Contents

Preface to the second edition

Introduction: some objectives and definitions

1 Background issues

The funding gap – myth or reality?; Mathematics; Market; Management; Mission impossible

2 The future revisited I: developments in legal matters

Legal documentation; Business angels; The professionals’ cut; Conclusion

3 The future revisited II: developments in regional funding

New sources of proposals; The structural side

4 The future revisited III: the view from the City

5 Why do you want funding?

Defining what venture capital is – and is not; The basic question; The four main purposes; Start-up; Business development; Shareholder change; Rescue

6 Know your enemy: the venture capitalists considered

The myth of patient money; Pressures on the venture capitalist; Factors and issues affecting venture capital fund policies; Fund size and structure; Size of funds; Life cycle; Horses for courses; From the fund to the individual – background and experience; Fund remuneration

7 The mechanics of doing the deal

Stages of the process; The business plan; Attracting a funder; Employing professional advisers; Selecting a potential investor; Deal negotiation and initial valuation; The preliminary offer; Fees; ‘Due diligence’

8 Seeing the finishing line

Stars and bars; The major routes out; The P/E trap; Reasons to be helpful, part 1; Reasons to be helpful, part 2; The dark side

9 Dealing with the existing shareholders (and stakeholders)

The effects of change; The best structure; Shareholders; Other stakeholders

10 Building – and displaying – the management team

Four elements of a management team; Dropping directors; Succession

11 The key issues of discovery: the ‘due diligence’ process

‘House style’; The due diligence process; Investment fees; Stage 1: desk review; Stage 2: management called in to discuss the proposal; Stage 3: company visits; Stage 4: market review; Stage 5: customer review and supplier review; Stage 6: financial and credit review; Stage 7: accountants’ investigation; The investment committee

12 The choice of investment vehicle: existing business or newco?

Type of investment; Realization considerations; Trading record; Complexity; Tax; The structure of the deal and the return to the investor

13 Legal stages: where the going gets tough

The process step by step; The process; Major features and documents; What the term sheet contains; The disclosure letter; Other points; Formal legal documentation

14 Post-investment considerations: culture shock

The failure of mutual comprehension; Costs; Additional scrutiny – and the consequences; Requisite skills; Board atmosphere; Increased formality; The false hope of synergy; Outside involvement; Personnel change; Tactical actions of the investor; Further funding; The problems with angels; Non-problems

15 Realization of the investment

Flotation – IPOs; Trade sales; The dark side: corporate collapse

16 Summary: do you still want venture capital?

In defence of other funding; In defence of VCs; The point of departure; General conclusion

Appendix 1 Glossary of terms

Appendix 2 Useful addresses

Index