Venture Capital & Private Equity: A Casebook (5th Edition)

Josh   Lerner; Felda  Hardymon; Ann  Leamon

Casebook | 2012

Venture Capital & Private Equity: A Casebook (5th Edition)

by Josh Lerner, Felda Hardymon and Ann Leamon

Abstract

Venture Capital & Private Equity: A Casebook, 5th edition provides an understanding of the ways in which private equity groups work. The casebook builds an understanding of the key distinctions in the industry and reviews and applies key ideas of corporate finance. The 5th edition continues to explore a wide variety of valuation approaches, from techniques widely used in practice to methods less frequently seen in practice today but likely to be increasingly important in the future years.

Keywords: Venture Capital; Private Equity; Books;

Format: Print

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Lerner, Josh, Felda Hardymon, and Ann Leamon. Venture Capital & Private Equity: A Casebook (5th Edition). New York: John Wiley & Sons, 2012. (New York: John Wiley & Sons, 2001 (second edition) (with Felda Hardymon). Beijing: Economic Science Press, 2002 (Chinese translation of the second edition). Tokyo: Toyo Keizai Shinposha, 2003 (Japanese translation of the second edition). New York: John Wiley and Sons, 2004 (third edition) (with Felda Hardymon and Ann Leamon). New York: John Wiley & Sons, 2008 (fourth edition) (with Felda Hardymon and Ann Leamon). Beijing: CITIC Press, 2013 (Chinese translation of the fifth edition).)

There has never been a greater need for long-term investments. And it is increasingly unlikely that the public sector will be willing or able to fill the gap. Those best positioned to address the long-run needs are likely to be the pools of capital in the hands of pensions, insurers, sovereign wealth funds, endowments, and families. In addition to their long time frames, these institutions command enormous sums. Yet, in many cases, despite the abundance of capital and substantial need for returns, long-term investments have been problematic at best. Building on recent academic research, our own work, and many discussions with practitioners, this book outlines the key challenges facing long-term investments and suggests ways to address them. Over the past several decades, “private equity” has been the primary way in which longer-term illiquid investments have been made. In dissecting the motivations and actions of the key actors in the world of long-run investing, we have taken a careful look at traditional fund models, but we also analyzed other ways to pursue concentrated and long-term investments.

Genentech is a rare success story in the biotechnology industry. Hundreds of billions of dollars of venture capital have been invested without the expected transformational effects. Established in 1976, Genentech was to develop the new science of recombinant DNA into viable therapeutic products with mass market appeal, something that most scientists agreed was at least a decade away. The founders, Herbert Boyer and Robert Swanson had limited financial resources, so they turned to Tom Perkins, the co-founder of Kleiner-Perkins, for venture funding. Genentech developed through an effective union between scientific and venture investment mindsets. In 1980 an IPO valued Genentech at $300 million. In 2009 it was fully acquired by the Swiss-based healthcare company, Roche, for $47 billion. Roche had held a majority stake in the company since 1990.

Do private equity firms contribute to financial fragility during economic crises? We find that during the 2008 financial crisis, PE-backed companies increased investments relative to their peers, while also experiencing greater equity and debt inflows. The effects are stronger among financially constrained companies and those whose private equity investors had more resources at the onset of the crisis. PE-backed companies consequentially experienced higher asset growth and increased market share during the crisis.

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Venture Capital & Private Equity: A Casebook (5th Edition)

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