Chapter 11
This is the formula for discounting a future value back to present
What is PV = FV / (1 + r)^n?
These two groups form a venture capital fund: one raises and runs it, the other supplies capital.
Who are the GPs and LPs?
If a startup is projected to earn $1.6M and comparable firms trade at a P/E ratio of 10, its estimated value is this.
What is $16M?
Before investing, VCs perform this process to verify the team, market, product, and risks.
What is due diligence?
This type of financing involves multiple rounds, which dilute earlier investors’ ownership stakes.
What is staged financing?
When a VC fund exits by selling the company through M&A or IPO, it is called this.
What is a harvest?
In venture capital, a set-aside of 10–20% equity is often used to motivate the management team.
What is an incentive ownership pool?
In a liquidation, these shareholders are paid before founders or common stockholders.
Who are the preferred shareholders (VCs)?
If a company has an exit value of $10M but owes $2M to senior debt holders first, the adjusted equity value is this.
What is $8M?
Venture capital funds earn profits primarily through this structure, often ~20% of the fund’s returns.
What is carried interest?