THE UNIVERSITY OF HONG KONG FACULTY OF BUSINESS AND ECONOMICS

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					                              THE UNIVERSITY OF HONG KONG
                           FACULTY OF BUSINESS AND ECONOMICS

                                          Master of Finance
                                       MFIN7025 Venture Capital

Course Overview

MFIN7025 Venture Capital consists of two equal parts.

Part One: There are four assigned readings. The two that are the highest priority for reading
before March 11 are Sahlman’s article and the Hony, CIFA, and Zoomlion case.

Friday, March 11 from 6:45pm to 9:45pm at KB726, Pokfulam campus

1. What is venture capital and private equity?

2. How do venture capitalists get compensated?

3. VC as an asset class and how it fits into a portfolio of assets
    - Historical returns
    - Correlations with other asset classes
    - Spread across quartiles of performance

Lanfang WANG and Susheng WANG “Cross-border Venture Capital Performance: Evidence from
China”
       Pacific-Basin Finance Journal 2011 Vol. 19, No. 1, pp. 71-97.

Saturday, March 12 from 9:30am to 1pm and 2pm to 6pm at KB726, Pokfulam campus

4. Staged capital commitments

William SAHLMAN "Aspects of Financial Contracting in Venture Capital," Journal of Applied
          Corporate Finance (Summer 1988)

5. Exiting Investments
    - IPOs
             Underpricing around the world and its determinants
             Why has China’s underpricing been so high, and why has it come down to more moderate
             levels?

Yan GAO “What Comprises IPO Initial Returns: Evidence from the Chinese Market” Pacific-Basin
      Finance Journal 2010 Vol. 18, No. 1, pp. 77-89.

Guest lecture: Melissa Guzy, VantagePoint Venture Partners

             Underwriting and analyst coverage
             Long-run performance




                                                                                                1
Sunday, March 13

            IPO mechanisms—bookbuilding vs auctions, and the merits of a separate retail tranche in
            Hong Kong with non-discretionary allocation

Note: Give overconfidence quiz

             Listing decisions—Shenzhen/Shanghai vs Hong Kong or both?
             The ChiNext market on the Shenzhen Stock Exchange (SZSE)
   -   Valuation
   -   M&A
   -   When to exit
   -   Distribution of shares to LPs

Private Equity Case: (Harvard Business School 9-811-032) Hony, CIFA, and Zoomlion: Creating
Value and Strategic Choices in a Dynamic Market

Part Two (by Prof. Yael Hochberg, April 8-10, 2011, 18 hours)

1. VC fundraising and the LP relationship
    - What affects VC performance and selection of portfolio managers
    - Emerging managers
    - Partnership contracts (general idea, what agency problems they solve)
    - Case on raising a first fund (usually Platinum Venture Partners by Steve Kaplan, where we look
       at a group of people and their past deals and ask how they would have performed as a fund
       rather than individual club deals and would students invest in their new fund)
    - Case on compensation and effect on LP returns (usually Accel Partners by Steve Kaplan)

2. Investing in entrepreneurs
    - How do deals get sourced
    - What makes a good investment
    - The due diligence process
    - Contracts and incentives
    - Valuation (VC method, APV, comps [at investment, not exit])
    - Portfolio formation (how investments interact with each other – capital reserves, product
        market competition, strategic alliance)
    - Value added activities
    - Board involvement and conflicts of interest between preferred ownership and fiduciary duties
        to common stockholders
    - Syndication (why, with who, conflicts of interest, etc.)

3. Developing a VC community
    - How governments have tried to develop VC and encourage entrepreneurship
    - Examples of successful and unsuccessful attempts
       (all this just comes out of Lerner’s new book)




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Description: Venture capitalists are the entrepreneurs to invest in other entrepreneurs, investors and other risks, they through the investment profit. But the difference is venture capitalists all cast out of the capital owned by all of its own, and not entrusted the management of capital.