MBA Venture Capital Course Guide Template
MBA VC elective guide: fund structure, TVPI, DPI, PME, 13-session roadmap, Fund I and Corvane Series A mini-case with teaching note, rubric, self-test
Як використовувати: Use it when you take the venture capital elective or recruit for venture investing. Adapt the roadmap to your syllabus, then work the Fund I and Corvane Series A mini-case in your team before reading the teaching note. The main pitfall is comparing offers on headline valuation instead of a waterfall and the fund's portfolio fit.
Перегляд
Venture Capital Course Guide: [Your programme, course and term]
A course guide for the second-year venture capital elective of an MBA: how venture funds are structured and paid, how their returns are measured, how investors source, screen and decide, how they value young companies and write term sheets, how they stage, syndicate and reserve capital, how they handle down rounds, and how they exit. It is for MBA students taking the elective, students recruiting for venture investing, founders who want to understand the other side of the table, and corporate venture teams. It builds on the core entrepreneurship and corporate finance courses (mba/mba-entrepreneurship-guide, mba/mba-corporate-finance-guide) and on mba/mba-venture-finance-cap-table-card, which it links to rather than repeats. It gives the competencies the course builds, a 13-session roadmap, a key concepts table linking every card, an original mini-case in which Fund I decides whether to lead the Corvane Robotics Series A, with exhibits and a teaching note, assignment rubrics, an exam plan, a reading list and a self-test with answers. Source basis: Sahlman (1990), Gompers (1995), Kaplan and Stromberg (2003), Kaplan and Schoar (2005), Gompers, Gornall, Kaplan and Strebulaev (2020) and the standard venture finance texts, written in original words. Replace every [bracketed] value and every row marked Example. Course content differs by school: check your own syllabus. This is a learning aid, not investment, legal or tax advice.
Document control
| Field | Value |
|---|---|
| Programme and course | [MBA programme, course code and title] |
| Term and sessions | [Term, number of sessions, session length] |
| Instructor | [Name] |
| Learner | [Your name] |
| Learning team | [Team name and members] |
| Assessment weights | [Participation x%, case write-ups x%, investment memo x%, exam x%] |
| Reviewed by | [Study partner or mentor] |
| Version | [0.1] |
| Last updated | YYYY-MM-DD |
Contents
- What the course is for
- Prerequisites
- Session roadmap
- Key concepts and where to learn them
- The main ideas in brief
- Mini-case: Fund I and the Corvane Robotics Series A
- Teaching note
- Typical assignments and how they are graded
- Exam preparation plan
- Common struggles
- Reading list
- Self-test questions
- Sources and further reading
- Answer key
- Revision history
What the course is for
The venture capital elective teaches how a specialised financial intermediary turns money from pension funds, endowments and other limited partners into minority stakes in young, risky, fast-growing companies, and back into cash. Sahlman (1990) described the two layers of contracts that make this work: between the investors in the fund and the venture capitalists who manage it, and between the venture capitalists and the companies they back. Each layer solves problems of information and incentives with staging, preferred securities, control rights and compensation tied to results. The course follows the money through both layers.
Graduates of the course should be able to explain how a fund is structured and paid, read and compute fund performance measures, run a disciplined screen and diligence process, value an early-stage company with the venture capital method and scenarios, read and negotiate a term sheet, plan follow-on reserves, handle a down round and evaluate exit routes. Founders use the same skills from the other side of the table; corporate development and strategy roles use them for corporate venture capital and minority investments.
| Competency (AACSB-style, see mba/mba-core-curriculum-map) | How this course builds it | Evidence you can show |
|---|---|---|
| Analytical and quantitative reasoning | Venture capital method, scenario valuation, cap tables, waterfalls, fund metrics | A priced investment memo with a waterfall at three exits |
| Ethical decision making | Conflicts between funds and founders, between fund vintages, in down rounds and in information use | A written position on a conflict case |
| Communication | Investment committee memos and pitches, board updates | A two-page memo and a ten-minute committee presentation |
| Leadership and teamwork | Deal teams, board roles, founder relationships | Peer feedback from the deal team project |
| Global perspective | Venture ecosystems and exits outside the United States, cross-border syndicates | A comparison of two ecosystems for one sector |
| Technology, data and AI | Technology risk diligence, data-driven sourcing, AI start-ups' unit economics | A technology diligence checklist for one company |
Prerequisites
| Prerequisite | Where to review it | Self-check |
|---|---|---|
| Time value of money, NPV and IRR | mba/mba-npv-irr-card, mba/pre-mba-finance-primer | Compute the IRR of a 5x multiple over six years |
| Spreadsheet modelling | mba/pre-mba-excel-modeling-drills | Build a cap table tab with absolute references |
| Cost of capital and valuation | mba/mba-capm-wacc-card, mba/mba-dcf-valuation-card | Explain why a venture target rate is not a CAPM rate |
| Cap tables, SAFEs, preferences | mba/mba-venture-finance-cap-table-card | Rebuild its Worked example A to the share |
| Opportunity assessment | mba/mba-opportunity-assessment-card, mba/mba-entrepreneurship-guide | Size a market bottom-up |
| Options intuition | mba/mba-options-real-options-card | Explain why staged financing is an option |
Session roadmap
| Session | Topic | Card or template to read | Case or exercise | Deliverable |
|---|---|---|---|---|
| 1 | The venture capital industry: funds, LPs, GPs, the fund life cycle | mba/mba-pe-fund-economics-card | Map the parties and cash flows of a fund | One-page diagram of a fund's contracts |
| 2 | Returns: power law, TVPI, DPI, IRR, PME | This guide, fund metrics; finance/lp-quarterly-report | Compute fund metrics from a cash-flow table | Metrics sheet for a fictional fund |
| 3 | Sourcing, screening and how venture capitalists decide | mba/mba-opportunity-assessment-card | Screen five fictional pitches | Screening scorecard with reasons |
| 4 | Valuation I: the venture capital method | mba/mba-vc-method-card | Mini-case Exhibit 4 | Price range for the Corvane Series A |
| 5 | Valuation II: scenarios, comparables and later-stage DCF | mba/mba-vc-method-card (scenario view), finance/comparable-companies-analysis | Probability-weight three exits | Scenario NPV and implied target rate |
| 6 | Instruments and cap tables | mba/mba-venture-finance-cap-table-card | SAFE to Series A cap table drill | Cap table reconciled to the share |
| 7 | Term sheets I: economic terms | mba/mba-term-sheet-card (economic terms) | Mini-case Exhibit 3 | Waterfall comparison of two offers |
| 8 | Term sheets II: control, boards and governance | mba/mba-term-sheet-card (control terms), mba/mba-corporate-governance-card | Board composition negotiation role play | Negotiation plan (mba/mba-negotiation-planner) |
| 9 | Staging, syndication and follow-on decisions | mba/mba-options-real-options-card | Follow-on or not: two portfolio companies | Follow-on memo with a threshold |
| 10 | Portfolio construction and reserves | mba/mba-vc-portfolio-construction-card | Size a fund's initial checks and reserves | Portfolio plan for a USD 150m fund |
| 11 | Down rounds, bridges and recapitalisations | mba/mba-term-sheet-card (Worked example A, Exercise C) | Anti-dilution and pay-to-play drill | Revised cap table and waterfall |
| 12 | Exits: trade sales, IPOs and secondaries | finance/valuation-report, startup/board-deck | Compare an acquisition offer with an IPO path | Exit recommendation to a board |
| 13 | Corporate and international venture capital; final investment committee | finance/investment-committee-memo | Deal team presentations | Investment memo and committee presentation |
Key concepts and where to learn them
| Concept | One-line meaning | Card or template | My example |
|---|---|---|---|
| Limited and general partners | Investors in the fund and the firm that manages it | mba/mba-pe-fund-economics-card | [ ] |
| Management fee and carried interest | Annual fee on committed or invested capital; share of profits to the GP | mba/mba-pe-fund-economics-card | [ ] |
| TVPI, DPI, RVPI | Total value, distributions and residual value per unit of paid-in capital | This guide | [ ] |
| Public market equivalent | Fund cash flows compared with an index invested on the same dates | This guide | [ ] |
| Power law | A few investments produce most of a fund's returns | mba/mba-vc-portfolio-construction-card | [ ] |
| Venture capital method | Price from a success-case exit, a target return and a retention ratio | mba/mba-vc-method-card | [ ] |
| Retention ratio | Share of today's stake left after later rounds | mba/mba-vc-method-card | [ ] |
| First Chicago method | Probability-weighted scenarios discounted at a lower rate | mba/mba-vc-method-card | [ ] |
| Fund-returner test | Exit value at which one investment returns the whole fund | mba/mba-vc-method-card | [ ] |
| Pre-money, post-money, pool shuffle | Ownership and price mechanics of a round | mba/mba-venture-finance-cap-table-card | [ ] |
| SAFE and convertible note | Instruments that convert at the next priced round | mba/mba-venture-finance-cap-table-card | [ ] |
| Liquidation preference and participation | Who is paid first in an exit and how much | mba/mba-term-sheet-card | [ ] |
| Anti-dilution | Conversion price adjustment in a down round | mba/mba-term-sheet-card | [ ] |
| Protective provisions and board control | Who decides and who can veto | mba/mba-term-sheet-card | [ ] |
| Pay-to-play | Investors who do not follow lose rights | mba/mba-term-sheet-card | [ ] |
| Staging | Capital released in rounds tied to milestones | mba/mba-options-real-options-card | [ ] |
| Reserves and pro rata | Capital kept for follow-on rounds and the right to use it | mba/mba-vc-portfolio-construction-card | [ ] |
| Investment committee memo | The written case for an investment | finance/investment-committee-memo | [ ] |
| Exit routes | Trade sale, IPO, secondary sale of shares | finance/valuation-report | [ ] |
The main ideas in brief
The fund. A venture fund is usually a limited partnership with a life of about ten years, often with extensions. Limited partners (LPs) commit capital that the general partner (GP) calls over the first years to make investments and then pays fees from. The GP typically receives a management fee (a percentage of committed capital during the investment period, often stepping down later) and carried interest (a share of profits, commonly around 20%, sometimes higher for top-performing firms). Fees reduce the capital available for investment: in Exhibit 2, USD 26.25m of a USD 150m fund goes to fees over its life. Metrick and Yasuda (2010) show how much of GP revenue comes from fixed fees rather than carry, which shapes incentives. mba/mba-pe-fund-economics-card works through a full fund model.
Measuring returns. Funds report multiples and IRRs. With paid-in capital , cumulative distributions and net asset value :
Example: a fund that has called USD 120m, distributed USD 60m and holds USD 150m of NAV has a DPI of 0.50, an RVPI of 1.25 and a TVPI of 1.75. DPI is cash returned; RVPI is a valuation. Kaplan and Schoar (2005) popularised the form of the public market equivalent (PME) most widely used in research (often called the KS-PME): the fund's distributions, each discounted by the index return since the start, divided by its capital calls discounted the same way. A PME above 1 means the fund beat the index. Example: a single call of 100 when the index is at 100 and a single distribution of 250 when the index is at 180 give a PME of (250/180)/(100/100) = 1.389. As of October 2026, ILPA (the Institutional Limited Partners Association) publishes an updated Reporting Template and a new Performance Template released in 2025 to standardise fee, expense and performance reporting by GPs (ilpa.org, checked 2026-10-28; check the current versions there before you rely on them).
Gross and net. A gross 3.0x on USD 120m invested (USD 360m) becomes, after 20% carry on the profit above USD 150m of committed capital, USD 318m to the LPs: a net TVPI of 2.12x on commitments. Students regularly compare a company's target return with an LP's net return; they are different numbers. This example ignores the preferred return (hurdle) and the catch-up, which mba/mba-pe-fund-economics-card adds.
Why venture is a power-law business. The distribution of outcomes is highly skewed: most investments return little or nothing and a few return many times the capital. That shapes everything else: the high target rates of the venture capital method, the fund-returner test, the size of initial checks and the need for reserves to follow winners. Cochrane (2005) shows that observed venture returns suffer from selection bias, because we see valuations mostly when companies raise money or exit.
How investors decide. Gompers, Gornall, Kaplan and Strebulaev (2020) surveyed venture capitalists and found that the management team is the factor cited most often as important, ahead of business model, product and market; that a large share of deal flow comes through networks and referrals; and that many investors rely on target multiples and target IRRs rather than DCF. The course turns that into a screening scorecard and a diligence plan.
Staging and control. Venture capital is released in rounds, each funding the next milestone. Gompers (1995) showed that staging is tighter when monitoring problems are greater: the right to stop funding is the investor's strongest control. Kaplan and Stromberg (2003) documented how contracts allocate cash flow, board, voting and liquidation rights and make them contingent on performance. mba/mba-term-sheet-card covers each term; mba/mba-options-real-options-card treats staging as a sequence of options.
Valuation. Early-stage valuations are set with the venture capital method (mba/mba-vc-method-card): an exit value in the success case, a target return, and a retention ratio for future dilution. A scenario view makes explicit the probabilities hidden in the target rate. Headline post-money valuations overstate value when securities have different terms (Gornall and Strebulaev 2020).
Portfolio and exits. A fund's return depends on how many companies it backs, how much it reserves for follow-ons and how well it decides whom to follow (mba/mba-vc-portfolio-construction-card). Exits come mainly through trade sales, IPOs and secondary sales; the choice depends on market windows, the preference stack and the board's control rights.
Mini-case: Fund I and the Corvane Robotics Series A
Situation
Lucia Ferreira had been a partner at Fund I for three years when Corvane Robotics asked her to lead its Series A. Fund I was a USD 150m early-stage fund in the third year of its investment period, with fourteen companies in the portfolio and USD 52m invested. Its strategy document promised LPs a concentrated portfolio of about 25 companies, initial checks of USD 2m to USD 5m at seed and Series A, and reserves of roughly one dollar for every dollar of initial investment.
Corvane made warehouse robots that picked totes from shelves and brought them to packing stations, and rented them to third-party logistics providers as a service at USD 3,500 a month per robot. It had raised two post-money SAFEs and a USD 4m Seed, and now had 60 robots in the field (Exhibit 1). Customers were renewing, but each new robot cost Corvane USD 70,000 to build, and the company had four months of cash at its current burn. The founders wanted USD 12m to reach 200 robots and a second customer segment.
Kenji Watanabe, the associate on the deal, had spent two weeks in diligence. He had visited two customer sites, called six warehouse managers who had not been introduced by the company, and rebuilt the cap table to the share. His note to Lucia listed three concerns: the fleet made Corvane capital-hungry, so later rounds would dilute Fund I heavily; a large robotics company had announced a competing product; and two of the five largest customers belonged to the same parent group.
Two term sheets were on the table (Exhibit 3). Fund I's draft offered USD 12m at a USD 36m pre-money valuation with a 12% unissued pool post-money, a 1x non-participating preference, and a board of two founders, one Fund I partner and one independent director chosen jointly. Fund K, a larger fund that had moved quickly, offered USD 12m at a USD 44m pre-money valuation, with the same pool, but a 1x participating preference and two investor board seats out of five. The founders told Lucia they liked working with her and asked whether she could "get closer to 44".
Kenji's valuation (Exhibit 4) used the venture capital method with Fund I's 40% target for Series A investments and a success case of USD 405m in year 5. At USD 36m pre-money, the success case gave Fund I just under 40% a year. He also wrote three scenarios and found that, with a 35% chance of success, the investment was slightly negative at a 20% discount rate. The bigger problem was the fund-returner test: even in the success case, Corvane would return only about USD 64.5m of the USD 150m fund.
Lucia had two days before the investment committee. She had to recommend a price, terms and a check size, and to decide whether to match Fund K's headline valuation, propose a syndicate, or let Fund K lead. She also had to answer a question one of her partners had asked in the corridor: "Is this a company that can return the fund, or a good company that does not fit our fund?"
Exhibit 1: Corvane operating metrics at the Series A (fictional)
| Measure | Value |
|---|---|
| Robots in the field | 60 (24 a year earlier, +150.0%) |
| Price per robot | USD 3,500 a month (USD 42,000 a year) |
| Annual recurring revenue | USD 2.52m (=60*42000) |
| Gross margin per robot after depreciation | 52.4% (=(42000-6000-70000/5)/42000) |
| Build cost per robot | USD 70,000 (depreciated over 5 years: USD 14,000 a year) |
| Service and maintenance cost per robot | USD 6,000 a year |
| Monthly net burn | USD 450,000 |
| Cash | USD 1.8m (4.0 months of runway) |
| Customers | 9 logistics providers, 2 of the top 5 under one parent group |
Exhibit 2: Fund I profile (fictional)
| Item | Value |
|---|---|
| Committed capital | USD 150m |
| Fees over the fund life | USD 26.25m (2% for five years, 1.5% for five years, on commitments) |
| Investable capital | USD 123.75m |
| Invested to date | USD 52m in 14 companies (average initial check USD 3.71m) |
| Target portfolio | About 25 companies, reserves about 1:1 |
| Corvane initial check | USD 12m: 8.0% of commitments, 9.7% of investable capital |
| Corvane with 1:1 reserves | USD 24m: 19.4% of investable capital |
Exhibit 3: The two Series A term sheets (fictional)
| Item | Fund I | Fund K |
|---|---|---|
| Amount | USD 12m | USD 12m |
| Headline pre-money / post-money | USD 36m / USD 48m | USD 44m / USD 56m |
| Pool increase in the pre-money (to 12% post) | 2,113,172 shares | 1,969,845 shares |
| Price per share | USD 2.1560 | USD 2.6579 |
| Series A shares | 5,565,863 | 4,514,798 |
| Post-money fully diluted shares | 22,263,451 | 21,069,059 |
| Investor ownership | 25.00% | 21.43% |
| Founders' fully diluted ownership | 35.93% | 37.97% |
| Effective pre-money after the pool | USD 31.44m | USD 38.76m |
| Liquidation preference | 1x non-participating, pari passu with Seed | 1x participating, pari passu with Seed |
| Board | 2 founders, 1 Fund I, 1 independent | 2 founders, 2 Fund K, 1 independent |
Both term sheets start from the post-Seed cap table in mba/mba-venture-finance-cap-table-card (14,584,416 fully diluted shares, 558,442 unissued pool after 900,000 new grants).
Exhibit 4: Fund I valuation summary (fictional)
| Item | Value | Excel formula |
|---|---|---|
| Success-case exit, year 5 | USD 405m (USD 90m revenue x 4.5) | =90000000*4.5 |
| Retention ratio (Series B as modelled, then 15% Series C) | 0.6371 | =(5565863/29702624)/(5565863/22263451)*0.85 |
| Maximum post-money at a 40% target | USD 47.98m | =405000000*0.6371/1.4^5 |
| Success-case multiple and IRR at Fund I's price | 5.376x, 39.99% | =0.25*0.6371*405000000/12000000 |
| Success-case multiple and IRR at Fund K's price | 4.608x, 35.74% | =0.2143*0.6371*405000000/12000000 |
| Scenario NPV at 20% (35% success, 35% sideways at USD 90m, 30% failure) | USD -0.91m | See mba/mba-vc-method-card |
| Exit needed to return the fund at Fund I's price | USD 941.7m | =150000000/(0.25*0.6371) |
Discussion questions
- Using Exhibits 1 and 4, what has to be true for Corvane to reach the success case? Which diligence findings make you more or less confident?
- Compare the two term sheets from the founders' point of view, using a waterfall at exits of USD 40m, USD 60m and USD 150m (assume, for simplicity, a sale after the Series A with no further rounds). Is Fund K's offer better for the founders?
- Should Fund I match USD 44m pre-money? What does the venture capital method say, and what does it leave out?
- Is a USD 12m check (USD 24m with reserves) consistent with Fund I's strategy? What alternatives does Lucia have?
- Answer the partner's question: can Corvane return the fund? If not, should Fund I still invest?
- Write the recommendation in five lines for the investment committee: price, terms, check size, syndicate, and the two conditions that would make you pass.
Teaching note
What must be true (Q1). Reaching USD 90m of revenue at USD 42,000 per robot a year means about 2,143 robots in the
field in year 5 (=90000000/42000), against 60 today: about 35.7 times the fleet, or 2.04x a year for five
years (=(2143/60)^(1/5)). The fleet at USD 70,000 a robot would cost about
USD 150m to build, so the success case depends on separate equipment financing (leasing or asset-backed debt) and on
utilisation and renewals holding up. Kenji's independent customer calls and the 52.4% gross margin support the unit
economics; the customer concentration and the competing product weigh against. A good answer names the two or three
assumptions that drive the success case and the evidence that would confirm them within 12 months.
Founders' view (Q2). If Corvane were sold right after the Series A, with granted options treated as exercised and the unissued pool cancelled, the founders would receive:
| Example exit | Founders under Fund I | Founders under Fund K | Series A under Fund I | Series A under Fund K |
|---|---|---|---|---|
| USD 40m | USD 15.97m | USD 12.08m | USD 12.00m (keeps preference) | USD 18.82m (preference plus participation) |
| USD 60m | USD 24.50m | USD 20.71m | USD 17.05m (converts) | USD 23.69m |
| USD 150m | USD 61.25m | USD 59.54m | USD 42.61m (converts) | USD 45.60m |
Despite a USD 8m higher headline valuation and 2.04 percentage points more ownership, the founders receive less under Fund K at every one of these exits, because participation gives the Series A its USD 12m back and then a share of the rest. Fund K's board also gives investors two of five seats. The founders' sense that "44 is better" is the classic error of reading the headline price without the terms (mba/mba-term-sheet-card).
Matching the price (Q3). At Fund K's price, a non-participating Series A would earn 35.74% in the success case, below Fund I's 40% target, and the fund-returner exit would rise to about USD 1.1bn. The venture capital method says Fund I should not match the headline price on the same terms. It leaves out what the terms are worth: Fund I could offer a higher price than USD 36m only if it is paid in another way, which is exactly what Fund K did with participation. A defensible answer keeps a clean 1x non-participating preference and offers a modest move on price (for example to USD 38m to USD 40m) in exchange for the board structure, and shows the founders the waterfall table above.
Fit with the fund (Q4). A USD 12m initial check is more than three times the fund's average and, with reserves, would consume nearly a fifth of investable capital in one company. That concentration is inconsistent with a 25-company strategy. Alternatives: lead with USD 6m to USD 8m and bring in a co-investor or syndicate partner (possibly Fund K on Fund I's terms), reserve less, or offer LPs a co-investment opportunity. Syndication also spreads the large later rounds a capital-hungry company will need.
Fund returner (Q5). At Fund I's price, Corvane returns the fund only at an exit of USD 941.7m, more than twice the success case. Strictly applied, the heuristic says pass. But the heuristic is a screen, not a rule: a fund can hold some investments with a lower ceiling and a higher probability of a good outcome, if the portfolio as a whole keeps enough companies that could return the fund (mba/mba-vc-portfolio-construction-card). The honest answer is that Corvane looks like a solid, capital-intensive business whose upside depends on a broader product line; a smaller check in a syndicate fits Fund I better than a large lead.
Recommendation (Q6). One example: invest USD 7m as co-lead of a USD 12m round at USD 38m pre-money, 1x non-participating, pari passu; board of two founders, one Fund I, one independent; reserve USD 7m; conditions to pass: no equipment financing agreed in principle by closing, or loss of either customer in the concentrated group during confirmatory diligence. Students should recompute the cap table and the waterfall for their own recommendation.
Numbers for instructors. Pool increases =ROUND((k*14584416-558442)/(1-k),0) with k=0.12/(1-12/48) = 0.16
(Fund I) and k=0.12/(1-12/56) = 0.152727 (Fund K). Fund K price =44000000/(14584416+1969845) = USD 2.6579. Waterfall
at USD 40m under Fund K: the Series A takes USD 12m, the Seed converts, and the remaining USD 28m is shared by
9,200,000 common, 4,825,974 Seed and 4,514,798 Series A shares, so the Series A receives
=12+28*4514798/18540772 = USD 18.82m.
Typical assignments and how they are graded
Common assignments: individual case write-ups (mba/mba-case-write-up), a fund metrics problem set, a term sheet negotiation with a waterfall, a deal team project that sources and diligences a real or fictional company and presents to an investment committee (finance/investment-committee-memo), and a final exam.
| Criterion | Weight (Example) | Excellent | Adequate | Weak |
|---|---|---|---|---|
| Thesis and market | 20% | Clear thesis, market sized bottom-up, why now | Thesis stated, top-down market | No thesis, market asserted |
| Team and diligence | 20% | Independent references, risks tested with evidence | Management interviews only | Company materials repeated |
| Valuation | 20% | Venture capital method and scenarios, retention justified, ranges shown | One method, plausible inputs | Headline multiple without reasoning |
| Terms and structure | 15% | Waterfall at three exits, control terms reasoned, alternatives considered | Price and preference stated | Terms ignored |
| Portfolio fit | 10% | Check size, reserves and fund-returner test discussed | Check size stated | Fund context missing |
| Communication | 15% | Recommendation first, exhibits consistent with text, risks and conditions explicit | Understandable | Numbers inconsistent, no recommendation |
Exam preparation plan
| Week before exam | Focus | Activity |
|---|---|---|
| 3 | Concepts | Answer this self-test and those of mba/mba-vc-method-card and mba/mba-term-sheet-card from memory; log misses |
| 3 | Calculations | Rebuild the cap table, VC method and waterfall examples without looking |
| 2 | Cases | Redo the mini-case in 90 minutes under exam conditions; compare with the teaching note |
| 2 | Interleaving | Mix fund metrics, pricing, anti-dilution and waterfalls in one sitting |
| 1 | Literature | Explain Sahlman (1990), Gompers (1995), Kaplan and Stromberg (2003) and Kaplan and Schoar (2005) in two sentences each |
| 1 | Review | Redo every item in mba/mba-error-log; sleep before the exam |
See mba/mba-exam-prep for a general plan and mba/mba-formula-sheet for the formulas to memorise.
Common struggles
- Headline price over terms. Compare offers with a waterfall, not with pre-money valuations.
- Success case treated as expected case. Keep the target rate with the success case, or switch to scenarios.
- Forgetting dilution. The retention ratio often halves the affordable price.
- Gross versus net returns. Company-level multiples are not LP returns.
- Ignoring fund context. A good company can be a bad investment for a particular fund because of check size, reserves or timing.
- Share base errors. Pre or post, fully diluted or outstanding, pool in or out: practise until automatic.
- Diligence as a list. Good diligence tests the two or three assumptions that drive the success case.
- Treating board seats as formalities. Control rights decide sales, CEO changes and the next round.
- Reading IRRs on young funds. Early IRRs depend on valuations and on the timing of calls; use DPI and PME too.
Reading list
Classic works: Sahlman, "The structure and governance of venture-capital organizations" (1990); Gompers, "Optimal investment, monitoring, and the staging of venture capital" (1995); Kaplan and Stromberg, "Financial contracting theory meets the real world" (2003); Kaplan and Schoar, "Private equity performance" (2005); Gompers, Gornall, Kaplan and Strebulaev, "How do venture capitalists make decisions?" (2020). Textbooks and practitioner books (by name only): Metrick and Yasuda, Venture Capital and the Finance of Innovation; Gompers and Lerner, The Venture Capital Cycle; Feld and Mendelson, Venture Deals. Survey: Lerner and Nanda, "Venture capital's role in financing innovation" (2020). Open resource: OpenStax, Entrepreneurship (CC BY-NC-SA 4.0), chapters on funding and financing.
Self-test questions
- Describe the two layers of contracts in venture capital that Sahlman (1990) analyses.
- Define TVPI, DPI and RVPI. Which one measures cash actually returned?
- A fund has called USD 80m, distributed USD 30m and holds USD 90m of NAV. Compute TVPI and DPI.
- An investor puts USD 5m into a company at USD 20m pre-money with no pool change. What does it own?
- A USD 100m fund will own 10% of a company at exit. What exit returns the fund?
- What does a public market equivalent above 1 mean?
- Why do venture investors stage their capital, and what did Gompers (1995) find about the length of stages?
- In the mini-case, why do the founders receive less under the higher-valued Fund K offer?
- Name three ways a fund can stay involved in a company it likes but cannot fund at the size requested.
- Why can an early IRR mislead LPs?
- What does the management team factor in Gompers, Gornall, Kaplan and Strebulaev (2020) tell you about how to structure diligence?
- Give two differences between corporate venture capital and an independent venture fund.
Sources and further reading
- Sahlman, W. A. (1990). The structure and governance of venture-capital organizations. Journal of Financial Economics, 27(2), 473-521.
- Gompers, P. A. (1995). Optimal investment, monitoring, and the staging of venture capital. The Journal of Finance, 50(5), 1461-1489.
- Kaplan, S. N., and Stromberg, P. (2003). Financial contracting theory meets the real world: an empirical analysis of venture capital contracts. The Review of Economic Studies, 70(2), 281-315.
- Kaplan, S. N., and Schoar, A. (2005). Private equity performance: returns, persistence, and capital flows. The Journal of Finance, 60(4), 1791-1823.
- Cochrane, J. H. (2005). The risk and return of venture capital. Journal of Financial Economics, 75(1), 3-52.
- Metrick, A., and Yasuda, A. (2010). The economics of private equity funds. The Review of Financial Studies, 23(6), 2303-2341.
- Gompers, P. A., Gornall, W., Kaplan, S. N., and Strebulaev, I. A. (2020). How do venture capitalists make decisions? Journal of Financial Economics, 135(1), 169-190.
- Gornall, W., and Strebulaev, I. A. (2020). Squaring venture capital valuations with reality. Journal of Financial Economics, 135(1), 120-143.
- Kerr, W. R., Nanda, R., and Rhodes-Kropf, M. (2014). Entrepreneurship as experimentation. Journal of Economic Perspectives, 28(3), 25-48.
- Lerner, J., and Nanda, R. (2020). Venture capital's role in financing innovation: what we know and how much we still need to learn. Journal of Economic Perspectives, 34(3), 237-261.
- Institutional Limited Partners Association. Updated ILPA Reporting Template and ILPA Performance Template (2025). ilpa.org, checked 2026-10-28.
Answer key
- Between the fund's investors (LPs) and the venture capitalists (GPs): fixed fund life, fees and carried interest, restrictions on GP behaviour. Between the venture capitalists and the companies: staged financing, convertible preferred securities, board seats and control rights, and compensation for managers tied to value.
- TVPI = (distributions + NAV) / paid-in; DPI = distributions / paid-in; RVPI = NAV / paid-in. DPI measures cash returned.
- TVPI 1.50 (
=(30+90)/80); DPI 0.375 (=30/80). - 20% (
=5/(20+5)). - USD 1,000m (
=100/10%). - The fund's distributions were worth more than the same capital invested in the index on the same dates: it outperformed the public market.
- Staging keeps the option to stop funding and limits the losses from agency and information problems; Gompers (1995) found shorter stages and more rounds where monitoring problems are greater, such as companies with more intangible assets.
- Fund K's participating preference returns its USD 12m and then a share of the rest, which costs common more than the higher price gives back at every exit in the table.
- Co-lead or join a syndicate at a smaller check; offer an LP co-investment; take a smaller initial stake and reserve for later rounds with pro rata rights.
- Early IRRs depend on unrealised valuations and on the timing of calls and distributions (and subscription lines can raise them); multiples and DPI give a fuller picture.
- Diligence should spend most time on the team (references, track record, how they handle bad news) and test the business model and market claims the team makes, rather than treating them as givens.
- Examples: corporate venture units often pursue strategic goals as well as financial returns; they may have no fixed fund life and different compensation; founders weigh access to the parent against potential conflicts with competitors of the parent.
Revision history
| Version | Date | Author | Change summary |
|---|---|---|---|
| 0.1 | YYYY-MM-DD | [Your name] | First adaptation to my syllabus |
| 0.2 | YYYY-MM-DD | [Your name] | Example: Added my deal team's company and our committee feedback |
Standard and licence note
Structure aligned with the common content of MBA venture capital electives, the AACSB-style competency areas used across this library, and the venture capital literature listed above (Sahlman 1990; Gompers 1995; Kaplan and Stromberg 2003; Kaplan and Schoar 2005; Gompers, Gornall, Kaplan and Strebulaev 2020). ILPA template releases are cited as dated facts. The text, mini-case, exhibits, numbers and questions are original; no published case, teaching note or textbook text is copied or paraphrased, and Corvane Robotics, Fund I, Fund K and the people named are fictional. The template is independent and not affiliated with or endorsed by any business school, fund, LP association or investor. Check your own syllabus and current sources before you rely on it. Template licence: MIT.
Схожі шаблони
Capital Structure and Payout Concept Card Template
MM 1958 and 1963, trade-off, agency, pecking order, distress costs, APV, payout irrelevance and Lintner smoothing, computed examples with Excel formulas
MBA та бізнес-школиMBA Decision Analytics Course Guide Template
Probability, inference, A/B tests, regression, forecasting, Solver LP, Monte Carlo, session roadmap, mini-case with teaching note, rubric, exam plan
MBA та бізнес-школиMBA Managerial Accounting Course Guide Template
MBA managerial accounting guide: 12-session roadmap, cost estimation, CVP, relevant costs, ABC, variances, transfer pricing, balanced scorecard, mini-case