Venture Capital and the Finance of Innovation by Andrew Metrick - ISBN 0470074280 - Wiley 2007



Working on innovation (cf Seedea:Research/Research) and how it can become financially sustainable (cf FinancialTools) then book recommended by Sylvain (probably motivated himself by his SubMate experience and his presentation at ESSEC).

Pre-reading model

Family, friends, banks (10K) -> BusinessAngel (100K) -> VC (1M) -> corporation acquisition exit


  • Preface : A Reader's Guide
    • detailing why VCs don't necessarily focus on financial methods yet why it matters
    • "This book takes the perspective of a venture capitalist - not an entrepreneur." (p.x)
    • "This book is attempting to provide a bridge between the language of VC and the language of finance" (p.xi)

Part I: VC Basics

Part II: Total Valuation

  • 7 The Analysis Of VC Investments
    • revised curves on the nature (acquired, IPO, defunct, still private) of portofolios over time (10 years)
    • study of the step by step investment process screening, term sheet, due diligence, closing
    • "the typical VC would need t screen at least 100 companies to make one investment." (p135)
    • two key assesments
      • market size
      • ability of the management team
  • 8 Term Sheets
    • "the big picture is that a term sheet describes the basic structure of a transaction and provides a set of protections against expropriation." (p146)
  • 9 Preferred Stock
    • "key to understand how these protections work, if only to know the relative bargaining positions for various investors" (p177)
    • Redeemable preferred (RP)
    • Convertible preferred (CP)
    • Participating CP (PCP)
    • PCP with cap (PCPC)
  • 10 The VC Method
    • key elements of the VC method (p192)
      • focus on the value of the company at the time of a successful exit high target return reflecting the significant probability of failure
      • accounting for a reduction the current ownership percentage because of later rounds of investment
      • investment recommendation
  • 11 Discounted-Cash-Flow Analysis Of Growth Companies
    • first method to estimate the exit value, key input in VC valuation
    • modeling the life-cycle in 3 parts
      • venture period
      • rapid-growth period
      • stable-growth period
    • use key cash flows, NPV (Net Present Value) and industry average cost of capital
  • 12 Comparables Analysis
    • mentioning the risk of relying too much on this type of estimation while using current and past data

Part III: Partial Valuation

Part IV: The Finance Of Innovation

See also

Overall remarks and questions

  • When should VC be avoided? How?
    • Can you have FIY (Fund It Yourself) innovation?
  • Since VC firms are well known, especially top-tiers, is it possible to get information from their portfolio to study trends?


So in the end, it was about X and was based on Y.


Point A, B and C are debatable because of e, f and j.


(:new_vocabulary_start:) Mezzanine Financing Bridge Financing


Post-reading model

Draw a schema (using PmGraphViz or another solution) of the situation of the area in the studied domain after having read the book. Link it to the pre-reading model and align the two to help easy comparison.


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Other read books linking to the VentureCapitalAndTheFinanceOfInnovation page :

Introduction a la Finance et a l'Economie de l'Immobilier

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