07 14408
SPRING 2015
Lecturer: Wasim Ahmad; w.ahmad@bham.ac.uk
MODULE DESCRIPTION
The module deals with private equity and venture finance from inception of the idea to
harvesting (exiting) of the investment. The first half of the module deals with institutional
background of new venture financing and differences between entrepreneurial and
traditional corporate finance. The second half will cover aspects of initial valuation and
alternative ways to harvest equity investments. In particular, we deal with the initial public
offerings (IPO) process and financial performance of venture-backed- companies.
LEARNING OUTCOMES:
By the end of the module, students will be expected to be able to:
Understand various financial and ownership aspects of private equity and venture
capital investments.
Understand how firms make initial public offerings and the cost of such offerings.
PREREQUISITES:
A successful completion of a corporate finance course is expected.
Students are also expected to be able to apply mathematical and statistical concepts
required for other finance courses at this level.
For guidance on minimum mathematical and statistical requirements, please refer to
Appendices 8A and 8B in the required text.
METHOD OF ASSESSMENT:
Examination component:
Coursework assessment:
Submission Date:
75%
25%
METHOD OF DELIVERY:
Students will be expected to attend: 10 weekly lectures (each of two hours) and 9 weekly
tutorials (each of one hour).
Students will be expected to read relevant papers (as indicated in the course outline bellow)
before the lectures, and participate in the discussions.
A special session on Thomson One Banker database will be organized for students.
REQUIRED TEXT:
Smith, R.L. and J.K, Smith, Entrepreneurial Finance, John Wiley and Sons 2000 (or later
edition)
Smith, J.K., R.L.Smith, R.T. Bliss, Entrepreneurial Finance, Stanford University Press, 2011.
Readings
Smith and Smith (2000; chapters 1 and 12);
Cochrane (2005); New edition chapters:
1&3
Readings
Readings
Smith and Smith (2000; chapters
11,12,13,14,15; Kaplan and Stromberg
(2003); Cumming (2008); BVCA (2004);
New edition chapters: 12
Readings
Smith and Smith (2000; chapters 8, 9
and 10); New edition chapters: 9, 10,
11.
Topic 5
Readings
Smith and Smith (Chapter 16);
Cumming and MacIntosh (2003);
Gompers (1996); Jelic and Wright
(2011). New edition chapters: 15.
Topic 6
Readings
Topic 3
Topic 4
Topic 7
Readings
Smith and Smith (2000; chapters 8, 9
and 10); Trigeorgis (2000). New edition
chapters: 4.
REFERENCE LIST:
Ahmad,W., and R. Jelic, (2014), Lockup Agreements and Survival of UK IPOs, Journal of
Business Finance and Accounting, 41, 717-742.
Barry, C., C. Muscarella, J. Peavy and M.Vetsuypens, (1990), The Role of Venture Capital in
the Creation of Public Companies: Evidence from the Going Public Process, Journal of
Financial Economics, 27, 447-471.
Bottazzi, L., M. Da Rin, and T. Hellmann (2004), The Changing Face of the European Venture
Capital Industry: Facts and Analysis , Journal of Private Equity.
Brav, A. and P. Gompers, (1997), Myth or Reality? The Long-Run Underperformance of Initial
Public Offerings: Evidence from Venture and Non Venture Capital-Backed Companies,
Journal of Finance, 52, 1791-1821.
Brealey, R. and S. Myers, (1996), Principles of Corporate Finance (5th Ed), McGraw-Hill, New
York.
British Venture Capital Association (BVCA), 2004, A Guide to Venture Capital Term Sheets.
Cochrane, J. (2005), The Risk and Return of Venture Capital, Journal of Financial Economics.
Copeland, T., F. Weston & K. Shastri, (2005), Financial Theory and Corporate Policy (or 1993
edition), Addison Wesley, Pearson.
Cumming, D., (2008), Contracts and exits in venture capital finance. Review of Financial
Studies, 21, 1947-1982.
Cumming, D.J. and J.G. MacIntosh (2003), A Cross-country Comparison of Full and Partial
Venture Capital Exits, Journal of Banking and Finance, Vol. 27, pp. 511-548.
Cumming, D.J. and S. Johan, (2009), Venture Capital and Private Equity Contracting: An
International Perspective, San Diego, CA: Elsevier Science Academic Press.
Da Rin, M., G. Nicodano, and A.Sembenelli (2006), What Role of Legal Systems in Financial
Intermediaiton? Theory and Evidence, Journal of Public Economics.
Dixit, A. and R. Pindyck, (1995), The Options Approach to Capital Investment, Harvard
Business Review, 73, 3, 105-119
European Venture Capital Association Yearbook various issues.
Gilligan, J. and M. Wright, (2010), Private Equity Demystified-an explanatory guide, ICAEW.
Gompers, P., (1995), Optimal Investment, Monitoring, and the Staging of Venture Capital,
Journal of Finance, 42, 133-156.
Megginson, W., (2002), Towards a Global Model of Venture Capital?, Journal of Applied
Corporate Finance, Fall.
Metrick, A. and Yasuda, A., (2010), Private equity - A survey, European Financial
Management, 2010, forthcoming,
Netscape Case, (1997), The Wall Street Journal and Finance Education Program.
Ritter, J., (2003), Differences between European and American IPOs, European Financial
Management, 9, 4.
Robotica Case, (2003), R.Jelic, University of Birmingham
Sahlman, W. (1990), The Structure and Governance of Venture Capital Organizations,
Journal of Financial Economics, v.27.
Stromberg, P. (2008), The New Demography of Private Equity, in Lerner, J. and A. Gurung
(Eds). The Global Impact of Private Equity Report 2008, Globalization and Alternative
Investments, (Working Papers, World Economic Forum), Vol.1, pp. 3-26.
The WACC Users Guide, (2005), USB.
Trigeorgis, L., (2000), Real Options and Financial Decision-Making, Contemporary Finance Digest,
FMA International, CIBC World Markets.
Wright, M. and K. Robbie, (1998), Venture Capital and Private Equity: A Review and
Synthesis, Journal of Business Finance and Accounting, 25 (5) and (6), June/July, 521-570.
Zhou, D., Jelic, R., and M. Wright, (2013), SMBOs: Buying Time or Improving Performance?
Forthcoming in Managerial and Decision Economics.