You are on page 1of 14

Private Equity & Venture Capital

Subject Area: Accounting

Instructors: Professors Florin Vasvari and Eli Talmor
Email Address:
Room Location: R214, Sainsbury 2nd floor
Extension: x8117
Course Administrator: Bernadette Salas
Email Address:
Room Location: R207
Extension: x8122
Course Code: E126
Term: Spring18
Credit Value: 1


Florin Vasvari is Professor at London Business School and a Fellow at the Institute for Private
Equity. He is also the Academic Director of the Senior M&A Executive Programme. His
research and consulting are on private equity and debt markets and he has published
extensively in top tier academic journals. Professor Vasvari is regularly invited to present his
research at major business schools such as Chicago Booth, Columbia Business School,
Wharton School, MIT Sloan School of Management, Harvard Business School, UCLA, Insead,
and others. He serves on the board of two top academic accounting journals, The Accounting
Review and Contemporary Accounting Research. Prof Vasvari also serves on the boards of
Phidar Advisory, Validus Risk Management and Morphosis Capital. Professor Vasvari holds a
Ph.D. from the University of Toronto, Rotman School of Management and an M.A. from
University of Toronto, Department of Economics.

Eli Talmor is Professor at London Business School and Founder of the Institute of Private
Equity. He is a serial cornerstone investor including a turnaround of a NASDAQ enterprise
software company driving the share price from $3.25 to $52 and co-founding a renewable
energy company which was acquired for nearly $300 million. He served on the board of
Governors of London Business School and the advisory board of the African Venture Capital
Association. Professor Talmor was asked by the UK Parliament to provide a leading testimony
at its high-profile hearings on private equity and to advise the UK Prime Minister office.
Professor Talmor was previously on the finance faculty at the University of California (UCLA
and Irvine) and the Wharton School (University of Pennsylvania). He holds a Ph.D. from the
University of North Carolina at Chapel Hill and a B.Sc. (Cum Laude) from the Technion –
Israel Institute of Technology.

Page 1 of 14

This course covers the main concepts, techniques, instruments and institutions involved in
the private equity investment. We present a broad set of deals to gain familiarity with the
private equity investment model and the opportunities set. Specific themes include: the
structure and strategy of the private equity firm, valuation, financing, deal processing, and

This course is aimed at:

MBA, Executive MBA, and MiF students.


On successful completion of this course, students will be able to:

• understand the basic principles of private equity investing

• assess the economics of a private equity fund
• value private equity companies
• assess the performance of private equity funds
• perform basic due diligence of a deal
• understand and assess value drivers in private equity deals
• understand private equity deal dynamics (from deal screening to deal harvesting)
• understand private equity fund structuring issues
• venture capital transactions


Assessment Table:

Assessment type Deadline Group/ Formative/ Requirement Submission


Individual Summative to pass? Y/N Information

5 Group During class 50% Group Summative N 4 pages +

Assignments Appendix
Class During class 10% Individual Formative N
Final Individual Last class 40% Individual Summative N
Report (in class)

Minimum requirements to pass this course:

1) minimum 50% in the weighted final numerical score AND
2a) minimum 50% in the aggregate of the individual components OR
2b) minimum 50% in the largest weighted individual component

Page 2 of 14
Assessment Overview

There will be a weekly case preparation for which students are required to apply the
course concepts to analyse a real life situation.


• Please form groups of 3 to 4 students. Each group will be assigned in advance one case
to submit on Canvas at the beginning of the session. No report is expected for the other
case taught on that day; however students should come prepared for classroom
discussion of all cases even if not assigned in writing.

• Each case report should consist of no more than 4 (four) pages of clear, concise and
text. Pitch to a high-level audience of savvy business people, and avoid the use of
technical jargon. In addition to the text, you may include tables and figures in an
Appendix, as needed. Any formatting is acceptable.


• Class participation will be based on the quality of classroom discussion. Please be

prepared to initiate class discussion and to defend your position. Each student will be
graded for participation after each and every session.

• Because so much of the learning in this course occurs in the classroom, it is important
that you attend every lecture. Absence will be recorded and factored into the grade.
Under no circumstances missing more that 10% of the course will be allowed.

• Please display your name cards at every session.


 The final individual report will involve the analysis of a deal in writing and will follow
a similar format to the daily assignments and to answer the questions given.

 The final individual report will be written in the last class and must be taken during that

 Given that this assignment has a significant weight in your final grade we will not be
able to provide any specific suggestions/advice.

Page 3 of 14
Plagiarism Declaration
All students completing this course should be aware that in submitting any assignment for this
course, you agree to the following declaration:

“I certify that the coursework that I have submitted is entirely my own unaided work, and that
I have read and complied with the School’s guidelines on plagiarism and referencing as set
out in the School handbook.

I understand that the School may make use of plagiarism detection software and that my work
may therefore be stored on a database which is accessible to other users of the same

Students should be aware that, where plagiarism is suspected, a formal investigation may be
carried out under the School’s Student Disciplinary Procedure. This may result in penalties
ranging from mark deduction to expulsion from the School.


Cases and readings are chapters from International Private Equity (by Eli Talmor and
Florin Vasvari), published in 2011 by John Wiley & Sons. As the new edition is in
preparation, some of the readings already refer to the revised chapters from the new edition.

The hard copy of this book will be available free of charge at the beginning of the class.
Due to copyright constraints readings from the book cannot be posted on the Portal or made
available in a binder.

The book is also available in an electronic form (Kindle Edition) on and on
other sites that sell educational books. You will need to install the free Kindle software on
your tablet or computer.

The new chapters will be distributed by email or posted on


Teaching/contact hours: 30
Suggested independent study hours: 60

The following teaching methods will be used on this course:

Lecture(s) X
Guest Speaker(s) X
Seminar(s) -
External Visit(s) -
Project(s) -

Page 4 of 14

16 January 2018

Session 1: Eli Talmor and Florin Vasvari

• An overview of the private equity industry

• Venture from angel investing to IPO. Case study: Optos

Readings: Ch. 1 Introduction and Overview

Notes on Private Equity Fund Economics (replacing Ch. 2)

Notes on Angel Investing (replacing Ch. 16)

Notes on Venture Capital (replacing Ch. 17)

Ch. 29 Optos: A Sight Worth Seeing

Discussion Questions for Optos:

1. How does angel investing differ from venture capital investing?

2. Write an initial assessment report for Anne Glover in 1996.

3. Taking into account all material considerations, what is an appropriate value of Optos
during its financing in 2002?

4. Previous Amadeus Capital Partners investments in Optos have been through Amadeus I.
This fund is now fully invested, but a new fund Amadeus II is available. If the investment is
made using Amadeus II, what possible conflicts of interest might this raise and how could
they be overcome?

5. Anne Glover believes that £5 million is inadequate to take the company through to an IPO.
She does not wish to risk another round of financing, when the market may be adverse.
Increasing the current round size is unacceptable to the previous investors as they do not
wish to be unnecessarily diluted. How should Amadeus structure a deal?

Page 5 of 14
23 January 2018

Session 2: Florin Vasvari

• Setting up a new fund. Case study: Realza Capital

• Performance measurement in private equity

Readings: Ch. 3 Performance Measurement in Private Equity

Ch. 18 Realza Capital

Notes on Private Equity Fundraising Ecosystem

Discussion Questions for Realza:

1. Is Realza Capital a good opportunity or not? Critique the fund thesis, strategy and

2. Discuss the pros and cons of each of the offers received by Zavala and Gonzalez del Valle.

3. Assess the key drivers of value for the two companies shown in Exhibit 6. Evaluate the
track record of Zavala and Gonzalez del Valle.

4. What items on the term sheet would you wish to negotiate as a potential Limited Partner?
Which items should Realza Capital hold firm on?

5. Why use a placement agent if you are a first-time fund? What do you think are the pros and
cons of working with a small vs. large placement agent from the perspective of a fund like

6. Analyse the decision made regarding the timing and size of the first investment.

Page 6 of 14
30 January 2018

Session 3: Eli Talmor and Florin Vasvari

• Venture lending. Case Study: Astropep Biopharma GmbH

• Private Equity Valuation

Readings: Astropep Biopharma case study and spreadsheet on Canvas

Notes on Venture Lending

Ch. 10 Valuation of Private Equity Companies

Discussion Questions for Astropep:

1. From the perspective of the venture lending fund, is Astropep an attractive target for a
venture loan? In your evaluation, consider
a) company history and market environment.
b) fundamental risk of Astropep’s business.
c) financial risk underlying the proposed venture loan.

2. How attractive are the proposed terms of the venture loan from the perspective of the
venture lender and Astropep?
a. Analyze the terms of the loan in regard to their impact on the upside and downside
risk for the venture lender.
b. Analyze the terms of the loan from the perspective of Astropep. How do they
influence the growth path of Astropep and the prospect of the founding team?

3. Overall, should the credit committee agree to provide a venture loan to Astropep? Why or
why not?

4. Should Astropep accept the venture loan? What other options does Astropep have?

5. Optional: Assuming that the striking price of the warrants to Anturio represents the current
market price of Astropep, compute the value of these warrants (assume σ = 70% and
anticipated warrant maturity of 5 years). If you add it up to the loan payments, what is the
overall expected IRR?

Page 7 of 14
6 February 2018

Session 4: Eli Talmor

• Secondary buyout. Case study: Styles and Wood

• Harvesting of private equity investments

Readings: Notes on Harvesting Private Equity Investments (replacing Ch. 15)

Ch. 26 Styles & Wood: Behind the Scenes of Retail

Discussion Questions for Styles & Wood:

1. What are the opportunities and risks involved in investing in Styles & Wood in May 2004?
What are the critical success factors?

2. In what ways do a secondary buyout and a primary buyout differ?

3. What valuation would you give Styles & Wood? How would you structure the deal to
motivate the management?

Page 8 of 14
13 February 2018

Session 5: Eli Talmor and Florin Vasvari

• Deal selection. Case study: Bloomsbury Capital

• Deal analysis and due diligence
• Fund accounting and structuring

Readings: Notes on Deal Analysis and Due Diligence (replacing Ch. 11)

Ch. 21 Bloomsbury Capital

Notes on Fund Accounting, Governance and Reporting (replacing Ch. 6)

Discussion Questions for Bloomsbury Capital:

1. For class discussion only:

As you review the case and the three PowerPoint presentations, consider how Pauline should
structure her presentation at the partners’ meeting. Among the issues you may wish to consider

a. Which companies (if any) should she recommend for further consideration?

b. What valuation and other considerations should she point out?

c. Which uncertainties should she highlight for further analysis?

d. What organisational issues are likely to influence the partners’ decisions?

2. In writing:

For the assigned deal on Pauline’s behalf, prepare a set of three PowerPoint slides that he
should use when making the case to the general partners.

Page 9 of 14
27 February 2018

Session 6: Florin Vasvari

• LBO transactions. Case study: Ducati

• LBO modelling and performance
• Guest Speaker

Readings: Ch. 12 Leveraged Buyout Transactions

Ch. 13 Leveraged Buyout Modelling

Ch. 25 Ducati and Investindustrial

Notes on Acquisition Financing

Discussion Questions for Ducati:

1. Outline the key differences between the structure and investment philosophies of TPG and
that of Investindustrial? (Please feel free to research external sources)

2. What are the pitfalls of a private equity firm managing a publicly traded company? From
the perspective of a PE firm, what are the advantages of taking a publicly traded company

3. Consider a €1.7 per share tender offer in 2008, what would be the expected money multiple
and IRR if Investindustrial were to exit the Ducati investment in:
a. December 2011
b. December 2013
How sensitive is the exit valuation to EV/EBITDA multiples?

4. Fund III, which Investindustrial earlier used to invest in Ducati, was fully invested in 2007
and so Investindustrial had to use its newly raised Fund IV. Outline possible conflicts of
interest in having two different funds invest in same company? What would you suggest
Investindustrial do to mitigate the risks?

Page 10 of 14
6 March 2018

Session 7: Eli Talmor

• Three forms of governance and value creation in private equity. Case study: Sunray
• Guest Speaker


Ch. 27 SunRay Renewable Energy

Discussion Questions for Sunray:

a. What is attractive about investing in solar PV in Europe? Assuming you are an
entrepreneur interested in solar PV, compare challenges and opportunities in setting
up SunRay to starting up two other ventures: thin-film solar panel installations on
buildings and solar EPC contracting.

b. Compare the rationale of Denham Capital and SunPower for investing in SunRay?

2. What is unique about SunRay’s business model compared to other European PV

developers? Compare the specific challenges when SunRay entered Spain, Italy, Greece
and Israel (similarities and differences).

3. Over three years, SunRay has operated as a start-up, private equity, and corporate structure.
What were the likely positive and negative consequences of these different governance
structures on operations and management of the company?

4. What were the specific challenges in securing project finance for the Montalto project and
why was this so critical? Can you think of any alternatives to project finance?

5. Describe the viable exit opportunities for SunRay and how they affected behavioural and
financial choices over time?

Page 11 of 14
13 March 2018

Session 8: Florin Vasvari

• Private equity portfolio allocation

• Fund selection and due diligence. Case study: Adams Street Partners
• Guest Speaker

Readings: Ch. 5 Fund Due Diligence

Adams Street case study.

Discussion Questions for Adams Street Partners:

1) Discuss advantages and disadvantages of investing in private equity via a fund of funds
vehicle or directly. How does Adams Street mitigate some of the disadvantages?

2) Discuss the diversification strategy of Adams Street's global private equity portfolio along
relevant dimensions.

3) Propose the eight criteria used by the Portfolio Construction Committee, chaired by
Hanneke Smits, to assess the investment potential of various geographies (see Exhibit VI).
Why do you think the U.S. Fund receives such a large weight (see Exhibit VII)?

4) AnaCap Financial Partners: Fund Distribution Waterfall. Use Exhibit IX to calculate the
expected Gross and Net IRRs (to an LP investing in AnaCap). Assume the following:
• The investable capital is computed after setting aside a management fee
reserve for the first 4 years.
• The investable capital is deployed evenly over the first 4 years.
• Each investment is held for exactly 4 years before being sold and provides a
gross money multiple return of 3x.

5) AnaCap Financial Partners: Due Diligence Evaluation. What criteria should Tim Kelly and
Piau-Voon Wang consider in a scorecard used to evaluate, assess and select a Fund
Manager such as AnaCap? Explain how these criteria would help Tim identify risks within
AnaCap and rank the importance of these criteria in advance of his presentation to the
investment committee at Adams Street.

Page 12 of 14
20 March 2018

Session 9: Eli Talmor

• Private Equity in emerging markets. Case study: ECP and IHS

• Guest Speaker

Readings: Notes on Operational Improvements (replacing Ch. 14)

Notes on Private Equity Investing in Emerging Markets (replacing Ch. 4)

ECP-IHS: Private Equity in Africa

Discussion Questions for ECP-IHS:

1. Why is this transaction a good fit for both IHS and ECP?

2. How did ECP structure the deal to mitigate the risks? How do you evaluate the IHS
shareholders profile?

3. How would go about valuating this deal? Is it truly a PIPE transaction?

Page 13 of 14
27 March 2018

Session 10: Eli Talmor and Florin Vasvari

• In class individual report

Page 14 of 14