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Related name

• Phillips, Gordon M. [Browse]
• Sorensen, Morten [Browse]

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Issn Series [More in this series]

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Contents

• Intro
• Private Equity and Entrepreneurial Finance
• Copyright
• Contents
• Introduction to the handbooks in economics series
• Introduction to the economics of corporate finance series
• Introduction to the first volume
• Contributors
• Part I: Early-stage financing
• Chapter 1: The contracting and valuation of venture capital-backed companies
• 1. Introduction
• 2. Contracting between startups and their investors
• 2.1. The life cycle of a VC-backed company
• 2.1.1. Self-funding
• 2.1.2. Pre-VC financing
• 2.1.3. Early-stage venture capital
• 2.1.4. Late-stage venture capital
• 2.1.5. Exit
• 2.2. Challenging features of VC startups
• 2.2.1. Nature of the cash flows
• 2.2.1.1. Uncertain outcomes
• 2.2.1.2. Scarce initial cash flows
• 2.2.1.3. Insufficient collateral
• 2.2.2. Nature of the information
• 2.2.2.1. Double-sided information asymmetry
• 2.2.2.2. Differences in opinion
• 2.2.2.3. Difficulty in acquiring information
• 2.2.2.4. Contractual incompleteness
• 2.2.3. Moral hazard
• 2.2.3.1. Double-sided moral hazard
• 2.2.3.2. Inalienable human capital
• 2.2.3.3. Multilayer agency problems
• 2.2.3.4. Many principals and conflicts among them
• 2.2.4. Ecosystem structure
• 2.2.4.1. Matching frictions
• 2.2.4.2. Varying market conditions
• 2.2.4.3. Illiquidity
• 2.3. Process of contracting in VC-backed companies
• 2.4. Economic features of VC contracting
• 2.4.1. Separation of cash flow and control rights
• 2.4.2. Contingent provisions
• 2.4.3. Multistage financing
• 2.4.4. Hybrid equity-debt instruments
• 2.4.5. Significant minority ownership
• 3. Dividing cash flows
• 3.1. Convertible preferred stock
• 3.1.1. Conversion
• 3.1.2. Liquidation preference
• 3.1.3. Participation
• 3.1.4. Seniority
• 3.1.5. Other cash flow provisions
• 3.2. Common equity
• 3.3. Stock options
• 3.3.1. Warrants.
• 3.4. Convertible notes
• 3.4.1. Principal
• 3.4.2. Interest rate
• 3.4.3. Conversion
• 3.4.4. Conversion price, discount, and valuation cap
• 3.4.5. Maturity date and repayment
• 3.4.6. Nonpriced round
• 3.5. SAFEs
• 3.6. Venture debt
• 4. Dividing control
• 4.1. Shareholder voting rights
• 4.1.1. Supermajority and supervoting
• 4.1.2. Class-level voting
• 4.1.3. Protective provisions
• 4.1.4. Automatic conversion
• 4.2. Board of directors and control rights
• 4.2.1. Election of startup boards
• 4.2.2. Types of board members
• 4.2.2.1. Common directors
• 4.2.2.2. Investor directors
• 4.2.2.3. Joint directors
• 4.2.2.4. CEO directors
• 4.2.2.5. Nonvoting directors
• 4.2.3. Board structure
• 4.2.4. Board control
• 4.3. Founder and employee restrictions
• 4.4. Redemption rights
• 4.5. Informal control mechanisms
• 4.6. Legal system
• 4.7. Across investor variation in control rights
• 4.8. Relationship between cash flow and corporate governance rights
• 5. Evolution of cash flow rights and control
• 5.1. Dilution
• 5.1.1. Antidilution
• 5.1.2. Dilution of downside protections
• 5.2. Reinvestment
• 5.2.1. Staging
• 5.2.2. Pro-rata rights
• 5.2.3. Pay to play
• 5.3. Control
• 6. Valuation of venture capital securities
• 6.1. Valuing innovative projects
• 6.1.1. Cash flow-based valuation
• 6.1.2. Market multiples valuation
• 6.1.3. Nonquantitative approaches to valuation
• 6.2. Valuing contractual claims
• 6.2.1. Ignoring contractual terms
• 6.2.2. Probability weighted expected return method
• 6.2.3. Contingent claims valuation
• 7. Conclusion
• Acknowledgments
• References
• Chapter 2: Venture capital and innovation
• 2. A brief look at the history of institutional venture capitalc
• 3. How the venture capital model boosts innovation.
• 4. Limitations of venture capital model as a spur to innovation
• 4.1. Focus on an extremely narrow slice of technological innovation
• 4.2. Concentration of capital in the hands of few non-representative investors
• 4.3. A declining emphasis on governance
• 5. New approaches
• 5.1. Organization of VC partnerships
• 5.2. De-risking ventures
• 6. Conclusion
• Chapter 3: Small firm financing: Sources, frictions, and policy implications
• 2. Sources of small firm financing
• 2.1. Personal wealth
• 2.2. Bank finance
• 2.3. Personal credit
• 2.3.1. Home equity financing
• 2.3.2. Unsecured personal credit
• 2.4. Equity financing
• 2.4.1. Venture capital
• 2.4.2. Angel investors, accelerators, and crowd funding
• 2.5. Trade credit
• 3. Real effects of (relaxed) financing constraints
• 3.1. Shocks to the supply of bank credit
• 3.1.1. US branch-banking deregulation
• 3.1.2. Shocks to bank balance sheets
• 3.2. Exogenous increases in access to personal credit
• 3.3. Accelerated payment of trade credit
• 3.4. Small business fragility during the COVID-19 pandemic
• 4. The role of government policy
• 4.1. Information about credit worthiness
• 4.2. Government as customer
• 4.3. Loan guarantees and direct interventions
• 5. Conclusions
• Part II: Later stage financing
• Chapter 4: Private equity financing
• 1. The basics
• 1.1. Traditional fund structures
• 1.2. The J-curve
• 1.3. Subscription lines
• 1.4. Who are the limited partners?
• 2. Beyond the fund structure: Co-investments and direct investments
• 3. Trends in private equity financing
• 3.1. Fund flow into private equity
• 3.2. Lengthening of the fund horizonadadA related discussion appears in Ivashina (2022).
• 3.3. Investing for good
• References.
• Further reading
• Chapter 5: Buyouts: A primer
• 2. What are buyouts and how do they work?
• 2.1. Investors and funds
• 2.1.1. Funds as limited partnerships
• 2.1.2. Fund governance
• 2.1.3. Fund economics
• 2.1.4. Taxation
• 2.1.5. Regulation
• 2.2. Funds and portfolio companies
• 2.2.1. LBO deal structures
• 2.2.2. An example of an LBO deal structure
• 2.2.3. The growth of private debt
• 2.3. Portfolio companies and management
• 3. How do buyouts create returns for their investors?
• 3.1. Improving portfolio firms' values
• 3.2. Flexibility and the importance of control rights
• 3.3. Alternative strategies to increase portfolio firms' values
• 3.3.1. Free cash flow
• 3.3.2. Refocus operations
• 3.3.3. Enhancing executive management
• 3.3.4. Operational efficiencies
• 3.3.5. Scale economies: Roll ups and expansions
• 3.3.6. Corporate orphans
• 3.3.7. Privatization of state-owned enterprises
• 3.3.8. Transitions in ownership
• 3.3.9. Mitigating distress
• 3.3.10. Other private equity strategies
• 3.4. Wealth transfers
• 4. Facts about buyouts
• 4.1. A brief history of the industry
• 4.2. The evolution of the buyout market
• 4.3. Assets under management and dry powder
• 4.4. Fund performance over time by location
• 4.5. Purchase prices and leverage multiples
• 4.6. Exits
• 4.7. Fund fee distribution
• 5. The academic literature on buyouts
• 5.1. Fund performance
• 5.1.1. Measuring fund performance
• 5.1.2. Adjusting for risk
• 5.1.3. Performance persistence
• 5.2. Limited partners
• 5.2.1. LP performance
• 5.2.2. Direct investments and co-investments
• 5.3. Sources of returns
• 5.3.1. Value creation to portfolio companies
• 5.3.2. Wealth transfers
• 5.4. Agency problems between GPs and LPs
• 5.4.1. Agency conflicts from contracts
• 5.4.2. Return manipulation.
• 5.4.3. Emerging conflicts
• Chapter 6: Gender and race in entrepreneurial finance
• 1.1. Chapter objectives
• 1.2. Intended audience
• 1.3. Entrepreneurs and firms
• 2. Why race and gender?
• 3. From founding to financing to exit
• 3.1. Founding decision
• 3.2. Postfounding: Gathering resources and growing the firm
• 3.3. Realizing value
• 3.4. Guiding our analysis
• 4. Facts about founders, startups, and investors
• 4.1. Founding decision: When, how, and with whom
• 4.2. Raising capital: Sources and amounts
• 4.3. Investors
• 4.4. Outcomes
• 4.5. Putting it all together
• 5. Economics of discrimination
• 5.1. Definitions and terms
• 5.2. Prejudice
• 5.3. Discrimination
• 5.3.1. Stereotypes
• 5.4. Homophily
• 5.5. Framework
• 5.6. Taste-based discrimination
• 5.6.1. Tests and data for entrepreneurial finance
• 5.7. Statistical discrimination with correct beliefs
• 5.7.1. Tests and data for entrepreneurial finance
• 5.8. Statistical discrimination with incorrect beliefs
• 5.8.1. Tests and data for entrepreneurial finance
• 5.9. Other models of differential treatment
• 5.9.1. Tests and data for entrepreneurial finance
• 6. Race and gender patterns: Review of the literature
• 6.1. Resources
• 6.2. Entry and founding
• 6.2.1. Career goals and flexibility
• 6.2.2. Family concerns
• 6.2.3. Early-life experiences
• 6.2.4. Stereotypes
• 6.2.5. Preferences and beliefs
• 6.3. Raising capital
• 6.3.1. Debt
• 6.3.2. Equity financing
• 6.3.3. Other capital sources
• 6.4. Outcomes
• 7. Changes to the financing landscape
• 7.1. Regulatory changes
• 7.2. Market changes
• 7.2.1. Changes to capital supply
• 7.2.2. Fintech and data availability
• 7.3. Targeted programs and funds
• 8. Ideas for future research
• 9. Conclusion
• Acknowledgments.
• Appendix A. Data sources.

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ISBN

0-12-824006-7

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