Light Camera and Private Equaity
In Shark Tank, a Shark offers €150K for 30% of a startup with zero revenue and no product yet. What VC stage is this, and what is the implied company valuation?
ANSWER: Angel/seed stage. Implied valuation = €150K ÷ 30% = €500K.
I invest $100K in your company at the kitchen table. I'm probably your uncle or your former colleague. I ask for nothing formal maybe a handshake. Most of my investments go to zero but I don't care. Who am I
An angel investor (Friends, Family, and Fools / F&F stage)
The FT says IRR has one fatal mathematical flaw that makes it misleading as a PE performance metric. State the flaw
IRR assumes every dollar returned to investors gets immediately reinvested at that same high IRR
DAILY DOUBLE
A GP raises a €500M fund at 2% annual management fees. Only €200M has been invested so far. How much does the GP collect in fees this year and is this normal?
DAILY DOUBLE
https://www.youtube.com/watch?v=tjMGuJMIgwM
What stage of the company life cycle is FaceBook at in the clip ?
AND
Why was Mark Zuckerberg able to keep his ownership ratio while Eduardo Saverin was not ?
I sit on your board. I fired your original CEO and hired a better one. I call you every week. I own preferred stock that converts at IPO. I'm not your friend, but I want you to succeed more than anyone. Who am I
A venture capitalist (GP of a VC fund) acting as active investor/board director
The Economist called the recent PE environment a "broken J-curve." Distributions collapsed to 3.3% of NAV per quarter vs. the 5.6% average. What broke it?
Rising interest rates killed IPO and M&A activity the two main PE exit routes so funds couldn't sell companies or return cash to investors.
Two funds both return 2x on invested capital over 5 years. Fund A returned most profits in year 1. Fund B returned them all in year 5. Which has the higher IRR and why does this matter for how GPs behave?
Fund A: IRR is time-sensitive, so early distributions inflate it. This incentivizes GPs to exit early to maximize IRR-based carry, even if holding longer would create more total value for LPs.
In Succession, Kendall Roy spends other people's money, takes on massive debt, fires the board, and promises to unlock hidden value in a mature company. Name the LBO type (based on who's buying) AND one of the five value-creation strategies he's claiming to use.
LBO type: It's a Management Buyout (MBO), existing management acquires the firm.
Strategy: efficiency buyout (fixing incentive structures) or entrepreneurship stimulator (freeing management from corporate constraints).
I committed €20M to a PE fund four years ago. They've called €12M so far. I get quarterly reports. I can't sell my stake without the GP's permission. I haven't seen a cent of profit yet. I'm just waiting. Who am I ?
I am a Limited Partner (LP). The €8M is undrawn commitment.
When exits dried up, PE firms invented three tricks to fake liquidity. Name and try to explain any 1.
This provision allows LPs to recover previously distributed incentive fees if the fund ultimately falls short of its preferred return at liquidation.
clawback provision: covenant that allows the LPs to receive previously paid incentive fees
In the Marvel movies, Tony Stark is the undisputed genius driving his company's success. If his company was a PE fund and Tony suddenly left to be an Avenger full-time, which specific fund term would allow Limited Partners (LPs) to take action?
The Key Person Provision.
I bought the company at a premium. I fired half the board, loaded it with debt, cut three unprofitable divisions, and gave the CEO equity instead of salary. Now I'm preparing the IPO prospectus. My fund makes money only if the IPO goes well. Who am I?
A buyout fund GP
When exits dried up, PE firms invented three tricks to fake liquidity. Name and try to explain another type that was not mentioned before.
An LP signed up for a €50M commitment to a PE fund in 2021. It's now 2024 and the fund is struggling. The LP has already received capital calls for €30M, but a new €15M call just arrived. The LP's own portfolio is underwater. What specific risk is the LP now facing, and what happens if they can't pay
Commitment risk / funding risk. Capital calls are legally binding. If the LP defaults, they can lose a substantial portion or their entire stake in the partnership, essentially a forced seller at the worst moment. This is exactly what happened to many LPs during the 2008 financial crisis.