2. Chapter 14 Venture Capital Chapter 14 Entrepreneurial Finance, Smith and Kiholm Smith Venture Capital

3. Historical Development of Venture Capital as an Institution

4. Venture Capital New Commitments

5. Sources of Venture Capital Funds

6. Organizational Structure of Venture Capital Investment Portfolio Companies –Value creation – Generate deal flow – Screen opportunities – Harvest investments – Negotiate deals – Monitor and advise General Partners Venture Capital Fund – Pension plan – Endowments – Life insurance companies – Corporations – Individuals Limited Partners Effort and 1% of capital Annual Management Fee 2-3% Carried Interest 20- 30% of Gain 99% of Investment Capital Capital Appreciation 70-80% of Gain Investment Capital and Effort Financial Claims

7. Summary of Terms: Venture Capital Limited Partnership Agreement

8. Allocation of Venture Capitalist Time

9. The Venture Capital Investment Process Development of Fund Concept Secure Commitments from Investors Generate Deal Flow Closing of Fund First Capital Call Screen Business Plans Evaluate and Conduct Due Diligence Negotiate Deals and Staging Additional Capital Calls Invest Funds Distributing Proceeds – Cash – Public Shares – Other Harvesting Investment – IPO – Acquisition – LBO – Liquidation Value Creation and Monitoring – Board service – Performance evaluation and review – Recruitment management – Assist with external relationships – Help arrange additional financing Year 0 2-3 years 4-5 years 2-3 years or more 7-10 years plus extensions

10. Key Covenant Classes of Venture Capital Limited Partnerships