15.391 | Fall 2010 | Graduate

Early Stage Capital

Lecture Notes

The table below includes descriptions of lecture topics and selected slides.

1 Introductory class: logistics (PDF) Discussion of the syllabus, course goals and structure. Explanation of the simulation rounds. All deliverables will be discussed in detail. Discussion of pre-class lunches with guests.
2 Term sheets 101 (PDF) This is a ground floor, introductory class on term sheet jargon and basic legal concepts. The lecture assumes no prior experience in venture finance. The goal is to get everyone to a low common denominator of understanding that we can then build on. Time will be allocated to finalize team formation.

Meet the lawyer

Guest: David Capillo, Partner, Goodwin Procter

David will build on the foundation set out in the previous class, through his perspective as a seasoned deal lawyer. We will move beyond basic jargon and concepts to begin discussing market standards and norms as well as strategy and tactics. We will also spend a short time on maximizing value from outside lawyers and other advisers. The goal of this session is lively class conversation; please do the readings and bring your good questions.

The entrepreneur’s view of venture capital (VC)

Guest: Bennett Fisher, Founder and CEO, Retroficiency, Inc.

This session will center around the “A Round” investment process, from the perspective of an entrepreneur fresh from battle. We will discuss the substance of the negotiations, the strategies involved, the distractions and tensions, as well as the relationship-building process of the founders and the VCs. Retro’s round included strategic investors and angel investors, and we will highlight some of the differences in value those kinds of investors bring to a start-up.

Search funds: introduction to a different kind of early stage capital (PDF)

Guest: David Brown, Partner, Choate Hall & Stewart

Courtesy of David Brown. Used with permission.

David, a leading search fund lawyer and a current search fund principal will discuss the basics surrounding this emerging investment vehicle. The four stages, including raising the fund, search and acquisition, operation, and exit will be examined and detailed as well as the results, trends, and profiles observed in past deals and challenges of the current environment.
6 Compare and contrast lawyer rounds Mid-course review. Our goal is to leverage the value of other teams’ lawyer round experiences in preparing for upcoming VC rounds. This is a graded discussion among you and your classmates; my role is primarily as a moderator. We will compare basic benchmarks, advice and strategy to determine just how standard prevailing “market standards” are. We will also undertake a broader discussion on the utility of lawyers in developing strategy, and in managing lawyers in the real world.

VC from the inside: the partnership

Guest: Carmichael Roberts, General Partner, Northbridge Venture Partners

Do you know how a decision to invest in a new company is made by a VC firm? Where are the levers of power and influence? What is the process, how do deals stumble, who lobbies whom, and what about those Monday morning partnership meetings? Carmichael Roberts, a successful entrepreneur, Sloan alum and VC speaks candidly about the context in which investment decisions are made, and how those factors should be built into your fundraising strategy.
8 Angels, super angels, micro VC: trends in seed stage investing The Lean startup of today has such minimal capital expenditure requirements that it arguably makes the traditional venture model obsolete or at least irrelevant. James Geshwiler, Sloan ‘00, is the longtime managing director of the most respected angel group in New England. David Beisel’s new fund actively seeks the title of Micro VC. For many of you entrepreneurs in our classroom, understanding how investors like these two are thinking about new ventures and when and how to invest in and exit from them will be critical for the companies you want to build.

The “A Round” and beyond: living with a VC

Guest: Jeff Bussgang, General Partner, Flybridge Capital Partners

Jeff is a very successful entrepreneur turned very successful VC. In connection with his new book, you will have a chance to engage with him on his perspective on what to expect from your VC after the deal closes, as well as how to build a productive VC-entrepreneur relationship for the long-term.

Emerging market VC: it’s what’s next (PDF)

Guest: Simon Olson, FIR Capital

The world of innovation stretches around the globe and the ecosystem necessary to support clusters of high-tech startups is growing rapidly in markets as diverse as Brazil, Mexico, Turkey, South Africa, and Vietnam. In addition to the market leaders of China and India, these new hotspots are just beginning to attract the kind of capital necessary to scale significant high tech businesses, and to provide the exits necessary to validate the markets. We will consider the special challenges and opportunities encountered by investors who fund entrepreneurs in these emerging and frontier markets.

Raising money for non-tech ventures

Guest: Chris Gabrieli, Venture Partner, Bessemer Ventures; Chair, Mass 2020

Chris will join us to talk about the challenges and opportunities involved in finding good investors in sectors traditionally ignored by VCs. Chris, a happy contrarian, will also likely challenge you on some of your newly-acquired views on venture finance in general. Please come prepared with thought-out opinions on venture capital and its place in the capital markets.
12 Conclusions: comparisons and contrasts of VC rounds In substance and process, we will discuss strategies that worked (and didn’t) in VC rounds, as well as broader issues of the value and costs of venture capital in a startup’s life.

Course Info

As Taught In
Fall 2010
Learning Resource Types
Lecture Notes
Activity Assignments
Written Assignments