Cass Business SchoolMSc Investment Management - 2005

Structuring Venture Capital Deals

byShikhir SinghSupervisor: Robert CressyThis dissertation is submitted as part of the requirementsfor the award of the MSc in Investment Management

Abstract

Fundraising with venture capitalists can remain a largely mysteriousprocess. In a world shrouded with non-disclosure agreements, the entrepreneursare often unaware of the common practices of deal terms and are unable tobenchmark their term sheets with respect to those given to others. Inherentconflicts of interest in the split of the financial returns, liquidation, and control ofthe company lead the venture capitalists to structure the deals which benefittheir interests at cost to the interests of the entrepreneurs. This dissertationidentifies and characterizes the term sheet structures used by venture capitaliststoday and establishes their frequency. This information can be used byentrepreneurs to benchmark their term sheets and by venture capitalists toevaluate their investment strategies.

Acknowledgements

I am very grateful for guidance, comments, and massive assistanceprovided by Katherine who made this dissertation possible. My sincerethanks goes out to my dissertation advisor Dr Robert Cressy who made thisdissertation very enjoyable.