss, 2011, Entrepreneurial Finance. Strategy, Valuation and Deal Structure, Stanford University Press (Chapter 1, 2, 3, 6, 7, 9, 10, 16).

Slides, excel files, cases and other material are distributed through the Blackboard Room for the course.