Private Equity and Venture Capital

Duration:
2 days
Location:
Prague, NH Hotel Prague
  • Private Equity Fund Structures
  • Valuation and Financing Issues
  • Investment Process and Operating Models
  • Lender's Approach to Credit Decision
  • The 5 Critical Issues to Sponsors
  • Investment Agreement and Role of Management
The first day of the course provides an introduction to Private Equity in general and the Venture Capital market in particular. It examines the roles of each of the key players in a deal, the typical structuring issues and parameters, the key stages of the investment process as well as the main issues affecting the deal.

It examines best practice for the structure of VC investments, the different processes which they may deploy in terms of their participation in the valuation, financing and monitoring of the companies in which they invest, as well as the current state of the market, exits, and the future of the industry as a whole.

The second day of the course deals with a number of related issues. First, it provides participants a template for identifying the key risks and opportunities in a private acquisition (not P2P). Second, it will impart a thorough understanding of the mechanics of Private Equity (excluding venture capital), covering the key terms and structures used by PE Funds and how this affects their approach to the deal and the financing. Third, it describes and explains the various financing methods and techniques used by PE firms in Leveraged deals.

Participants will also be sent an Excel model which will be used in various case studies during the programme to develop an appropriate capital structure. Reference will be made to topical issues and data during the course (e.g. European Directories) and topics will be reinforced with case studies.

The overall programme will benefit those in Private Equity, Leveraged Finance, Debt Advisory and Restructuring. The programme adopts a pan-European approach to the topic but the presenter is able to discuss issues relevant in the USA and Asia in view of his exposure to those markets. The course includes exercises, case studies and many references to past investments.

Introduction to the Private Equity and Venture Capital

  • The Private equity spectrum (VC vs leveraged deals)
  • First stage / Venture Capital – start-ups & seed capital
  • Second stage – development & expansion capital, Leveraged deals (MBOs, LBOs)
  • Sponsors & market structure
  • Traditional VC funds
  • Business angels & Corporate Venturing
  • Regional venture capital funds & Enterprise capital funds
  • Other players in the deal and their roles
  • The key value drivers of PE

Private Equity Fund structures

  • Structuring objectives for Investors & Managers
  • Typical Fund structures
    • Self-liquidating, Evergreen, Listed
    • Transparent structures vs Non-transparent structures
  • Limited Partnerships - Structure of a typical VC fund (Limited partnership)
    • Pros & Cons
    • Overview of typical fund structure
  • Dramatis personae in the Fund (GP, LP, Founder, Fund manager)
    • Role & requirements of each of the parties
  • Key terms and conditions of the Fund
    • Fees (management, transaction, monitoring)
    • Carry and hurdle rates
    • Approach to abort costs, break fees etc
  • Key documents in the fund (overview)
    • Limited partnership Agreement (dealing with Side letters)
    • Management Agreement
    • Subscription Agreement & Acceptance Letters
    • Leavers & Joiners etc
    • The Information Memorandum or Private Placement Memo (“PPM”)

Valuation and Financing issues

  • Entry valuation
    • IRR & DCF
    • Alternative techniques
  • Structuring the equity (note VC has no external debt)
    • Pure equity (Management & VC)
    • Loans vs preference shares

The Investment Process

  • Due diligence
  • The Offer letter
  • The Investment (Shareholders’) agreement
  • Monitoring the investment

Venture Capital Exits

  • Soft vs Hard exits
  • Soft exits: refinancing/releveraging, other methods of extracting cash
  • Hard exits IPO, trade sale, Secondary deals
  • How to make a successful exit

Hot topics

  • AIFM Directive
  • The Operating Model

Day Two

Offer Structure and Structuring issues

  • Offer structure: cash free, debt free with normalised working capital adjustment etc
  • Risk matrix - Analysis of the five key value drivers / areas for due diligence
    • Cash, debt, working capital, capex and EBITDA/cash run rate
  • Techniques for mitigating the risks and identifying value
  • SPA structuring – Locked box vs Completion Accounts
  • Summary Structuring issues
  • Key Structuring parameters

Financing Instruments: Key Terms, Conditions and Trends

  • Spectrum of financing instruments in LBOs
  • Senior loans – key negotiation issues
    • RCFs – avoiding typical pitfalls
    • Capex aspects
    • Cash sweeps - typical, terms structure & issues
  • Senior Notes
  • FRNs and Fixed rate
  • Mezzanine Debt
    • Role & use
    • Summary of key terms
  • Other forms of Finance (2nd Lien)

The Lender’s Perspective

  • Lender’s approach to credit decision
  • Key financial ratios / covenants
    • Limitations / interaction of the ADSCR, Total Net Debt/EBITDA, Interest cover
    • Selecting the appropriate ratio for the deal
  • The four deal scenarios and the role of due diligence

Sponsor’s Perspective

  • Structuring the equity
  • Ratchets
    • Rationale, structure
    • Pros and cons of positive vs. negative, stepped vs. linear
  • The 5 critical issues to Sponsors
    • The business model
    • Management - what PEs approach
    • Approach to generating value/returns
    • Exits – hard vs. soft

Management issues

  • Multifaceted role and duties of management
  • Issues vis-à-vis role as Director, Employee, Shareholder, Warrantor
  • Critical issues in the Investment agreement
    • Good vs. Bad leaver
    • Management warranties
    • Equity – valuation issues pre exit (why “Fair value” is dangerous)
    • Transfer issues – drag, tag-along rights
    • Restraints

Evaluation and Termination of the Course

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