Eugene Holman Professor of Business Administration
Paul Gompers, Professor of Business Administration at the Harvard Business School, specializes in research on financial issues related to start-up, high growth, and newly public companies. Professor Gompers has an appointment in both the Finance and Entrepreneurial Management areas. He received his A.B. summa cum laude in biology from Harvard College in 1987. After spending a year working as a research biochemist for Bayer Chemical AG, he attended Oxford University on a Marshall Fellowship where he received an M.Sc. in economics. He completed his Ph.D. in Business Economics at Harvard University in 1993. Professor Gompers spent two years as an Assistant Professor of Finance at the Graduate School of Business, the University of Chicago where he created a new course entitled 'Entrepreneurial Finance and Management.' His course development efforts at the Harvard Business School focuses on issues affecting entrepreneurial firms and their investors. He also teaches in HBS Executive Education.
Paul Gompers, Professor of Business Administration at the Harvard Business School, specializes in research on financial issues related to start-up, high growth, and newly public companies. Professor Gompers has an appointment in both the Finance and Entrepreneurial Management areas. He received his A.B. summa cum laude in biology from Harvard College in 1987. After spending a year working as a research biochemist for Bayer Chemical AG, he attended Oxford University on a Marshall Fellowship where he received an M.Sc. in economics. He completed his Ph.D. in Business Economics at Harvard University in 1993. Professor Gompers spent two years as an Assistant Professor of Finance at the Graduate School of Business, the University of Chicago where he created a new course entitled 'Entrepreneurial Finance and Management.' His course development efforts at the Harvard Business School focuses on issues affecting entrepreneurial firms and their investors. He also teaches in HBS Executive Education.
His research focuses on the structure, governance, and performance of private equity funds; sources of financing, incentive design, and performance of private firms; and long-run performance evaluation for newly public companies. His work on private equity funds has examined the relationship between general partners and their portfolio companies. Gompers has investigated factors affecting the structure, timing, and monitoring activities by the general partner and how these factors affect the success or failure of entrepreneurial firms. Similarly, he has examined the relationship between institutional investors and private equity fund managers. This work has examined a large collection of partnership agreements and examined issues of compensation, covenants and restrictions, as well as distribution policy and performance. Other research efforts examine the institutional and market factors that influence the performance of newly public companies. He is a Faculty Research Fellow in the National Bureau of Economic Research's Corporate Finance Program.
Gompers, P., and J. Lerner. The Venture Capital Cycle. Cambridge, MA: MIT Press, 1999. (Beijing: Economic Science Press, 2001 (Chinese edition). Tokyo: Springer-Verlag Tokyo, 2001 (Japanese edition). Seoul: Kukil Securities and Economics Research Institute, 2001 (Korean edition))
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Researchers have struggled to establish a causal relationship between diversity and financial performance—especially at large companies, where decision rights and incentives can be murky, and the effects of any given choice can be tough to pin down. So the authors chose a “lab rat” with fewer barriers to understanding—the venture capital industry. VC firms are fairly flat: Every investor is a decision maker, and choices have clear business consequences. Using publicly available information, researchers can see how similar or different decision makers are and compare decision quality on the basis of investments’ performance. After examining tens of thousands of VC investments, Gompers has found that diversity significantly improves financial performance on measures such as profitable investments at the individual portfolio-company level and overall fund returns. And even though associating with similar people can have social benefits for those people, it can lead investors and firms to leave a lot of money on the table. In this article Gompers and Kovvali describe the research and provide recommendations for reaping the business benefits of diversity.
Paul A. Gompers, Josh Lerner, David Scharfstein and Anna Kovner
This paper presents evidence of performance persistence in entrepreneurship. We show that entrepreneurs with a track record of success are much more likely to succeed than first-time entrepreneurs and those who have previously failed. In particular, they exhibit persistence in selecting the right industry and time to start new ventures. Entrepreneurs with demonstrated market-timing skill are also more likely to outperform industry peers in their subsequent ventures. This is consistent with the view that if suppliers and customers perceive the entrepreneur to have market-timing skill, and is therefore more likely to succeed, they will be more willing to commit resources to the firm. In this way, success breeds success and strengthens performance persistence.
We construct a comprehensive list of dual-class firms in the United States and use this list to analyze the relationship between insider ownership and firm value. Our data have two useful features. First, since dual-class stock separates cash-flow rights from voting rights, we can separately identify the impact of each. Second, we address endogeneity concerns by using exogenous predictors of dual-class status as instruments. In single-stage regressions, we find strong evidence that firm value is increasing in insiders' cash-flow rights and decreasing in insider voting rights. In instrumental variable regressions, the point estimates are similar but the significance levels are lower.
We document geographic concentration by both venture capital firms and venture capital-financed companies in three metropolitan areas: San Francisco, Boston, and New York. We find that venture capital firms locate in regions with high success rates of venture capital-backed investments. Geography is also significantly related to outcomes. Venture capital firms based in locales that are venture capital centers outperform, regardless of the stage of the investment. This outperformance arises from outsized performance outside of the venture capital firms's office locations, including in peripheral locations. If the goal of state and local policy makers is to encourage venture capital investment, outperformance of non-local investments suggests that policy makers might want to mitigate costs associated with established venture capitalists investing in their geographies rather than encouraging the establishment of new venture capital firms.
This paper examines how organizational structure affects behavior and outcomes, studying the performance of different types of venture capital organizations. We find a strong positive relationship between the degree of specialization by individual venture capitalists at a firm and its success. When the individual investment professionals are highly specialized themselves, the marginal effect of increasing overall firm specialization is much weaker. The poorer performance by generalists appears to be due to both an inefficient allocation of funding across industries and poor selection of investments within industries. Venture capital organizations with more experience tend to outperform those with less experience.
Paul Gompers, Anna Kovner, Josh Lerner and David Scharfstein
It is well documented that the venture capital industry is highly volatile and that much of this volatility is associated with shifting valuations and activity in public equity markets. This paper examines how changes in public market signals affected venture capital investing between 1975 and 1998. We find that venture capitalists with the most industry experience increase their investments the most when public market signals become more favorable. Their reaction to an increase is greater than the reaction of venture capital organizations with relatively little industry experience and those with considerable experience but in other industries. The increase in investment rates does not affect the success of these transactions adversely to a significant extent. These findings are consistent with the view that venture capitalists rationally respond to attractive investment opportunities signaled by public market shifts.
This paper describes board size and composition and investigates the role of venture capital in a sample of 1,116 firms' initial public offerings. First, firms backed by venture capital have fewer insider and instrumental directors and more independent outsiders. Second, we consider board composition as the outcome of a bargain between the CEO and outside shareholders. Representation of independent outsiders on the board decreases with the power of the CEO--tenure and voting control--and increases with the power of outside investors--venture capital backing and venture firm reputation. Third, within the sample of firms financed by venture capital and also consistent with a bargaining model, the probability that a founder remains as CEO is decreasing in venture firm reputation. Finally, we examine the influence of venture capital backing and board structure on firm outcomes in the 10 years after the initial public offering.
In a sample of 2,794 initial public offerings (IPOs), we test three potential explanations for the existence of IPO lockups: lockups serve as (i) a signal of firm quality, (ii) a commitment device to alleviate moral hazard problems, or (iii) a mechanism for underwriters to extract additional compensation from the issuing firm. Our results support the commitment hypothesis. Insiders of firms that are associated with greater potential for moral hazard lockup their shares for a longer period of time. Insiders of firms that have experienced larger excess returns, are backed by venture capitalists, or go public with high-quality underwriters are more likely to be released from the lockup restrictions.
This chapter seeks to understand the implications of the recent decline in venture activity for innovation. It argues that the situation may not be as grim as it initially appears. While there are many reasons for believing that on average venture capital has a powerful effect on innovation, the effect is far from uniform. During boom periods, the prevalence of over funding of particular sectors can lead to a sharp decline in the effectiveness of venture funds. While prolonged downturns may eventually lead to good companies going unfounded, many of the dire predictions today seem overstated.
Gompers, Paul, and Josh Lerner. "Venture Capital." Chap. D5 of Handbook of Modern Finance, edited by James Seward and Dennis Logue. New York: Warren, Gorham & Lamont, 2004.
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Gompers, Paul A., and Yuhai Xuan. "The Role of Venture Capitalists in the Acquisition of Private Companies." In Research Handbook on International Banking and Governance, edited by James Barth, Chen Lin, and Clas Wihlborg. Cheltenham, UK: Edward Elgar Publishing, 2012.
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Gompers, Paul A. "Venture Capital and Private Equity." In The Handbook of Corporate Finance: Empirical Corporate Finance, edited by Espen Eckbo. New York: Elsevier/North-Holland, 2002.
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Gompers, Paul, and Josh Lerner. "The Determinants of Corporate Venture Capital Success: Organizational Structure, Incentives, and Complementarities." Chap. 1 in Concentrated Corporate Ownership, edited by Randall Morck, 17–50. National Bureau of Economic Research Conference Report. University of Chicago Press, 2000.
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Gompers, Paul, and Josh Lerner. "Venture Capital." In The Technology Management Handbook, edited by Richard C. Dorf, 1–16 to 1–21. New York: CRC Press, 1999.
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Gompers, P. "Capital Formation and Investment in Venture Markets: An Assessment of Market Imperfections." In The Economic Evaluation of Technological Change, edited by Paul A. Gompers. National Institute of Standards and Technology, 1998.
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Gompers, P. A. "Resource Allocation, Incentives, and Control: The Importance of Venture Capital in Financing Entrepreneurial Firms." In Entrepreneurship, SMEs, and the Macroeconomy, edited by Zoltan J. Acs, Bo Carlsson, and Charlie Karlsson. Cambridge University Press, 1997.
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We study the role of homophily in group formation. Using a unique dataset of MBA students, we observe homophily in ethnicity and gender increases the probability of forming teams by 25%. Homophily in education and past working experience increases the probability of forming teams by 17% and 11 % respectively. Homophily in education and working experience is stronger among males than females. Further, we examine the causal impact of homophily on team performance. Homophily in ethnicity increases team performance by lifting teams in bottom quantiles to median performance quantiles, but it does not increase the chance of being top performers. Our findings have implications for understanding the lack of diversity in entrepreneurship and the venture capital industry.
With an overall lack of gender and ethnic diversity in the innovation sector documented in Gompers and Wang (2017), we ask the natural next question: Does increased diversity lead to better firm performances? In this paper, we attempt to answer this question using a unique dataset of the gender of venture capital partners’ children. First, we find strong evidence that parenting more daughters leads to an increased propensity to hire female partners by venture capital firms. Second, using an instrumental variable set-up, we also show that improved gender diversity, induced by parenting more daughters, improves deal and fund performances. These effects concentrate overwhelmingly on the daughters of senior partners than junior partners. Taken together, our findings have profound implications on how the capital markets could function better with improved diversity.
In this paper we document the patterns of labor market participation by women and ethnic minorities in venture capital firms and as founders of venture capital-backed startups. We show that from 1990-2016 women have been less than 10% of the entrepreneurial and venture capital labor pool, Hispanics have been around 2%, and African Americans have been less than 1%. This is despite the fact that all three groups have much higher representation in education programs that lead to careers in these sectors as well as having higher representation in other highly-compensated professions. Asians, on the other hand, have much higher representation in the venture capital and entrepreneurial sector than their overall percentages in the labor force. We explore potential supply side explanations including both education attainment as well as relevant prior job experience. We also explore the correlation between diversity and state-level variations. Finally, we discuss how these patterns are consistent with homophily-based hiring and homophily-induced information flows about career choices. We end the paper by discussing areas for future research.
Paul A. Gompers, William Gornall, Steven N. Kaplan and Ilya A. Strebulaev
We survey 885 institutional venture capitalists (VCs) at 681 firms to learn how they make decisions across eight areas: deal sourcing, investment selection, valuation, deal structure, post-investment value-added, exits, internal firm organization, and relationships with limited partners. In selecting investments, VCs see the management team as more important than business-related characteristics such as product or technology. They also attribute more of the likelihood of ultimate investment success or failure to the team than to the business. While deal sourcing, deal selection, and post-investment value-added all contribute to value creation, the VCs rate deal selection as the most important of the three. We also explore (and find) differences in practices across industry, stage, geography, and past success. We compare our results to those for CFOs (Graham and Harvey 2001) and private equity investors (Gompers, Kaplan, and Mukharlyamov forthcoming).
We survey 79 private equity investors with combined assets under management (AUM) of over $750 billion about their practices in firm valuation, capital structure, governance, and value creation. Investors rely primarily on internal rate of return (IRR) and multiples to evaluate investments. Their limited partners (LPs) focus more on absolute performance. Capital structure choice is based equally on optimal trade-off and market timing considerations. PE investors anticipate adding value to portfolio companies, with a greater focus on increasing growth than on reducing costs. We also explore how the actions that PE managers say they take group into specific firm strategies and how those strategies are related to firm founder characteristics.
We investigate how personal characteristics affect people's desire to collaborate and whether this attraction enhances or detracts from performance in venture capital. We find that venture capitalists who share the same ethnic, educational, or career background are more likely to syndicate with each other. This homophily reduces the probability of investment success, and the detrimental effect is most prominent for early-stage investments. A variety of tests show that the cost of affinity is most likely attributable to poor decision making by high-affinity syndicates after the investment is made. These results suggest that "birds-of-a-feather-flock-together" effects in collaboration can be costly.
This paper explores two broad questions on collaboration between individuals. First, we investigate what personal characteristics affect people's desire to work together. Second, given the influence of these personal characteristics, we analyze whether this attraction enhances or detracts from performance. Addressing these problems in the venture capital syndication setting, we show that venture capitalists exhibit strong detrimental homophily in their co-investment decisions. We find that individual venture capitalists choose to collaborate with other venture capitalists for both ability-based characteristics (e.g., whether both individuals in a dyad obtained a degree from a top university) and affinity-based characteristics (e.g., whether individuals in a pair share the same ethnic background, attended the same school, or worked for the same employer previously). Moreover, frequent collaborators in syndication are those venture capitalists who display a high level of mutual affinity. We find that while collaborating for ability-based characteristics enhances investment performance, collaborating for affinity-based characteristics dramatically reduces the probability of investment success. A variety of tests show that the cost of affinity is not driven by selection into inferior deals; the effect is most likely attributable to poor decision-making by high-affinity syndicates post investment. Taken together, our results suggest that non-ability-based "birds-of-a-feather-flock-together" effects in collaboration can be costly.
Jennifer Dlugosz, Rudiger Fahlenbrach, Paul Gompers and Andrew Metrick
Citation:
Dlugosz, Jennifer, Rudiger Fahlenbrach, Paul Gompers, and Andrew Metrick. "Large Blocks of Stock: Prevalence, Size, and Measurement." NBER Working Paper Series, No. w10671, August 2004.
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Gompers, Paul A., Joy Ishii, and Andrew Metrick. "Incentives vs. Control: An Analysis of U.S. Dual-Class Companies." NBER Working Paper Series, No. w10240, January 2004.
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Silkroad—a cross-cultural music collaboration that world-famous cellist Yo-Yo Ma had spearheaded since 1998, was preparing to celebrate its 20th anniversary. In parallel, Ma was stepping back from his role as the organization’s Artistic Director. Silkroad had come of age, gaining international recognition for its uniquely global music, which blended musical traditions from across the world—especially Asia, the Middle East, Europe, and America. The Ensemble had also forged strong partnerships with universities, local governments, and civic groups and developed an array of outreach programs to help people understand and express themselves through music. Ma was confident that there could be no better time to hand over leadership. But the transition was bittersweet: He felt a deep personal connection both to the Ensemble as a whole and to every one of its performers and staff members. And he wondered how reducing his involvement would affect the organization’s sustainability.
Deshpandé, Rohit, Paul A. Gompers, and Scott Duke Kominers. "Yo-Yo Ma and Silkroad." Harvard Business School Case 818-110, March 2018. (Revised May 2018.)
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Being an entrepreneur was a childhood dream for Falguni Nayar. The opportunity to build Nykaa.com, a woman-centered business, with a multi-brand retail format in the beauty and wellness space, and the fact that she was doing it with her daughter Adwaita (HBS MBA 2013) made it both exciting and meaningful. Still, she was the founder and with that came control over the most important decisions. While she sought advice from many people, Nykaa, like Adwaita, was her baby. How should she structure the organization and the team to best deliver the results she wanted?
This note serves as an overview of the Entrepreneurial Management Unit’s required curriculum course, "The Entrepreneurial Manager (TEM)." General management has been a core educational organizing framework at the Harvard Business School since its inception. Today TEM provides a powerful context in which to learn about general management. TEM seeks to build the knowledge, skills, tools, frameworks, and attitudes required to succeed as a manager. These tools and frameworks are built upon the foundation of other RC courses at HBS, including TOM, LEAD, LCA, FRC, MKTG, STRAT, and FIN. With an aim to “educate leaders who make a difference in the world,” TEM integrates the lessons of your RC year into an overall framework to help general managers at all types of organizations (e.g., small companies, large companies, non-profits, and public servants) become more effective at enhancing the value of those organizations.
Gompers, Paul. "The Entrepreneurial Manager: Course Overview, 2019 Spring Term." Harvard Business School Course Overview Note 818-080, December 2017. (Revised December 2018.)
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Gompers, Paul, Danielle Li, and Silpa Kovvali. "Aspect Ventures." Harvard Business School Case 217-046, March 2017. (Revised January 2019.)
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Gompers, Paul. "The Entrepreneurial Manager, Module 2 Part 2: Resourcing the Business Model – Team and Culture." Harvard Business School Module Note 817-110, March 2017. (Revised January 2018.)
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Examines the motivations for franchising. Examines the academic literature in the area and draws implications for franchising patterns. Also provides data on franchising patterns.
Describes the issues facing a founder-CEO regarding building a board of directors, assembling an executive team, managing tension between co-founders, and outsourcing system development work.
That Corey Thomas, vice president at Boston-based Rapid7, Inc., was about to enter his investor’s boardroom to negotiate a potential acquisition of Metasploit, LLC, was already an unlikely achievement of sorts. After all, Rapid7 was a venture-backed, corporate client-focused cybersecurity company, and Metasploit was a white-hat hacker community with a reputation that ranged from esoteric to “notorious.” And awaiting Thomas for the deliberations wasn’t a typical business partner, but rather HD Moore, Metasploit’s founder, chief contributor, and in 2009 one of the most well-known hackers on the planet. The groundwork that had been laid to convince Moore to come to Boston for the discussions would all be for naught if Thomas couldn’t come to terms with Moore . . . and if Thomas couldn’t persuade his own executive team and board of directors that whatever package he ultimately agreed to with Moore was a reasonable one, even though an acquisition of Metasploit would come with no meaningful revenue and considerable execution, legal, and reputational risks.
Gompers, Paul. "The Entrepreneurial Manager, Module 2 Part 1: Resourcing the Business Model – Financing." Harvard Business School Module Note 817-109, February 2017. (Revised January 2019.)
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This note serves as an overview of the Entrepreneurial Management Unit’s required curriculum course, "The Entrepreneurial Manager (TEM)." General management has been a core educational organizing framework at the Harvard Business School since its inception. Today TEM provides a powerful context in which to learn about general management. TEM seeks to build the knowledge, skills, tools, frameworks, and attitudes required to succeed as a manager. These tools and frameworks are built upon the foundation of other RC courses at HBS, including TOM, LEAD, LCA, FRC, MKTG, STRAT, and FIN. With an aim to “educate leaders who make a difference in the world,” TEM integrates the lessons of your RC year into an overall framework to help general managers at all types of organizations (e.g., small companies, large companies, non-profits, and public servants) become more effective at enhancing the value of those organizations.
Gompers, Paul, and Natee Amornsiripanitch. "Globant: Going Public." Harvard Business School Case 215-021, October 2014. (Revised April 2015.)
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The case focuses on a European private equity firm—Ardian—and the process it uses to sell one of its portfolio companies, and the decisions around that sale. Key issues include the choice of an auction or acceptance of a pre-emptive bid, and the role of the portfolio company's management in the process. The case explores the kinds of influence company management can, and should, have in the sale process. The case also explores issues at the PE firm level, including the fact that the firm has recently been spun off out of its large parent financial services firm, and how the GP entity was valued during that spinoff.
This case explores the opportunity to purchase the condominium management business of a distressed real estate developer by Advantage Partners, a leading Japanese private equity firm. The case explores investment structuring, bidding strategy, and the ability of private equity firms to add value. The role of private equity in Japan is also explored and allows students to compare the Japanese merger and acquisition market to the U.S. and Europe.
This note discusses the capital structure often found in LBO transactions. Although the specifics of each capital structure vary case by case, in any given year, there is a great deal of similarity in the capital structure of these buyouts. These similarities exist because debt structure is largely determined by the deal size and market conditions. The note summarizes historic trends and practices related to the debt structure in the buyout space.
Gompers, Paul A. "HgCapital and the Visma Transaction (A) Courseware." Harvard Business School Spreadsheet Supplement 214-706, October 2013.
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This case concerns the proposed buyout of Acibadem, a leading hospital chain in Turkey. Abraaj, a MENA region private equity firm, proposes to make its first investment in Turkey. The case highlights the role of Turkish health care reform in driving the value. The case provides an opportunity to estimate the potential return on investment as well as evaluate the structuring of the transaction.
This case concerns the negotiations of a deal by HgCapital, a UK-based private equity firm, to buy Visma, ASA, a Norwegian software company. Visma has received an offer from Sage Group, a strategic acquirer. HgCapital must determine if it wants to bid and how to outbid a potential strategic acquirer. The case concerns bidding and negotiations strategies as well as deal structuring issues. In particular, the cross border nature of the investment, a UK firm investing in Norway, leads to a number of financing issues related to raising the debt for the LBO. The case provides an opportunity to role play both the PE fund perspective and the potential target.
Gompers, Paul A., and Timothy Dore. "Private Equity Exits." Harvard Business School Background Note 213-112, May 2013. (Revised July 2014.)
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Gompers, Paul A., J. Daniel Kim, and Vladimir Mukharlyamov. "United Capital Partners (B)." Harvard Business School Supplement 213-045, September 2012.
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Gompers, Paul A., J. Daniel Kim, and Vladimir Mukharlyamov. "United Capital Partners (A)." Harvard Business School Case 213-044, September 2012.
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Examines the motivations for franchising. Examines the academic literature in the area and draws implications for franchising patterns. Also provides data on franchising patterns.
Gompers, Paul A., and Catherine M. Conneely. "A Note on Franchising." Harvard Business School Background Note 297-108, June 1997. (Revised February 2012.)
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Bain Capital had purchased Outback Steakhouse in 2007 and despite the myriad initiatives to improve operations, the financial collapse in 2008 threatened the company's ability to meet its loan covenants. Outback's performance steadily declined throughout the year. How should Bain Capital manage the company's debt while improving Outback's performance?
Charter Communications' bankruptcy presents an opportunity for some of its creditors to convert their debt holdings into equity. A mutual fund manager must determine how to maximize his debt investment in Charter given the restructuring and decide whether to participate in an additional equity rights offering led by three private equity firms, Apollo Management, Oaktree Capital Management and Crestview Partners.
Gompers, Paul A., and Emily Weisburst. "Charter Communications Bankruptcy." Harvard Business School Case 211-035, October 2010. (Revised January 2011.)
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Examines the investment decision of Cabot Brown and Bill Burgin, two venture capitalists, to finance Car Wash Partners (CWP). CWP intends to purchase automatic car washes around the country. Investment strategy and deal structuring are discussed.
Concerns the decision by Brett Keith and Owen Colligan to purchase Hudson Manufacturing, a maker of heaters and air filtration units for the military. Keith and Colligan have organized a search fund and identified Hudson as a potential buyout. The decline in the trucking market and potential environmental contamination, however, stand to stop the deal.
Yossi Sela, general partner at Gemini Venture capital, considers a new investment in Precise Software. The firm is at a crisis point, and Sela needs to decide whether he will fire the firm's chief executive officer. Conflicts between the American CEO and the Israeli founders of the firm are hampering the company.
Steve Papa, CEO of Endeca Technologies, must decide whether to expand into a new market with a new application of his company's technology. Endeca has experienced significant success with its information access software in the online retail industry, and in September 2004 is poised to enter similar industries with similar products. However, it also faces an opportunity to create a unique solution for the manufacturing industry, a market the company knows little about and that has proven difficult to enter in the past. Which expansion strategy should Papa choose? Although the manufacturing market would yield a much higher average deal size, significant uncertainty surrounded a move away from Endeca's core business. It would impact the company's sales practices, organizational structure, product requirements, and decisions about whether to partner with other companies in the field. Taylor Hunte Industries, a Fortune 500 giant in the manufacturing industry, has just invited Endeca to submit a request for proposal--due in just 10 days.
David Cowan, general partner at Bessemer Venture Partners, has taken the lead on Sarvega, a Bessemer-backed company that was recently orphaned by the departure of one of Bessemer's other general partners. Cowan must decide whether to reinvest in Sarvega and, if so, under what terms.
This case examines the changes in fund structures proposed by four venture capital firms in 2002: Accel Partners, Battery Ventures, Charles River Ventures, and Kleiner Perkins Caufield & Byers. The venture capital market has experienced a major downturn, and these funds are trying to address investor concerns.
Concerns the decision of Ed Kennedy, co-founder of Ocular Networks, as he decides what financing strategy his firm should take. The venture capital and public markets for telecommunications start-ups had dried up and Kennedy must decide whether to cut costs and raise new venture capital money or seek a strategic acquirer.
This case examines the decisions of John Lynch, president and CEO of Knoll Furniture, to go public in early 1997. Knoll went private in an LBO in 1996 and Warburg Pincus, the LBO sponsor, wants Lynch to take Knoll public. Lynch needs to weigh the positive and negative issues of a public offering.
Examines the issues raised in the financing of the Fitzpatrick Hotel Group, an Irish hotelier. The perspective of Paddy Fitzpatrick, founder and CEO at Fitzpatrick Group, and Niall Carroll, founder of ACT Venture Capital, are contrasted.
Presents an overview of strategic alliance. Discusses the academic literature and its implications for the structure of strategic alliances. Also details the types of strategic alliances utilized by small, growing firms.
Describes the rationale behind the strategy and structure of Dell Computer Corp.'s VC arm, Dell Ventures. While Dell Ventures had a phenomenal year one, it faced a number of challenges including dealing with market risks, finding and retaining talent, maintaining focus, and gaining the attention of Wall Street.
Gompers, Paul A., Carin-Isabel Knoop, and Cate Reavis. "Dell Ventures." Harvard Business School Case 200-062, May 2000. (Revised October 2001.)
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Elliot Lebowitz, president and CEO of BioTransplant, must decide on a strategy for this young biotechnology start-up. Among the issues to be resolved are focus of research and search for strategic alliance partners.
Discusses issues related to government sources of financing for small business in the United States. In addition to presenting motivations for government financing programs, the note gives a detailed presentation of major federal programs to assist small business.
This case examines the decisions of Seth Goldman and Barry Nalebuff, founders of Honest Tea. Honest Tea is a start-up in the ready-to-drink tea market. Goldman and Nalebuff must craft an expansion and financing strategy.
Penny Baron, vice president of efficient market services, must decide how to finance rapid expansion for a young market research company. Venture leasing is a possibility and terms are explored.
Xedia, a networking equipment manufacturer that helps provide high-speed Internet service for corporate clients through access routing, wants a bridge loan to fund daily operations until it raises its next round of equity financing.
Discusses the start-up strategy at Genset, a French biotech firm. Pascal Brandys, a venture capitalist, and Marc Vasseur, a leading French scientist, must decide how to proceed. Future real options are central to the strategy.
Provides students with an opportunity to use simple real options analysis to value a startup. Penelope Phillips is deciding whether to start a company to make wireless phones. Students get experience using traditional discounted cash flow valuation and a real options approach.
Describes the development of edocs, an Internet company aimed at revolutionizing the on-line bill presentment market. Kevin Laracey must negotiate a venture capital investment with Jonathon Guerster, an associate at Charles River Ventures. Can be used as a role-playing exercise in negotiating a venture capital deal.
Presents an overview of the issues covered in Entrepreneurial Finance. The frameworks of analysis as well as themes of the course are covered. Additionally, provides references on entrepreneurial finance from both academics and the popular press.
Pascal Brandys, founder and CEO of Genset, must decide whether to take this young biotechnology company public. If so, should he do a dual offering in both France and the U.S.? The case also explores the business models in genomics research.
Bob Rosin, president and CEO of Bang Networks, must decide how much debt financing to take on. The company is a raw start-up and is considering taking on $10 million in debt. The firm has six offers and needs to identify the best one.
Anthony Soohoo, COO at ALWAYSi, an independent film distributor, is preparing projections for the company. Soohoo must decide which revenue streams the company should pursue. The firm is faced with a variety of attractive opportunities.
Describes the decisions confronting David Hodges and Garret Turley about whether to grow their chain of veterinary clinics in the United Kingdom. Turley and Hodges must decide whether to attempt to speed up their acquisition pace and raise venture capital.
Gompers, Paul A., and David James Alexander Grant. "Pet Doctors: 1999." Harvard Business School Case 200-016, February 2000. (Revised March 2000.)
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ZEFER, a young Internet professional service firm, is considering its expansion options. Organic growth versus growth by acquisition is a central theme. The firm's financing strategy will be determined by its business strategy.
Describes the decision facing Danny Lewin, Jonathan Seelig, and Tom Leighton, the founders of Cachet Technologies, an MIT spin-out. The firm has done poorly in the annual MIT business plan competition and the founders have to decide whether to continue.
Gompers, Paul A. "MSE, Inc. Privatization: August 1997 & MSE,Inc. Privatization: August 1997 (Abridged) TN." Harvard Business School Teaching Note 299-067, May 1999.
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Gompers, Paul A. "Cambridge Technology Partners: Corporate Venturing (August 1996) TN." Harvard Business School Teaching Note 299-056, May 1999.
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Lisa Frankenberg, co-founder of the Prague Post, is faced with several business and professional decisions. The English-language paper she founded is under pressure from competition and a Czech Republic recession. She must decide how to return the paper to profitability. Similarly, Frankenberg must decide whether to come back to the United States to start a consulting job.
Discusses various valuation methodologies for analyzing entrepreneurial firms. Gives a description of the methodologies and describes when each method is appropriate.
Concerns the decision of Jim Sims, president and CEO of Cambridge Technology Partners (CTP) to form a corporate venture capital subsidiary. CTP is a fast-growing information technology consulting firm that has been presented with many investment opportunities from clients and employees.
Presents a valuation problem in a fictitious firm, Digital Everywhere. Students have the opportunity to compare various discounted cash flow valuation models in an entrepreneurial firm.
Discusses the efforts of three Israeli software engineers' efforts to bring a network security software product to market. The firm needs an investment to complete programming and start marketing.
Concerns a fictitious airline company and examines the moral hazard situation that results within a firm. Provides an opportunity to discuss corporate governance and contracting under uncertainty.
Jim Sims tries to close the deal to create Cambridge Technology Partners (CTP) in a spin-out from a troubled technology consulting firm. The deal looks tenuous.
Analyzes the decisions of Niall Carroll, an Irish banker, to start a venture capital fund focused on Ireland. The context of the Irish markets and the nature of Irish opportunities are explored.
Explores the decision by Advent, an international venture capital firm, to start a fund focused on Israel. Advent must decide who to hire to run the fund and how much money to raise.
Discusses the control mechanisms and contracts utilized by venture capitalists. The emphasis is on understanding potential conflicts of interest and how the contracts mitigate those conflicts.
Examines the evolution and structure of the Internet. A particular focus is placed on various business segments and possible applications of Internet technology.
Examines the decision to go public. BioTransplant is an early stage biotechnology company that must decide how to finance its research and development. The pros and cons of public offerings are analyzed versus alternative financing sources.
We study the role of common venture capital investors in alleviating asymmetric information between public acquirers and private venture capital-backed targets. We find that acquisition announcement returns are more positive for acquisitions in which both the target and the acquirer are financed by the same venture capital firm. Similarly, having a common investor increases the likelihood that a transaction will be all equity-financed and the likelihood that an acquisition will take place. Our results suggest that common venture capital investors can form a bridge between acquiring and target firms that reduces asymmetric information associated with the transaction for both parties.
Gompers, Paul A., Andrew Metrick, and Timothy Dore. "Reputation and Contractual Flexibility: Evidence from Venture Capital Distribution Pricing Policy." January 2009.
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Gompers, P., A. Brav, and Timothy Dore. "Why Experienced Venture Capitalists Leave Money on the Table: Evidence from Initial Public Offerings."
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Gompers, P., Anna R. Kovner, Josh Lerner, and David S. Scharfstein. "Venture Capital Investment Cycles: The Role of Experience and Specialization." December 2005.
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Gompers, P., Andrew Metrick, Rudi Fahlenbrach, and Jennifer Lauren Dlugosz. "Large Blocks of Stock: Prevalence, Size, and Measurement." January 2005.
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We study the implications of CEO equity ownership for incentives and control in a sample of 1,011 newly public firms. Before an initial public offering, equity investments by venture capitalists reduce CEO ownership by about half, from an average of 35 percent to 19 percent. Venture capitalists narrow this difference by granting options, reducing secondary sales, and lowering the dilution by primary shares, but a gap in post-IPO CEO equity ownership remains. The effect of this lower ownership on incentives depends upon the measure employed - the dollar sensitivity of CEO pay to firm value is lower in venture firms, but the elasticity is about the same. In addition, we present evidence that lower ownership, combined with concentrated outside holdings, leads to a reduction in the agency costs of managerial control. We conclude that the patterns of ownership in part represent a tradeoff by venture capitalists between the benefits of incentives and the agency costs of control.
Gompers, Paul A. "Ownership and Control in Entrepreneurial Firms: An Examination of Convertible Securities in Venture Capital Investment." January 1999.
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