Answer any TWO out of the following FOUR questions (total 100 marks) With a background in the sector gained as a consult
Posted: Sun May 08, 2022 10:28 am
Answer any TWO out of the following FOUR questions
(total 100 marks)
With a background in the sector gained as a consultant with a
major professional services firm you are considering raising a new
venture capital fund to invest in digital health technology and
medical equipment and devices.
(a) Describe how you might go about raising this fund including
who you would approach as potential investors in the fund, which
type of adviser that you might involve in the fund-raising process
and the various steps and proposed timeline for the fund raising.
(20 marks)
(b) Explain what you would include in the executive summary of
the document that you would use to market the fund to potential
investors. (5 marks)
(c) Explain what you would include in the “track record”
section of this document and provide an example of a tabular
summary statement of a fund’s track record. (10
marks)
(d) Explain why it may be more difficult to raise this
first-time fund than a subsequent fund. (5 marks)
(e) What is the difference between “allocated capital” and
“committed capital”? (5 marks)
(f) Explain what is meant by a “first close” and why it is
usually easier to complete the fund raising once a first close
has been reached.
(5 marks)
(50 marks total)
As a partner with a venture capital firm that specialises in the
food and hospitality sector you have received a business plan from
a management team that is aiming to raise finance to start-up a
chain of premium burger restaurants.
(a) Explain, in some detail, how you would go about appraising
this investment opportunity from receipt of the business plan to
issuing an offer letter (term sheet) (20 marks)
IC 309 2021/22 A 800
3
(b) How would you arrive at a valuation for the business and the
equity stake that you would require (use a numerical example to
illustrate your answer)? (15 marks)
(c) Why might you hold equity as preference shares rather than
ordinary shares? (5 marks)
(d) Explain the purpose of the term sheet and whether it is a
binding, legal contract in any way. (7 marks)
(e) What is meant by the term “consent rights”? (3
marks)
(50 marks total)
3. Over the past year private equity firms have been extremely
active in financing management buy-outs (MBOs) of underperforming
or undervalued businesses.
(a) Describe the criteria that a private equity firm would look
for in a potential MBO opportunity. (10 marks)
(b) What risk factors might pertain to a private equity
investment in the pandemic? (9 marks)
(c) Explain how a MBO deal is usually structured both in terms
of its corporate / legal structure and its financial structure. (10
marks)
(d) If a private equity firm is considering investing in the MBO
of a supermarket chain describe in detail the areas of external
commercial due diligence, management due diligence and financial
due diligence that should be carried out, making your answer
specific to the supermarket sector (15 marks)
(e) What options would be available to the private equity firm
if the due diligence revealed some issues? (6 marks)
(50 marks total)
IC 309 2021/22 A 800
4
4. (a) Explain the difference between a seed investment and a
start-up investment and how they compare on risk considerations. (6
marks)
(b) Both of these stages of investment are often financed
initially by business angels. Explain the difference between a
financial return business angel and a professional entrepreneur
business angel.
(8 marks)
(c) Why might a venture capitalist be keen to invest in a
company that has already received a first round of business angel
investment?
(5 marks)
(d) Explain why an anti-dilution clause might be included in the
investment agreement between the venture capitalist and / or
business angel and the company receiving the investment. (4
marks)
(e) Following investment explain how both business angels and
venture capitalists would go about monitoring an investment (11
marks)
(f) In what ways might they seek to add value to an investment
prior to exit? (6 marks)
(g) Explain why it is necessary to exit from an investment and
list the pros and cons to both a venture capitalist
investor and the company’s management team of exiting via
a trade sale and via a stock market flotation / IPO.
(10 marks).
(End of Question Paper)
(50 marks total)
(total 100 marks)
With a background in the sector gained as a consultant with a
major professional services firm you are considering raising a new
venture capital fund to invest in digital health technology and
medical equipment and devices.
(a) Describe how you might go about raising this fund including
who you would approach as potential investors in the fund, which
type of adviser that you might involve in the fund-raising process
and the various steps and proposed timeline for the fund raising.
(20 marks)
(b) Explain what you would include in the executive summary of
the document that you would use to market the fund to potential
investors. (5 marks)
(c) Explain what you would include in the “track record”
section of this document and provide an example of a tabular
summary statement of a fund’s track record. (10
marks)
(d) Explain why it may be more difficult to raise this
first-time fund than a subsequent fund. (5 marks)
(e) What is the difference between “allocated capital” and
“committed capital”? (5 marks)
(f) Explain what is meant by a “first close” and why it is
usually easier to complete the fund raising once a first close
has been reached.
(5 marks)
(50 marks total)
As a partner with a venture capital firm that specialises in the
food and hospitality sector you have received a business plan from
a management team that is aiming to raise finance to start-up a
chain of premium burger restaurants.
(a) Explain, in some detail, how you would go about appraising
this investment opportunity from receipt of the business plan to
issuing an offer letter (term sheet) (20 marks)
IC 309 2021/22 A 800
3
(b) How would you arrive at a valuation for the business and the
equity stake that you would require (use a numerical example to
illustrate your answer)? (15 marks)
(c) Why might you hold equity as preference shares rather than
ordinary shares? (5 marks)
(d) Explain the purpose of the term sheet and whether it is a
binding, legal contract in any way. (7 marks)
(e) What is meant by the term “consent rights”? (3
marks)
(50 marks total)
3. Over the past year private equity firms have been extremely
active in financing management buy-outs (MBOs) of underperforming
or undervalued businesses.
(a) Describe the criteria that a private equity firm would look
for in a potential MBO opportunity. (10 marks)
(b) What risk factors might pertain to a private equity
investment in the pandemic? (9 marks)
(c) Explain how a MBO deal is usually structured both in terms
of its corporate / legal structure and its financial structure. (10
marks)
(d) If a private equity firm is considering investing in the MBO
of a supermarket chain describe in detail the areas of external
commercial due diligence, management due diligence and financial
due diligence that should be carried out, making your answer
specific to the supermarket sector (15 marks)
(e) What options would be available to the private equity firm
if the due diligence revealed some issues? (6 marks)
(50 marks total)
IC 309 2021/22 A 800
4
4. (a) Explain the difference between a seed investment and a
start-up investment and how they compare on risk considerations. (6
marks)
(b) Both of these stages of investment are often financed
initially by business angels. Explain the difference between a
financial return business angel and a professional entrepreneur
business angel.
(8 marks)
(c) Why might a venture capitalist be keen to invest in a
company that has already received a first round of business angel
investment?
(5 marks)
(d) Explain why an anti-dilution clause might be included in the
investment agreement between the venture capitalist and / or
business angel and the company receiving the investment. (4
marks)
(e) Following investment explain how both business angels and
venture capitalists would go about monitoring an investment (11
marks)
(f) In what ways might they seek to add value to an investment
prior to exit? (6 marks)
(g) Explain why it is necessary to exit from an investment and
list the pros and cons to both a venture capitalist
investor and the company’s management team of exiting via
a trade sale and via a stock market flotation / IPO.
(10 marks).
(End of Question Paper)
(50 marks total)