Chapter 6

1. How do venture capital boards differ in composition from the boards of companies that have been bought out?

2. Hardy Smith, a noted venture capitalist, sits on the board of Walts Widgets. When widget sales fall consistently short of expectations, which of the following (there may be several) would Hardy be mostly likely to do and why?

a. Get on the road himself to sell them.

b. Suggest different sales channels and pricing strategies.

c. Redesign the product, suggesting different cases and color

d. Fire the vice president of sales.

e. Present a term sheet that triggers his antidilution protection.

3. Why would a board have special voting rights? How do these address some of the basic tenets of private equity?

4. Calculate the final ownership for Walt if he raises $12 million at $8 million pre-money, as opposed to the following in two-year increments: (a) $3 million at $3 million pre-money; (b) $3 million at $9 million pre-money; and (c) $6 million at $24 million pre-money.

5. From the venture capitalists viewpoint, what are three reasons for staged financing?

6. Consider the value creation framework (Table 6.4). Why are changes in the external market not included?

7. How does value creation differ between venture capital and buyout investments? Why?

8. How can a situation like KKRs break-up of Beatrice be said to create value?

9. Was TPGs successful IPO of J. Crew a matter of good deal management or luck? Why? Why do you think TPG might want to take J. Crew private again?

10. As best you can from the material in the text, explain how different deal management styles contributed to the success of O.M. Scott and the failure of Regal Cinemas.

11. Why would the board of Endeca Technologies have thought a professional manager was a good replacement for the founder? Why might that manager have then succeeded with another company? What sort of company would have matched his skills?

12. Why is consensus building such an important part of a board members work?

These are textbook questions in - Venture Capital, Private Equity, and the Financing of Entrepreneurship ISBN 1118213505

Chapter 6