Venture Capital and Private Equity

Course Number 1428

Senior Lecturer Nori Gerardo Lietz

Fall; Q1Q2; 3 credits
22 Sessions

The growth of private equity and venture capital (“VCPE”) internationally has been dramatic, to the point that the asset class has been both lauded as the savior of capitalism and vilified as examples of conspicuous greed. Over the past two decades, private equity investments- ranging from seed venture capital to large capitalization buyouts -have come to play an increasingly important role in shaping our economy. Their promise of "above market" returns, meaning absolute returns that consistently exceed the broader publicly traded equity market, has attracted investments from pension funds upon which millions of our elders rely, sovereign wealth funds investing on behalf of their citizens, and universities which educate future contributors to society.

VCPE organizations often operate in mysterious ways, with little public visibility even though some of the larger firms are now publicly traded themselves. This course provides an overview of how the industry works, who the players are and the sources of capital. VCPE is differentiated from Private Equity Finance in that the emphasis focuses more on an overview of the industry. PE Finance is an advanced finance course focused more on capital structures and transactional economics. The two courses are complementary to one another.

This course seeks to understand how VCPE organizations work, why they take the forms that they do, how their contracts influence motivations, and where crucial problems and opportunities for innovation exist. We examine the strategies and incentives of the various players and how they maneuver through the business cycle. The course provides an overview of the types of VCPE which now includes multiple asset class verticals including private debt, infrastructure, impact investing and real estate.

Cases are recent and class speakers are common so the current private equity environment and the changing landscape are features of every class.

Career Focus

This course is geared to students interested in working within some aspect of the private equity industry-whether directly, as a practitioner or supplier of capital, as an entrepreneur or corporate manager who is financed by private equity; as a banker or advisor involved in private equity transactions; or as a regulator whose purview might include VCPE. In addition, a solid understanding of VCPE tenets can be useful for those students interested in applying them to other settings, whether within large corporations or in international development. This course is intended to be a complement to Private Equity Finance.

Educational Objectives

The course focuses on the "private equity cycle," and starts by considering how VCPE funds are raised and structured, with attention paid to the differing perspectives and incentives of institutional investors, "gatekeepers," fund-of-fund managers, and private equity investors. Second, we explore how investments are evaluated, structured, and overseen. We examine the crucial problems that firms seeking private equity pose to investors, and how private equity organizations address these problems. Finally, we address the often-problematic ways in which private equity investors harvest their investments. The course's final module investigates the future of private equity. We consider both the internal management challenges that private equity organizations face as they grow and contend with an environment that is increasingly international and in which they play an increasingly larger role. One fundamental question posed is how VCPE firms can outperform the market when the size of the funds raised become so large at even the seed level of venture capital. The cases are global and many are very recent.

Course Content and Organization

Class Sessions: The course has 27 cases plus a wrap up session. The cases include the multiple industry verticals including: (i) venture capital; (ii) leveraged buyouts; (iii) private debt; (iv) infrastructure; (v) real estate; and (vi) impact investing. The last module includes a focus on general partner and limited partner issues. Guests will attend many of the classes. Class participation will account for 45% of the grade.

Exercises: A few cases have short exercises or night before polls associated with them. These will count for 10% of the grade.

Final Project: Students are required to submit a final project. The topic of the final paper is of the student’s choosing and may include any of the broad topics covered in the course, as referenced above. The paper can be a theoretical paper or one based upon a specific company in a case-like format. Students may work in teams of two. Industry participants have also offered potential topics for research. Each case has supplemental materials which can provide additional sources of inspiration for potential topics. Students are required to have “check in” meetings with the Professor regarding their topic and at least one peer-to-peer meeting with another student and/or team to discuss their paper. The final project constitutes 45% of the grade. Additionally, the top five or six papers and their findings will be presented to the class as a whole.