Preliminary, Subject to Change Posted: 08/08/2024

University of Chicago Booth School of Business

Entrepreneurial Finance and Private Equity Steve Kaplan

Business 34101-01 / 02 Harper Center 506
Fall 2024 [email protected]

Course Introduction / Outline

A. REQUIRED MATERIAL

Materials on Canvas.

B. OPTIONAL MATERIAL

1. Paul Gompers and Steven Kaplan, 2022, Advanced Introduction to Private Equity.
Edward Elgar.

2. Eli Talmor and Florin Vasvari, 2019, Private Capital, Volumes 1 and 2, Private Capital
Advisory Ltd.

3. Marco Da Rin and Thomas Hellmann, 2020, Fundamentals of Entrepreneurial Finance.

Oxford University Press.

4. Brad Feld and Jason Mendelson, 2019, Venture Deals: Be Smarter Than Your Lawyer
and Venture Capitalist. Wiley.

5. Kupor, Scott, 2019, Secrets of Sand Hill Road: Venture Capital and How to Get It,
Penguin.

6. Andrew Metrick and Ayako Yasuda, 2020, Venture Capital and the Finance of
Innovation. Wiley.

7. Tamara Sakovska, 2022, The Private Equity Toolkit: A Step-by-Step Guide to Getting
Deals Done from Sourcing to Exit, Wiley.

8. Winter Mead, 2021, How to Raise a Venture Capital Fund.

C. COURSE OVERVIEW

This course uses the case method to study entrepreneurial finance and, more broadly, private
equity finance. Private equity (PE) includes, primarily, venture capital (VC), growth equity and buyouts.
The course is motivated by increases in both the supply of and demand for private equity. On the supply
side, the amount of PE under management -- by partnerships investing in VC, growth equity and buyouts,
-- has increased from under $5 billion in 1980 to over $8 trillion at the end of 2023. With at least another
$5 trillion in private debt, natural resources and infrastructure funds, more than $13 trillion is currently
allocated to private capital assets that are relevant for the course. On the demand side, a large number of

The information contained in these documents is confidential, privileged and only for the information of the intended recipient and may not be used,
published or redistributed without the prior written consent of the Booth faculty member(s) teaching the course.
 Preliminary, Subject to Change Posted: 08/08/2024

MBAs and others are interested in starting or managing their own businesses as well as working as
private equity investors. The increase in the supply and demand for funds has occurred all over the world.

The primary objective of the course is to provide an understanding of the concepts and institutions
involved in entrepreneurial finance and PE markets. To do this, I have purposely designed the course to
be broad and comprehensive. We will explore PE from a number of perspectives, beginning with the
entrepreneur / issuer, moving to the PE partnership, and finishing with investors in PE partnerships.

Organization:

In issuers / users of private equity, we study the issues faced by individual entrepreneurs and
managers. The focus in the cases in this section is on evaluating the qualitative attractiveness of the
opportunity -- whether a start-up or buyout -- and then placing a quantitative value on the opportunity.

In the second and longest section of the course, we continue to study issuers of PE, but we will
focus on the role of the general partner / PE investor in the PE partnership. In particular, we study the
role of the general partner in choosing, valuing, structuring, and managing PE investments. In this
section, we look at particular investments made by VC partnerships and buyout partnerships. More
generally, this section of the course considers why particular methodologies and structures have evolved
in the way they have, as well as possible ways to improve on them.

The final section of the course – investments in PE partnerships – studies the issues faced in
structuring and raising funds for private equity partnerships. In this section, we focus on the incentives
faced by the general partners of PE partnerships and by the limited partners – the investors – in those
partnerships. We also try to understand why the incentives and contractual terms take the form they do.

Requirements:

The course requires and applies some of the concepts and techniques learned in corporate finance
(Business 35200 or 35201) and competitive strategy (Business 42001) to the case situations. One of the
corporate finance courses is a required prerequisite. Because the course assumes knowledge of
corporate finance from the start, corporate finance cannot be taken concurrently. Depending on
your background, commercializing innovation (Business 34106) or Financial Statement Analysis
(Business 30130) or the equivalent also are acceptable. One or two cases will require some familiarity
with the techniques or concepts of option pricing.

This course also places a strong emphasis on presentation and discussion skills. It will be important
to explain your positions or arguments to each other and to try to argue for the implementation of your
recommendations.

D. COURSE PROCEDURES

This fall, the campus sections to be taught in person. I will provide one lecture asynchronously.

This course is designed to be a time-consuming and challenging course. Unless you have the time
to prepare two cases per week, I recommend not taking the course.

For each case, I will assign study questions concerning the case. For most of the class period, we

The information contained in these documents is confidential, privileged and only for the information of the intended recipient and may not be used,
published or redistributed without the prior written consent of the Booth faculty member(s) teaching the course.
 Preliminary, Subject to Change Posted: 08/08/2024

will consider these questions and the material in the case. This includes the first meeting. You are
allowed and encouraged, but not required to meet in your groups outside of class to discuss and analyze
the cases. In the past, students have found that these groups complement class discussion well.

Each student will submit a two-page memorandum of analysis and recommendations at the
beginning of each case discussion. If you are working in a group, I will accept one memorandum from
the group and count it for all students in the group. If you choose to do this, the group cannot exceed 3
students. Each memorandum should be typed and double-spaced. Write these as if you were writing a
recommendation to the major decision-maker in the case. The two-page limit is for text only. You may
attach as many numerical calculations as you wish. Memoranda will not be accepted after the class has
met. A memorandum will be given credit if it is handed in and no credit if it is not. Initially, therefore, I
will not grade them. However, I will use the memoranda to determine final grades for those students who
are on the border of an A or B, the border of a B or C, or the border of a C, D, or F.

Students in 34101-01 / 02 should prepare a memorandum on the Yale University Investments

Office / CPPIB cases for the first class. The first class meets on Monday, September 30. I expect all
registered students to attend. If you are not registered, but are trying to get into the course, please
attend. You cannot add / take the course if you do not attend the first week.

Students should attend the section for which they are registered. If you cannot do so, you
should contact me to ask for permission to switch.

We start on time. I expect students to be in class when class begins (or a few minutes before).

The readings and articles that are assigned and handed out are largely non-technical in nature and
summarize the findings of academic research. There is more to read than you are likely to have time for.
These articles are meant to serve as background material to help you analyze the cases. They should not
necessarily be cited in the case discussion. You should argue as if you are in a funding meeting rather
than in a doctoral seminar. The process of arriving at the answer is as important as getting the answer.

Given the course setup and grading criteria, it is important that you attend every class and be
prepared to participate. I will do my best to call on different students over the course of a class.

In the past, students have asked me to hand out my case analysis after the class has discussed the
case. I will not do this, because there are usually no absolute right answers. While there are no right
answers, there are good arguments and bad arguments. This course is designed to help you learn to
distinguish between sensible and less sensible arguments. Handing out my analyses would reduce the
ambiguity in the cases and partially defeat the purpose of doing cases. Handouts also tend to circulate
which is a problem when I teach the case in another quarter. If you are uncomfortable with ambiguity,
do not take this class.

After most classes, I will post additional relevant material to Canvas. Please make sure to go to
Canvas and look at this material.

E. GRADING

Grading will be based on class participation, the short memoranda and a final examination.
Students cannot take this course pass/fail.

The information contained in these documents is confidential, privileged and only for the information of the intended recipient and may not be used,
published or redistributed without the prior written consent of the Booth faculty member(s) teaching the course.
 Preliminary, Subject to Change Posted: 08/08/2024

1. Class participation

Class participation will count for 40% of the final grade. I will judge your performance based both
on the quality and the quantity of your comments. Because so much of the learning in this course occurs
during class, it is very important that you attend every class. For those of you who think that 40% is high,
remember that in the post-Booth, real world, more like 100% of your "grade" is based on how you
communicate with your colleagues. This class may be the last low-risk environment for second-year
students to work on their communication skills. If you are uncomfortable with such a heavy weight on
participation, do not take this class.

2. Memoranda

The memoranda will count for 10% of the final grade. The memoranda will have greater
importance for those students on the A / B, B / C, or C / D / F borders.

3. Final

The final examination will count for 50% of the final grade. The final examination will be an
individual, take home case analysis.

The final exam will be made available on Wednesday, December 4. It will be due on Monday,
December 9. There will be no exceptions to this schedule.

F. EXCEL Files

For most of the cases in the course, I have created an EXCEL worksheet. Each worksheet contains
one or more of the exhibits in the case. This will make it easier for you to spend time on the analysis,
rather than punching in numbers. The worksheets are available on Canvas.

G. SCHEDULE / GUESTS

It is my policy to invite guests with relevant expertise to class in many of the course meetings.
Some will come in person. One or two will come in via Zoom. In order to cover the relevant material
and benefit from the guests, we will spend extra time in class. On the dates we have guests, the 01 section
will go until 12:00 instead of 11.30; the 02 section will start at 1:00 instead of 1:30.

Guests are expected on these dates: October 9, 14, 16, 21, 30 and November 6, 13, 18 and 20.

H. OFFICE HOURS

My office hours are generally Mondays and Tuesdays from 3.30 to 5.30. Please sign up for time
with me ahead of time. I will let you know each week if I am not available at those times. I am
generally accessible and I enjoy talking to students. I am happy to talk about the course, your career,
current events, etc. I will not discuss any aspects of a case until we have done the case in class.

The information contained in these documents is confidential, privileged and only for the information of the intended recipient and may not be used,
published or redistributed without the prior written consent of the Booth faculty member(s) teaching the course.
 Preliminary, Subject to Change Posted: 08/08/2024

University of Chicago Booth School of Business

Entrepreneurial Finance and Private Equity Steve Kaplan
Business 34101-01 / 02 Harper Center 506
Fall 2024 [email protected]
Class Schedule (Preliminary)

A. Introduction
Week 1A: Introduction, Organization, and Overview.
September 30
Cases: Yale University Investments Office – November 2020.
The Canada Pension Plan Investment Board

Reading:
“Information Sources About Private Equity,” Lerner.

B. Using / Investing in Private Equity

Week 1B: Case: ZipFit.
October 2
Readings:
“A Summary of Valuation Methods,” Kaplan.
“Note on Discounted Cash Flow Valuation Methods,” Kaplan.
“Note on Valuation in Entrepreneurial Settings,” Kaplan.
“Tax and security law aspects of private equity financings,” Kaplan.
“What Entrepreneurs Should Know About Angels.”
Da Rin and Hellmann, Chapters 1 and 2.

Week 2A: Case: ZipFit (continued).

October 7
Reading:
Da Rin and Hellmann, Chapters 4 and 5.

C. The Role of the Intermediary in Private Equity

Week 2B: Case: BacklotCars and Iron Gate Technologies.

October 9
Readings:
“A Summary of Valuation Methods,” Kaplan.
“Note on Discounted Cash Flow Valuation Methods,” Kaplan.
“Note on Valuation in Entrepreneurial Settings,” Kaplan.
“How Do Venture Capitalists Make Decisions?” Gompers et al.
NVCA Yearbook 2023

Week 3A: Case: BacklotCars and Iron Gate Technologies.

October 14
Readings:
“Financial Contracting Theory Meets the Real World,” Kaplan and Stromberg.

The information contained in these documents is confidential, privileged and only for the information of the intended recipient and may not be used,
published or redistributed without the prior written consent of the Booth faculty member(s) teaching the course.
 Preliminary, Subject to Change Posted: 08/08/2024

Da Rin and Hellmann, Chapter 6.

Week 3B: Case: Alta Partners and Vertiflex 2008.

October 16 Misfits Market and Valor Equity Partners – Series B.

Week 4A: Case: ExplORer Surgical.

October 21
Readings:
“Characteristics, Contracts, and Actions: Evidence From Venture Capitalist
Analyses,” Kaplan and Stromberg.
Secrets of Sand Hill Road: Venture Capital and How to Get It, Kupor

Week 4B: Case: Valuing Term Sheet Terms.

October 23

Week 5: Case: Columbus and Arbor.

October 28 / 30
Readings:
“Note on Discounted Cash Flow Valuation Methods,” Kaplan.
“Note on Valuation in Entrepreneurial Settings,” Kaplan.
“Leveraged Buyouts and Private Equity,” Kaplan and Stromberg.
“What Do Private Equity Firms Say They Do?” Gompers, Kaplan, Mukharlyamov
Gompers and Kaplan, Chapters 1, 4 and 6.

Week 6: Case: Univar Solutions.

November 4 / 6
Readings:
“Note on LBO Capital Structure,” Gompers and Ivashina.
Gompers and Kaplan, Chapter 5.

Week 7A: Cases: NiceTuan and INCE

November 11 Meesho.

Readings:
A Note on Private Equity in Developing Countries, Lerner.
“How do legal differences and experience affect financial contracts?”
Kaplan, Martel and Stromberg.

D. Exiting
Week 7B: Case: Zayo Group: The Exit.
November 13
Readings:
“A Review of IPO Activity, Pricing and Allocations,” Ritter and Welch.
“IPO Factoids 2023,” Ritter.
Gompers and Kaplan, Chapter 8.

The information contained in these documents is confidential, privileged and only for the information of the intended recipient and may not be used,
published or redistributed without the prior written consent of the Booth faculty member(s) teaching the course.
 Preliminary, Subject to Change Posted: 08/08/2024

E. Putting It All Together / Comprehensive Case

Week 8A: Cases: Valor and Tesla Motors.
November 18 Misfits Market and Valor Equity Partners – Series C

Reading:
Gompers and Kaplan, Chapter 7.

F. Fundraising
Week 8B: Lecture (on Canvas): Venture Capital and Private Equity: Past, Present, Future.
Asynchronous.
Gompers and Kaplan, Chapters 2 and 3.

Week 8B: Case: Excellere Partners.

November 20
Readings:
A Note on Private Equity Partnership Agreements, Lerner.
ILPA Private Equity Principles I and II.
Gompers and Kaplan, Chapters 2, 3 and 9.

Week 9A: Case: Excellere Partners (continued).

December 2 Sozo Truebridge

Readings:
“Private Equity Performance: What Do We Know?” Harris, Jenkinson, and Kaplan.
“Has Persistence Persisted in Private Equity? Evidence From Buyout and Venture
Capital Funds” Harris, Jenkinson, Kaplan and Stucke.
“Private Equity Performance: A Survey,” Kaplan and Sensoy
“What do private equity firms say they do?” Gompers, Kaplan, Mukharlyamov

G. Summary
Week 9B: Case: Yale University Investments Office
December 4 The Canada Pension Plan Investment Board

Course Summary and Recap.

Final exam handed out on Wednesday, December 4.

Week 10: Final exam due on Monday, December 9.

The information contained in these documents is confidential, privileged and only for the information of the intended recipient and may not be used,
published or redistributed without the prior written consent of the Booth faculty member(s) teaching the course.