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333
Index
A
Acquisition see Merger and acquisition
Adjusted present value (APV),
company valuation , 182 – 183 ,
197 – 198
Agency theory, overview , 28 , 30 – 32 ,
31f
AMC see Asset management company
APV see Adjusted present value
Asset management company (AMC)
carried interest , 59 , 60f
close-end fund relationship , 56 – 59 ,
56f
costs and revenues , 57 – 58
management fee , 58
overview , 42
Asset option, company valuation , 183
B
Balance sheet, company valuation ,
190 – 191 , 190f
BALTD, fi nancing history , 235 – 236
Bank

European Union legislation , 42 – 43 ,
43f
Basel II framework , 45 – 46
United States regulation of private
equity investment , 71
Basel II, bank and investment fi rm
rules , 45 – 46
BIMBO see Buy in management buy
out
Board of directors, venture capitalist
involvement , 146
BOLT, fi nancing history , 249 – 250
Book value (BV), company valuation ,
195
Business Angel
early stage fi nancing , 209 – 210
fundraising , 122
motivation and criteria , 212 – 219

United Kingdom regulation , 75
United States regulation , 71 – 72
Business plan, analysis in valuation ,
133 , 177 – 179 , 177f
Buy back, exit strategy , 162
Buy in management buy out (BIMBO) ,
238 see also Buy out
Buy out
characteristics
corporate governance , 241 – 242
fi nancial structure , 240 – 241

conditions for good buy out ,
244 – 251
managed risk , 211 – 212
overview , 237 – 240
prospects , 293
types , 267 – 268
valuation , 210 – 211

BV see Book value
C
Calling plan, fundraising , 127 – 128
Capital Asset Pricing Model (CAPM),
company valuation , 193 – 194
Capital gains tax see Taxation
Capital-structure irrelevance theory,
overview , 28 , 29
CAPM see Capital Asset Pricing Model
Carried interest
asset management company , 59 , 60f
close-end fund , 59
regulation in United States and
United Kingdom , 77

334
Index
Case examples
BALTD , 235 – 236
BOLT , 249 – 250
COMPEURO , 215 – 216
COSMY , 217

FC , 234 – 235
FINSERVE , 217 – 218
FLUFF , 218 – 219
FMM , 231
FORFREI , 262 – 263
HAIR & SUN , 248 – 249
INBIOT , 215
LEAGOO , 277
MAP , 201 – 203 , 247
MC , 236
MED , 234


NDS , 263 – 264
NORWEN , 216
RA , 247 – 248
RDC , 233
REM , 229 – 230
SPINORG , 218
Stain and Steel , 232 – 233 , 245 – 246
STUFFED , 264 – 265
TELSOFT , 251
TROMPI , 214 – 215
VEGOIL , 247
VINTAP , 276 – 277
WORKWEAR , 250
Change fi nancing, overview , 16
Close-end fund
advantages over banks and
investment fi rms

, 56
asset management company
relationship
,
56 – 59 , 56f
carried interest , 59
costs and revenues , 57 – 58
European Union regulation
general framework , 52 – 53
internal code of activities , 54
investment policy , 54 – 55
public offer , 55
reserved offer , 55
management fee , 58
overview , 48 , 51 – 55 , 106
Company valuation
balance sheet , 190 – 191 , 190f
buy out , 210 – 211
comparables
, 182 , 194 – 196 , 202
cost of capital
, 192 – 194
discounted cash fl ow
adjusted present value , 197 – 198
net present value , 196 – 197 , 203
overview , 196 – 198
enterprise value analysis , 187 – 188
examples , 201 – 203 , 204
factors affecting valuation method
company industry , 189

country where company based ,
188 – 189
data availability and reliability , 189
public versus private status , 190
fi nancial statement , 192 , 193f
market dynamics
, 185
overview , 175 – 176
phases
business plan analysis , 133
,
177 – 179 , 177f
enterprise value analysis ,
181 – 183
exiting , 184 – 185
fi nancial needs assessment ,
179 – 181
overview , 176 – 185
price setting , 183 – 184
profi ts and losses statement ,
191 – 192 , 191f
venture capital method
example , 204
overview , 198 – 200
steps , 199 – 200

335
Index
Comparables, company valuation , 182 ,
194 – 196 , 202

COMPEURO, fi nancing history ,
215 – 216
Concentration cap, calculation , 44f
Contractual package
corporate governance , 141 , 142f
debt issuing , 140
design , 138f
engagement step , 140 – 141 , 141
liability profi le , 139
syndication strategy , 139 – 140
Corporate fi nance, entrepreneurial
fi nance comparison , 5 – 7 , 6f
Corporate tax see Taxation
Corporation, features , 106
COSMY, fi nancing history , 217
Costly state verifi cation (CSV)
,
31 – 32
Covenants
fundraising , 128 – 129
managing and monitoring rules ,
154 – 156
Creation fi nancing, overview , 16
Crisis stage
fi nancial needs of fi rms , 8 – 9 , 9f
investor types , 11f
CSV see Costly state verifi cation
D
DCF see Discounted cash fl ow
Debt

classifi cation , 243
disadvantages , 244
managed risk , 243 – 244
Development stage see also Seed
fi nancing
fi nancial needs of fi rms , 8 – 9 , 9f
investor types , 11f
seed fi nancing , 18 , 19f
Discounted cash fl ow (DCF)
adjusted present value , 197 – 198
net present value , 196 – 197 , 203
overview , 196 – 198
Distressed fi nancing
characteristics , 260 – 265
overview
, 260
Division cap, calculation , 44f
Drag along right, defi nition , 155
Due diligence, investment selection ,
136
E
EAD see Exposure at default
Early growth stage
fi nancial needs of fi rms , 8 – 9 , 9f
fi nancing
operating phases , 208 – 209
overview , 19 – 20
investor types , 11f
Earn out agreement, defi nition ,
155

Earnings before interest and taxes
(EBIT), company valuation ,
191 – 192 , 192 , 195
Earnings before interest, taxes,
depreciation and amortizations
(EBITDA), company valuation ,
191 – 192 , 195
Earnings before taxes (EBT), company
valuation , 191 – 192
EBIT see Earnings before interest and
taxes
EBITDA see Earnings before interest,
taxes, depreciation and
amortizations
EBT see
Earnings before taxes
Employee Retirement Income Security
Act , 67
Enterprise Investment Scheme , 72

336
Index
Enterprise value (EV)
analysis , 187 – 188
company valuation , 195 , 242 – 243
Entrepreneurial fi nance, corporate
fi nance comparison , 5 – 7 , 6f
European Private Equity and Venture
Capital Association (EVCA)
fi scal system comparative analysis

by country , 93f
private equity fi nance vehicles by
country , 62f
2007 annual survey
divestment activity , 14
fundraising activity , 13 – 14
investment activity , 12 – 13
EV see Enterprise value
EVCA see European Private Equity and
Venture Capital Association
Examples see Case examples
Exiting

buy back , 162

initial public offering , 164 – 165
sale to other private equity
investors , 162 – 163
strategy for equity investment ,
112 – 113
timing , 169 – 171
trade sale , 161 – 162
valuation of private equity
companies
exiting considerations , 184 – 185
potential advantages and
disadvantages , 165 – 169
segmentation of private equity
operators , 169 – 171
write-off , 163 – 164

Exit phase, private equity cycle , 38 – 39
Exit ratchet, defi nition , 156
Expansion fi nancing

external growth , 228 – 236
fourth stage fi nancing , 224
– 225
growth characteristics , 227 – 228
overview , 16 , 221 – 223 , 222f
second stage fi nancing , 223 – 224
third stage fi nancing , 224
valuation considerations
enterprise value analysis ,
181 – 183
fi nancial needs assessment ,
179 – 181
price setting , 183 – 184
venture-backed companies
advantages , 225 – 226
disadvantages , 226 – 227
Expertise, requirements in investment
process , 113 – 115 , 114f

Exposure at default (EAD), Basel II
framework , 46
F
Family buy out (FBO) , 238 see also Buy
out
FBO see Family buy out
FC, fi nancing history , 234 – 235

Financial statement, company
valuation , 192 , 193f
FINSERV, fi nancing history , 217 – 218
Five forces model , 134f , 135f
FLUFF, fi nancing history , 218 – 219
FMM, fi nancing history , 231
Focus – ownership – positioning (FOP)
approach
focus of investment , 284 – 285
overview , 283 – 292
ownership of private equity fi rms ,
285 – 287
positioning of market , 287 – 289

value chain of private equity fi
rms ,
290 – 292 , 291f
FOP approach see Focus – ownership –
positioning approach
FORFREI, fi nancing history , 262 – 263

337
Index
France
private equity fi nance legal
frameworks , 61
taxation , 88 – 89
Fund see also Close-end fund , Open-
end fund , Hedge fund , Venture
capital fund

European Union regulation
governance rules , 50
management rules , 50 – 51
minimum requisites , 49 – 50
operating structure , 48f
types , 48
trends , 282
Fundraising
classifi cation of elements , 35 – 37
investor types , 109 – 110 , 130f
overview , 108 – 110
steps
business idea creation
, 118 – 121
calling plan , 127 – 128
covenants , 128 – 129
debt raising , 125 – 127 , 126f
investment types , 129 – 130 , 130f
strategy development , 123 – 125 ,
124f
venture capital options , 122 – 123
trends , 282
2007 activity , 13 – 14
G
General partnership, features , 105
Germany
private equity fi nance legal
frameworks , 61 – 63
taxation
overview , 89

vehicle taxation , 100 – 102
Global cap, calculation , 44f
Golden age, private equity , 279 – 281
H
HAIR & SUN, fi nancing history ,
248 – 249
Hedge fund, overview , 49
I
IBO see Investor buy out
INBIOT, fi nancing history , 215
Incubator seed and start-up
investments , 288
Industrial and Financial Corporation
Act , 72
Initial public offering (IPO)
advantages
company , 269 – 270
management , 270 – 271
shareholder , 270
company characteristics , 268 – 269
disadvantages , 271 – 272
exit strategy , 164 – 165
overview , 267 – 268
process
execution phase , 274 – 277
organization phase , 272 – 274
valuation see Company valuation;
Exiting

Innovation, support in start-up phase ,

211 – 212
Internal rate of return (IRR),
performance determination ,
148 – 150
Investment fi rm
Basel II framework , 45 – 46
European Union legislation , 43 – 44 ,
44
Investor buy out (IBO) , 238 see also
Buy out
IPO see Initial public offering
IRR see Internal rate of return
Italian Banking Act , 44

338
Index
Italy, taxation
overview , 88
vehicle taxation , 95 – 98 , 97f
L
LBO see Leveraged buy out
LEAGOO, fi nancing history , 277
Leveraged buy out (LBO) see also
Buy out
characteristics
corporate governance , 241 – 242
fi nancial structure , 240 – 241
conditions for good buy out ,
244 – 251
managed risk , 211 – 212

overview , 237 – 240
valuation , 210 – 211
LGD see Loss given default
Life cycle, company
early stage fi nancing , 206f
expansion fi nancing , 222f , 223f , 224f ,
225f
overview
, 120f
Limited partnership (LP)

advantages , 69 , 107
agreement , 69
clauses in United States and United
Kingdom , 78 – 79
structure , 68f , 105 – 106
Listing see Initial public offering
Lock up agreement, defi nition , 154
Loss given default (LGD), Basel II
framework , 46
LP see Limited partnership
Luxembourg, taxation , 90 – 91
M
Managed risk, buy out , 211 – 212
Management buy out (MBO) , 238
see also Buy out
Management fee
asset management company , 58
close-end fund , 58
regulation in United States and

United Kingdom , 76 – 77
Managerial resources, venture
capitalists , 144 – 145
Managing and monitoring
activities
overview , 150f
rules to live together , 153 – 157
value creation and measurement ,
150 – 152
performance determination ,
148 – 150
MAP, fi nancing history , 201 – 203 , 230
Mature age stage
fi nancial needs of fi rms
, 8 – 9 , 9f

investor types , 11f
MBO see Management buy out
MC, fi nancing history , 236
MED, fi nancing history , 234
Merchant bank, United Kingdom
regulation , 75
Merger and acquisition
characteristics , 259 – 260
motivations , 258 – 259
overview , 258 – 260
Mid-cap transactions, prospects ,
293 – 294
Monitoring see Managing and
monitoring

Mordigliani – Miller theory see Capital-
structure irrelevance theory
Mutual investment fund, fundraising ,
122
N
NDS, fi nancing history , 263 – 264
Net present value (NPV), company
valuation , 182 , 196 – 197 , 203

339
Index
Netherlands
private equity fi nance legal
frameworks , 63
taxation , 91
NORWEN, fi nancing history , 216
NPV see Net present value
O
Open-end fund, overview , 48
P
P/E see Price/earnings ratio
Pecking order theory, overview , 28 ,
32 – 33
Permitted transfer clause, defi nition ,
154
Personal tax see Taxation
Porter model see Five forces model
Price/earnings ratio (P/E), company
valuation , 195
Private equity

cycle
exit phase , 38 – 39
fundraising , 35
investment, management, and
monitoring , 37 – 38
overview , 33 – 35 , 35f , 82f
defi nition , 3 – 5
Europe legal frameworks
France , 61
Germany , 61 –
63
Netherlands , 63
Spain , 63
global economic impact of
operations , 25 – 26
taxation impact see Taxation
Profi ts and losses statement,
company valuation , 191 – 192 ,
191f
Public offer, close-end fund , 55
R
RA, fi nancing history , 247 – 248
Rapid growth stage see also Expansion
fi nancing
characteristics , 227 – 228
expansion fi nancing , 20 – 21
fi nancial needs of fi rms , 8 – 9 , 9f
investor types , 11f
RBO see Reverse buy out
RDC, fi nancing history , 233

REM, fi nancing history , 229 – 230
Replacement fi nancing see Turnaround
fi nancing
Reserved offer, close-end fund , 55
Retention ratio, company valuation ,
200
Revenue Act , 67
Reverse buy out (RBO) , 239 see also

Buy out
Right of fi rst refusal, defi nition ,
155 – 156
Risk, investment stages , 150 – 151 , 151f
Risk – return profi le, relationship to
investment characteristics , 10f
S
SBIC see Small business investment
company
Seed fi nancing
innovation development support ,
211 – 212
investor motivation and criteria ,
212 – 219
investor risks , 206 – 207
operating phases , 208 – 209
overview , 18 , 19f , 205 – 208
prospects , 294
target company selection , 210 – 211
valuation considerations
enterprise value analysis ,

181 – 183

340
Index
Seed fi nancing (Continued)
fi nancial needs assessment ,
179 – 181
price setting , 183 – 184
venture capitalists , 209 – 210
Selection, investments
business plan analysis , 133
due diligence , 136
fi ve forces model , 134f , 135f
investment process summary , 137f
Skill, requirements in investment
process , 113 – 115 , 114f
Small Business Investment Act , 67
Small business investment company
(SBIC), United States regulation ,
70 – 71
Small cap transactions, prospects , 294
Sovereign funds , 281
Spain
private equity fi nance legal
frameworks , 63
taxation , 90

SPINORG, fi nancing history , 218
Staging technique provision,
defi nition , 154

Stain and Steel, fi nancing history ,
232 – 233 , 245 – 246
Start-up stage see also Seed fi nancing
fi nancial needs of fi rms , 8 – 9 , 9f
fi nancing
innovation development support ,
211 – 212
investor motivation and criteria ,
212 – 219
operating phases , 208 – 209
overview , 18 – 19 , 20f , 205 – 208 ,
207 –
208
prospects , 294
target company selection ,
210 –
211
investor types , 11f
valuation considerations
enterprise value analysis , 181 – 183
fi nancial needs assessment ,
179 – 181
price setting , 183 – 184
venture capitalists , 209 – 210
STUFFED, fi nancing history , 264 – 265
T
Tag along right, defi nition , 155
Taxation
comparative analysis by country
France , 88 – 89

Germany , 89
Italy , 88
Luxemborg , 90 – 91
Netherlands , 91
Spain , 90
total tax rate , 94
United Kingdom , 91 – 92
United States , 92
fundamental role in private equity
and venture capital , 81 – 84 ,
82f , 83f
private equity player interactions ,
85 – 87 , 86f , 86f
theory and models , 84 – 85
value –
added tax impact , 94

vehicle taxation
Germany , 100 – 102
Italy , 95 – 98 , 97f
profi le by country , 96f
United Kingdom , 99 – 100
United States , 98 – 99
TELSOFT, fi nancing history , 251
Total tax rate (TTR), comparative
analysis of countries , 94
Trade sale, exit strategy , 161 – 162
Trade-off theory, overview , 28 , 29 – 30
TROMPI, fi nancing history , 214 – 215

341
Index
TTR see Total tax rate
Turnaround fi nancing
executives , 254
overview , 253 – 254 , 254
reasons , 255 – 256
risk valuation and management ,
256 – 257
U
UK see United Kingdom
United Kingdom (UK)
carried interest regulation , 77
European Union regulation
differences , 66
legislation of equity investors
Business Angels , 75
dedicated public institutions , 75
merchant banks , 75
overview , 72 – 75
venture capital funds , 73
venture capital trusts , 73 – 75 , 74f
limited partnership agreement
clauses , 78 – 79
management fee regulation , 76 – 77
taxation
overview , 91 – 92
vehicle taxation , 99 – 100
United States
carried interest regulation , 77

European Union regulation
differences , 66
legislation of equity investors
banks , 71
Business Angels , 71 – 72
corporate ventures , 71
overview , 66 – 72
small business investment
companies , 70 – 71
venture capital funds , 68 – 70 , 70f
limited partnership agreement
clauses , 78 – 79
management fee regulation , 76 – 77
taxation
overview , 92
vehicle taxation , 98 – 99
V
Valuation see Company valuation;
Exiting; Selection, investments
Value – added tax see Taxation
Value chain, private equity fi rms ,
290 – 292 , 291f
VCT see Venture capital trust
VEGOIL, fi nancing history , 247
Venture capital
cycle , 33 – 35 , 82f
defi nition , 3 – 5
investment types , 110
taxation impact see Taxation
Venture capital fund

features , 106 – 107 , 107
United Kingdom regulation , 73
United States regulation , 68 – 70 , 70f
Venture capital method, company
valuation

example , 204
overview , 198 – 200
steps , 199 – 200
Venture capital trust (VCT), United
Kingdom regulation , 73 – 75 ,
74f
Venture Capital Trusts Act , 72
Venture philanthropy
defi nition , 289 – 290
prospects , 294 – 295
VINTAP, fi nancing history , 276 – 277
Vulture fi nancing, valuation
considerations
enterprise value analysis , 181 – 183
fi nancial needs assessment , 179 – 181
price setting , 183 – 184

342
Index
W
WACC see Weighted average cost of
capital
WBO see Worker buy out
Weighted average cost of capital

(WACC), company valuation ,
192 – 194 , 196 – 197
Withholding tax see Taxation
Worker buy out (WBO) , 238 see also
Buy out
WORKWEAR, fi nancing history , 250
Write – off, exit strategy , 163 – 164