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Posted on January 8, 2013 @ 09:18:00 AM by Paul Meagher
I was doing some research on books I might read to get a better understanding of venture capital and private investing. I came across a book called "Venture Capital and Private Equity: A Casebook" (5th ed., 2012) by Josh Lerner, Felda Hardymon & Ann Leamon that looked promising. I read some of the reviews of this book and came across one particularly perceptive review that spoke to the issues that I was interested in but which apparently are not well addressed in this book. Here is the review by Frederic Harwood which outlines some of the hard questions that investors want to know when they make an investment:
As an investor in small start ups, I had to read this book twice. The first read, the book didn't seem relevant at all. The second,
somewhat more methodical read, the picture became clearer--The book is written for MBA students who think they might go to work
someday for a firm that forms venture capital investment groups. That's nice, if you are thinking of working for a big venture
capital company. But for the $300k - $3M investor wanting to understand issues like how much of the company is my
investment worth, what percentage of equity should I take, can I treat my investment as a loan and still expect equity,
(if yes) how does the loan repayment work so it does not strip the company of working capital and much needed startup cash,
what controls do I have over management, how can I be sure they are doing with the money what they are supposed to be doing
and not squirreling cash away, what happens to my equity if management needs more funding, how is management paid a salary,
how is management rewarded vis-a-vis the investors -- who is in line first, middle and last--and how do I get out early and late,
this book provides answers to some of these questions buried in the case studies. You read a case study teasing out the rules
of thumbs by what the investors and owners did in a particular case situation. In the process, the reader looks for guidelines,
principles, and rules of thumb -- but these are mostly buried deep in the paragraphs or found between the lines of a case study
or discussion of a case study. What to do, the rules of thumb for the middling-sophisticated investor are hard to come by,
suggesting this is a textbook meant to supplement classroom lectures and discussions. Richard Gladstone's Guide to Venture
Capital is a much better primer, but the book that takes Gladstone to the next level and answers the questions I posed above has
not been written by Lerner.
If some one is aware of a book that attempts to answer these hard investment questions, please drop me a line so I can share it with others.
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