Venture Capital Game
The Venture Capital (VC) Game is a web-based, interactive exercise that enables students to play the role of venture capital firms who assemble and manage a portfolio of company investments within a realistic and complex market dynamic. This courseware product was developed by Professor Felda Hardymon for use over several weeks in the second-year MBA course "Venture Capital and Private Equity." The game has also been used in a more compressed timeframe of several days in an Executive Education program. With the game, Felda intends to provide students with a realistic understanding of how strategic portfolio management can increase the chances of success in venture markets.
Playing in teams of three to five participants, each team chooses two industry sectors on which to focus. There can be up to seven industry sectors to choose from, ranging from biotech to wireless. Teams may also choose to target other specific attributes associated with potential investment companies, such as management level (experienced, novice, etc.) or company stage (start-up, mezzanine, etc.). All of these attributes contributes to how much the company might seek for investment, how much cash it burns, and how it values itself -- all factors which might inform the student teams' decision to invest. The game can be loaded with thousands of these companies, all carefully created based on historical industry experience.
As VC firms within the game, student teams progress through a series of "game years" with multiple phases of activity per year. During the first phase, teams search for companies that match their strategic goals. They review the company attributes and decide whether and how much to invest. They can refer 'deals' to other student teams and can also choose to form syndicates and co-invest. When ready, the teams submit Term Sheets specifying their preferred deal terms versus the terms requested by the company.
During the second phase of game play, a backend algorithm determines for each company which team submitted the most favorable deal terms -- the terms that most resembled or exceeded the company's initial request. That team is selected to be the Lead Investor for the deal. This is a very powerful position because during Phase 3 all Lead Investors craft the final deal terms by configuring their terms as well as those of all "Fill" investors -- those investors who submitted offers on that same company but were not selected as the Lead.
Finally, in the fourth phase, the game advances to the next game year by following the evolutionary trajectory of teams and companies. Teams have liquidation events -- both successes and failures -- within their portfolios. Their portfolio holdings also contribute to team reputation, which then affects the quality of the search results during Phase 1 and the likelihood of a team winning Lead status in Phase 2. Companies follow unique, detailed outcome paths based on the amount invested, their burn rate, their sector, and market conditions. All of this is controlled and manipulated by game administrators through a powerful game control console.
The result is an engaging game that fosters student interaction both at and away from the computer as deals are struck and traded, and portfolios managed and mis-managed. A future version of the game will be available through Harvard Business School Publishing.
