Venture Capital Investing

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9780139414282: Venture Capital Investing

In his classic bestseller Venture Capital Handbook, leading venture capitalist David Gladstone showed thousands of companies how to get funding and work with early stage investors. Now, in his revision of the classic, Venture Capital Investing, he looks at venture capital through the eyes of the investor. Gladstone shows all of you VC investors and angels exactly how to weed through scores of business proposals and find the gem that will deliver outstanding returns, especially in these soft economic times. You will learn what to look for in a business proposition; how to assess entrepreneurs and their management teams; how to evaluate financial statements, market niches, competitive environments, and product innovations; how to investigate a business that's already operating; and how to build effective partnerships with existing portfolio companies.

"synopsis" may belong to another edition of this title.

About the Author:

DAVID GLADSTONE founded Gladstone Capital and serves as its CEO and Chairman. He previously served as Chairman of American Capital Strategies, the largest public-traded leveraged buyout fund, and was past Chairman of Allied Capital, the largest public-traded mezzanine debt fund. With Laura Gladstone he wrote the classic book on obtaining financing for small- and medium-sized businesses, Venture Capital Handbook: An Entrepreneur's Guide to Raising Venture Capital. David Gladstone holds an MBA from Harvard Business School.

LAURA GLADSTONE is a Principal of Gladstone Capital. Before joining the firm, she worked in equity research at ING Barings and Salomon Smith Barney, and she was a Syndication Lender at HSBC. She has also served as Marketing Director for Allied Capital Corporation.

Excerpt. Reprinted by permission. All rights reserved.:

Introduction

This book has been great fun to write, and with this revision it is ready for another 15-year run. More than 500 venture capital, buyout, and mezzanine funds are using the book to enlighten their new investment officers, associates, and analysts. When the book was written 15 years ago, there was no prediction that Venture Capital Investing would become so widely used by professionals in the industry. However, with the tremendous increase in venture capital and the many new employees, the book has benefited by filling that need. Please note that throughout this book, we use the term venture capital to cover the areas often called private equity investing. Under this general term, venture capital, we are lumping investing in leveraged buyouts, investing in startups, and providing growth financing (mezzanine finance).

The chief strength of the book is that it is a "nuts-and-bolts" approach about how to invest in venture capital and should illustrate to you the pragmatic process of investing in venture capital. The style is in plain English about the basics and does not have a lot of theory or war stories. It shows you how to win at the game of investing in venture capital.

It has been gratifying to see the book become so useful to so many people in the venture capital industry. Some people have claimed to have gained great insight into a particular investment and helped the venture capital fund make extraordinary returns. (We are waiting for some of those big winners to send us the commissions!) It would be fun to know how many billions of dollars have been made from venture capital firms by using this book.

We know the book is having an impact because some of our venture capital friends make comments to us about "giving away the secrets of the business." It seems that we have made it more difficult for them to gain the advantage over some of the new funds that have been entering the venture capital marketplace. In addition to professionals, more than 60 business schools use this book in their classes on either investing or entrepreneurship. It is wonderful that there are so many business schools that use the book today. It is gratifying to know that people are studying how to invest in venture capital.

Background on the Authors

For this new edition, David has teamed up with his daughter, Laura Gladstone, to rewrite this edition. We are authors by night, but both of us have day jobs as managers of a fund we created called Gladstone Capital Corporation (NASDAQ: GLAD). Our website is www.gladstonecapital.com. Come visit our website and learn about our fund and some more about venture capital.

We have one warning to readers about the authors. Every person is the total of his or her experiences. Each of us brings to every situation intellectual "baggage" in the form of prejudices and preferences, inherited and learned from past experiences. Therefore, to understand what this book is about, you need to know something about the background of the writers.

All of the experience of the writers has come from lending to and investing in small- and medium-sized businesses. Neither of the writers of this book have been a professional in any other area, such as the arts and letters or politics. David Gladstone's experience has come from investing in small- and medium-sized businesses since 1973. He has invested in all stages of the process, from startup to later-stage and, in some cases, small public companies. He is the past chairman of the group of companies that are now consolidated under the name of Allied Capital Corporation, which is listed on the New York Stock Exchange (ALD). As the chairman of that company, he gave investors an annual return of 22.4 percent compounded per year for 15 years. That company increased dividends and distributions to shareholders every year while he was in charge of its investments. He invested in more than 500 companies and had more than 400 successful exits while running that fund.

In 1997, David became chairman of American Capital Strategies, which is listed on NASDAQ (ACAS). Under his direction, that company grew from a tiny, private investment bank to a publicly traded buyout company with over $1 billion in market capitalization. During his four-year tenure at American Capital, David gave investors over 25 percent return per year and increased dividends every year for the four years he was head of the firm.

Although Laura's background is in business, her experience has three distinct segments--and it all relates to lending or investing in businesses. First, she was head of the marketing department at Allied Capital Corporation for three years, with responsibility for finding new venture capital investments. In that capacity, she found new investments for the fund all over the United States. She has seen thousands of new business proposals and met hundreds of entrepreneurs. She has spent most of her time looking at leveraged buyout opportunities and some of her time in early stage ventures.

Next, Laura worked for HSBC, a large multinational bank, where she made loans to many different types of businesses in various industries both in the United States and in Latin America. In this area, she developed her credit skills and approached business from a lender's perspective. She looked at them with a view for their ability to enerate cash flow, one of the most critical elements of any business.

Finally, she worked on the sell side on Wall Street as an associate analyst covering the telecommunications industry for two of Wall Street's largest brokerage houses. In this job, she developed her ability to pick stocks and analyze equity situations. At these three different types of jobs, Laura learned financial modeling, analyses of companies, and the all-important due diligence in many different types of scenarios.

In 2001, Laura helped found Gladstone Capital Corporation, where she is a principal, making loans and investments in small- and medium-sized businesses. David Gladstone and Laura Gladstone are the authors of their first book, Venture Capital Handbook, which helps a small business entrepreneur understand the basics of raising capital for a new idea or business. This second book, Venture Capital Investing, is not a sequel but instead takes a look at investing through the eyes of the venture capitalist. This book seeks to give understanding about investing in a successful entrepreneur and how to weed through endless business proposals to find the gem of all opportunities. What does it take to find a successful business venture and how does one invest? That is what we hope to answer in this book.

The structure of the book is sequential; that is, it begins with the due diligence process and proceeds through the closing, the monitoring of the investment, and finally the exit.

"About this title" may belong to another edition of this title.

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