The Business of Venture Capital The Art of Raising a Fund, Structuring Investments, Portfolio Management, and Exits

The new edition of the definitive guide for venture capital practitioners—covers the entire process of venture firm formation & management, fund-raising, portfolio construction, value creation, and exit strategies

Since its initial publication, The Business of Venture Capital has been hailed as the definitive, most comprehensive book on the subject. Now in its third edition, this market-leading text explains the multiple facets of the business of venture capital, from raising venture funds, to structuring investments, to generating consistent returns, to evaluating exit strategies. Author and VC Mahendra Ramsinghani who has invested in startups and venture funds for over a decade, offers best practices from experts on the front lines of this business.

This fully-updated edition includes fresh perspectives on the Softbank effect, career paths for young professionals, case studies and cultural disasters, investment models, epic failures, and more. Readers are guided through each stage of the VC process, supported by a companion website containing tools such as the LP-GP Fund Due Diligence Checklist, the Investment Due Diligence Checklist, an Investment Summary format, and links to white papers and other industry guidelines. Designed for experienced practitioners, angels, devils, and novices alike, this valuable resource:

• Identifies the key attributes of a VC professional and the arc of an investor’s career
• Covers the art of raising a venture fund, identifying anchor investors, fund due diligence, negotiating fund investment terms with limited partners, and more
• Examines the distinct aspects of portfolio construction and value creation
• Balances technical analyses and real-world insights
• Features interviews, personal stories, anecdotes, and wisdom from leading venture capitalists

The Business of Venture Capital, Third Edition is a must-read book for anyone seeking to raise a venture fund or pursue a career in venture capital, as well as practicing venture capitalists, angel investors or devils alike, limited partners, attorneys, start-up entrepreneurs, and MBA students. 

MAHENDRA RAMSINGHANI, B. Engg., MBA, has over fifteen years of investment experience and is the founder of Secure Octane, a San Francisco–based cybersecurity fund. He is the former Managing Director of First Step Fund and has advised investment organizations in the U.S., Asia Pacific, and Middle East regions. He is a frequent speaker at engagements around the world, and contributes regularly to professional publications, including Techcrunch, Forbes, and Venturebeat.

Foreword xiii

Preface xv

Acknowledgments xxvii

Part One The Making of a VC

1 The Business of Cash and Carry 3

2 Why Choose a Career in VC 11

3 Attributes of Successful VCs 15

4 Welcome to the Land of Ad-Venture 21

5 Developing Your Investment Career 41

6 A Business Where Enemies Accumulate 57

7 Generational Transfer and Succession 63

Part Two Raising Your Venture Fund

8 LP Universe 73

9 LPs of Choice: Fund of Funds 89

10 How LPs Conduct Fund Due Diligence 95

11 Defining Your Fund’s Investment Strategy 99

12 Investment Team Diligence 119

13 Fund Size and Portfolio Construction 129

14 Performance Analysis 137

15 Terms of Fund Investment 155

16 The Venture Firm’s Ethos, Culture, and Values 173

17 Raising Your First Fund 193

18 The Fundraising Roadshow 205

19 Why LPs Seek First-Time Funds 221

20 Sourcing Investment Opportunities 229

Part Three Building Your Portfolio

21 Due Diligence Cheat Sheet 255

22 Diligence 259

23 Management Team Diligence: Assessing the Intangible 269

24 Market, Product, and Business Model Analysis 293

25 Terms and Conditions Apply 303

26 Structure of the Term Sheet 309

27 Buy Low, Sell High 317

28 The Closing Process 353

Part Four The Art of Value Creation

29 Serving on Boards 357

30 Board Culture and Orientation 367

31 Let Me Know How I Can Be Helpful: Value Creation 377

32 Challenges in the Boardroom 391

Part Five Exits: Liquidity Events and Champagne

33 Exit Strategies 407

34 Acquisitions 417

35 Initial Public Offering 435

36 Secondary Sales 449

Notes 451

Index 485