Handbook of the Economics of Corporate Finance : Private Equity and Entrepreneurial Finance.

Format:

Book

Author/Creator:

Eckbo, B. Espen.

Contributor:

Phillips, Gordon M.

Sorensen, Morten.

Series:

Issn Series

Language:

English

Subjects (All):

Private equity.

Venture capital.

Physical Description:

1 online resource (472 pages)

Edition:

1st ed.

Place of Publication:

San Diego : Elsevier Science & Technology, 2023.

Summary:

This handbook provides a comprehensive exploration of the economics of corporate finance, emphasizing private equity and finance. Edited by leading academics, it delves into early-stage financing, venture capital, small firm financing, and later-stage private equity financing. The book examines key topics such as contracting and valuation of venture companies, the role of venture capital in innovation, and the mechanics of buyouts. It also addresses the impact of gender and race in finance, stakeholder impacts of private equity investments, and the risk-return dynamics in private equity. Aimed at scholars, professionals, and policymakers, the book offers insights into the evolving landscape of corporate finance and its implications for innovation, governance, and economic growth. Generated by AI.

Contents:

Intro

Private Equity and Entrepreneurial Finance

Copyright

Contents

Introduction to the handbooks in economics series

Introduction to the economics of corporate finance series

Introduction to the first volume

Contributors

Part I: Early-stage financing

Chapter 1: The contracting and valuation of venture capital-backed companies

1. Introduction

2. Contracting between startups and their investors

2.1. The life cycle of a VC-backed company

2.1.1. Self-funding

2.1.2. Pre-VC financing

2.1.3. Early-stage venture capital

2.1.4. Late-stage venture capital

2.1.5. Exit

2.2. Challenging features of VC startups

2.2.1. Nature of the cash flows

2.2.1.1. Uncertain outcomes

2.2.1.2. Scarce initial cash flows

2.2.1.3. Insufficient collateral

2.2.2. Nature of the information

2.2.2.1. Double-sided information asymmetry

2.2.2.2. Differences in opinion

2.2.2.3. Difficulty in acquiring information

2.2.2.4. Contractual incompleteness

2.2.3. Moral hazard

2.2.3.1. Double-sided moral hazard

2.2.3.2. Inalienable human capital

2.2.3.3. Multilayer agency problems

2.2.3.4. Many principals and conflicts among them

2.2.4. Ecosystem structure

2.2.4.1. Matching frictions

2.2.4.2. Varying market conditions

2.2.4.3. Illiquidity

2.3. Process of contracting in VC-backed companies

2.4. Economic features of VC contracting

2.4.1. Separation of cash flow and control rights

2.4.2. Contingent provisions

2.4.3. Multistage financing

2.4.4. Hybrid equity-debt instruments

2.4.5. Significant minority ownership

3. Dividing cash flows

3.1. Convertible preferred stock

3.1.1. Conversion

3.1.2. Liquidation preference

3.1.3. Participation

3.1.4. Seniority

3.1.5. Other cash flow provisions

3.2. Common equity

3.3. Stock options

3.3.1. Warrants.

3.4. Convertible notes

3.4.1. Principal

3.4.2. Interest rate

3.4.3. Conversion

3.4.4. Conversion price, discount, and valuation cap

3.4.5. Maturity date and repayment

3.4.6. Nonpriced round

3.5. SAFEs

3.6. Venture debt

4. Dividing control

4.1. Shareholder voting rights

4.1.1. Supermajority and supervoting

4.1.2. Class-level voting

4.1.3. Protective provisions

4.1.4. Automatic conversion

4.2. Board of directors and control rights

4.2.1. Election of startup boards

4.2.2. Types of board members

4.2.2.1. Common directors

4.2.2.2. Investor directors

4.2.2.3. Joint directors

4.2.2.4. CEO directors

4.2.2.5. Nonvoting directors

4.2.3. Board structure

4.2.4. Board control

4.3. Founder and employee restrictions

4.4. Redemption rights

4.5. Informal control mechanisms

4.6. Legal system

4.7. Across investor variation in control rights

4.8. Relationship between cash flow and corporate governance rights

5. Evolution of cash flow rights and control

5.1. Dilution

5.1.1. Antidilution

5.1.2. Dilution of downside protections

5.2. Reinvestment

5.2.1. Staging

5.2.2. Pro-rata rights

5.2.3. Pay to play

5.3. Control

6. Valuation of venture capital securities

6.1. Valuing innovative projects

6.1.1. Cash flow-based valuation

6.1.2. Market multiples valuation

6.1.3. Nonquantitative approaches to valuation

6.2. Valuing contractual claims

6.2.1. Ignoring contractual terms

6.2.2. Probability weighted expected return method

6.2.3. Contingent claims valuation

7. Conclusion

Acknowledgments

References

Chapter 2: Venture capital and innovation

2. A brief look at the history of institutional venture capitalc

3. How the venture capital model boosts innovation.

4. Limitations of venture capital model as a spur to innovation

4.1. Focus on an extremely narrow slice of technological innovation

4.2. Concentration of capital in the hands of few non-representative investors

4.3. A declining emphasis on governance

5. New approaches

5.1. Organization of VC partnerships

5.2. De-risking ventures

6. Conclusion

Chapter 3: Small firm financing: Sources, frictions, and policy implications

2. Sources of small firm financing

2.1. Personal wealth

2.2. Bank finance

2.3. Personal credit

2.3.1. Home equity financing

2.3.2. Unsecured personal credit

2.4. Equity financing

2.4.1. Venture capital

2.4.2. Angel investors, accelerators, and crowd funding

2.5. Trade credit

3. Real effects of (relaxed) financing constraints

3.1. Shocks to the supply of bank credit

3.1.1. US branch-banking deregulation

3.1.2. Shocks to bank balance sheets

3.2. Exogenous increases in access to personal credit

3.3. Accelerated payment of trade credit

3.4. Small business fragility during the COVID-19 pandemic

4. The role of government policy

4.1. Information about credit worthiness

4.2. Government as customer

4.3. Loan guarantees and direct interventions

5. Conclusions

Part II: Later stage financing

Chapter 4: Private equity financing

1. The basics

1.1. Traditional fund structures

1.2. The J-curve

1.3. Subscription lines

1.4. Who are the limited partners?

2. Beyond the fund structure: Co-investments and direct investments

3. Trends in private equity financing

3.1. Fund flow into private equity

3.2. Lengthening of the fund horizonadadA related discussion appears in Ivashina (2022).

3.3. Investing for good

References.

Further reading

Chapter 5: Buyouts: A primer

2. What are buyouts and how do they work?

2.1. Investors and funds

2.1.1. Funds as limited partnerships

2.1.2. Fund governance

2.1.3. Fund economics

2.1.4. Taxation

2.1.5. Regulation

2.2. Funds and portfolio companies

2.2.1. LBO deal structures

2.2.2. An example of an LBO deal structure

2.2.3. The growth of private debt

2.3. Portfolio companies and management

3. How do buyouts create returns for their investors?

3.1. Improving portfolio firms' values

3.2. Flexibility and the importance of control rights

3.3. Alternative strategies to increase portfolio firms' values

3.3.1. Free cash flow

3.3.2. Refocus operations

3.3.3. Enhancing executive management

3.3.4. Operational efficiencies

3.3.5. Scale economies: Roll ups and expansions

3.3.6. Corporate orphans

3.3.7. Privatization of state-owned enterprises

3.3.8. Transitions in ownership

3.3.9. Mitigating distress

3.3.10. Other private equity strategies

3.4. Wealth transfers

4. Facts about buyouts

4.1. A brief history of the industry

4.2. The evolution of the buyout market

4.3. Assets under management and dry powder

4.4. Fund performance over time by location

4.5. Purchase prices and leverage multiples

4.6. Exits

4.7. Fund fee distribution

5. The academic literature on buyouts

5.1. Fund performance

5.1.1. Measuring fund performance

5.1.2. Adjusting for risk

5.1.3. Performance persistence

5.2. Limited partners

5.2.1. LP performance

5.2.2. Direct investments and co-investments

5.3. Sources of returns

5.3.1. Value creation to portfolio companies

5.3.2. Wealth transfers

5.4. Agency problems between GPs and LPs

5.4.1. Agency conflicts from contracts

5.4.2. Return manipulation.

5.4.3. Emerging conflicts

Chapter 6: Gender and race in entrepreneurial finance

1.1. Chapter objectives

1.2. Intended audience

1.3. Entrepreneurs and firms

2. Why race and gender?

3. From founding to financing to exit

3.1. Founding decision

3.2. Postfounding: Gathering resources and growing the firm

3.3. Realizing value

3.4. Guiding our analysis

4. Facts about founders, startups, and investors

4.1. Founding decision: When, how, and with whom

4.2. Raising capital: Sources and amounts

4.3. Investors

4.4. Outcomes

4.5. Putting it all together

5. Economics of discrimination

5.1. Definitions and terms

5.2. Prejudice

5.3. Discrimination

5.3.1. Stereotypes

5.4. Homophily

5.5. Framework

5.6. Taste-based discrimination

5.6.1. Tests and data for entrepreneurial finance

5.7. Statistical discrimination with correct beliefs

5.7.1. Tests and data for entrepreneurial finance

5.8. Statistical discrimination with incorrect beliefs

5.8.1. Tests and data for entrepreneurial finance

5.9. Other models of differential treatment

5.9.1. Tests and data for entrepreneurial finance

6. Race and gender patterns: Review of the literature

6.1. Resources

6.2. Entry and founding

6.2.1. Career goals and flexibility

6.2.2. Family concerns

6.2.3. Early-life experiences

6.2.4. Stereotypes

6.2.5. Preferences and beliefs

6.3. Raising capital

6.3.1. Debt

6.3.2. Equity financing

6.3.3. Other capital sources

6.4. Outcomes

7. Changes to the financing landscape

7.1. Regulatory changes

7.2. Market changes

7.2.1. Changes to capital supply

7.2.2. Fintech and data availability

7.3. Targeted programs and funds

8. Ideas for future research

9. Conclusion

Acknowledgments.

Appendix A. Data sources.

Notes:

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Other Format:

Print version: Eckbo, B. Espen Handbook of the Economics of Corporate Finance

ISBN:

9780128240069

0128240067

OCLC:

1394119420