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Zimmerman's Research Guide


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Private Equity and Venture Capital

"Venture Capital" and "Private Equity" are both ways for a company to raise money without "going public" and conforming to the securities regulations, stock exchange rules and disclosure requirements required of public companies.

I believe that, technically, "Private Equity" means selling equity securities not listed on a stock exchange, and "Venture Capital" is a type of "Private Equity." In common parlance, though, there are subtle but significant differences between the two. Private Equity companies generally buy entire companies, and the companies are generally established enterprises. Venture Capital funds generally invest in start-ups and other early-stage companies without access to the capital markets yet. Venture Capital investors generally take a minority ownership share in the company and do not buy the whole thing. As a result, Venture Capital investments are generally smaller than Private Equity deals. Other differences: Private Equity sometimes uses buys a company with a combination of debt and cash, while Venture Capital generally uses just cash.

Research Resources: Databases for researching venture capital firms and deals include Dow Jones VentureSource, the Private Equity module in Thomson ONE (formerly VentureXpert), Capital IQ and the Valuation & Deal Term Database. These are expensive subscription services, but I hear they're key tools for serious VC research.

The Practical Law Company provides practical advice on how to structure private equity and venture capital transactions including model forms (with commentary), sample clauses, checklists and detailed explanations. See also Structuring Venture Capital, Private Equity and Entreprenurial Transactions (Aspen Publishers).

Directories of VC firms include Galantes and Pratt's Guide to Private Equity and Venture Capital Sources. Both are sold as subscription database; Pratt's is also available in print. If you are are interested only in companies located in one part of the U.S., Massinvestor, Inc. publishes a series of regional directories (e.g., Rocky Mountain Venture Capital or New York Venture Capital).

You can identify the biggest VC deals and players through the PCW Reports available on the MoneyTree Report (free, though registration is required for some reports) and the National Venture Capital Association web site. WhoGotFunded.com compiles and organizes information on publicly announced deals, starting February 2012 (free registration required).

For definitions, see The Glossary of Private Equity and Venture Capital (free).

The The Encyclopedia of Private Equity and Venture Capital discusses major topics in Venture Capital financing (subscription required, but you can sign up for just one month).

The National Venture Capital Association posts Model Venture Capital Financing Documents.

Fund management: For information on how to structure funds, including management fees, see Private Equity Partnership Terms & Conditions in print or online (Dow Jones), the PE/VC Partnership Agreements study (ThomsonReuters/Herrick), and the treatise Private Equity (Practicing Law Institute).

League Tables: The PEI 300 by Private Equity International lists the 300 biggest private equity groups in the world based on "how much capital they have raised for private equity in the last five years (free registration required). The LP 50, also by Private Equity International, lists the 50 limited partners that have directly invested the most equity capital free registration required).

Term Sheets: A "Term Sheet" is a non-binding list of terms proposed by a Venture Capital company at the beginning stages of a deal. A Term Sheet is similar to a Letter of Intent but a term sheet is generally drafted as a bulleted list rather than a letter. Useful resources include:

  1. "How to Negotiate a Term Sheet," Part I and Part II, for an overview of common term sheet terms;
  2. "A Pragmatic View of Term Sheets and Ancillary Agreements" in the PLI Course Handbook Drafting and Negotiating Corporate Agreements 2010 (and 2011, etc.);
  3. Advanced Private Equity Term Sheets and Series A Documents (Law Journal Press).
  4. If you subscribe, the Term Sheet chapter of The Encyclopedia of Private Equity and Venture Capital.

For more information and sources, including some free resources, see Show Me the Money: Venture Capital Resources by Heidi Longaberger (2010).


See Also
Blue Sky Laws
Business Information
Company Information
Investment Advisers
Private Placements
Securities Laws

For comments, questions and suggestions, email the author
Copyright 2014 Andrew Zimmerman