Guest Lecturers

Question 1

What are Corporate VC funds (CVC)?

Answer 1

CVCs manage investments in high-growth opportunities with the backing of a single corporation

-> to gain knowledge, state of the art technology, innovation without doing own research (strategic investing)

Question 2

critical fund size to survive

Answer 2

around 100 million

Question 3

probability of a total loss in direct investment

Answer 3

30%

Question 4

probability of total loss in VC funds

Answer 4

1%

Question 5

probability of losing part of investment in VC funds

Answer 5

5-15%

Question 6

power-law curve

Answer 6

the bulk of returns are produced by just a few companies

Question 7

how many startups reach a 100m valuation?

Answer 7

3/100

Question 8

how many startups never get past seed stage?

Answer 8

80/100

Question 9

PE bottom-up investment process

Answer 9

• Deal Sourcing
• Initial Due Diligence
• Comprehensive Due Diligence
• Investment Recommendation / Decision
• Investment Monitoring / Exit

Question 10

Parties involved in secondaries

Answer 10

Sellers: current investors (LPs) seeking to exit their commitments before the fund’s maturity

Buyers: secondary investors who purchase the seller’s stake, often at a discount to the NAV

Question 11

Types of secondaries

Answer 11

LP Interests: the buyer acquires an LP’s stake in a PE fund including future obligations and distributions

Direct Secondaries: purchase of direct ownership in portfolio companies

Structured Secondaries: involves innovative deal structuring, such as preferred equity or deferred payments

Question 12

Process of secondaries

Answer 12

Valuation: NAV of underlying asset is assessed, leading to negotiations over discount

Negotiation and Documentation: both parties agree on pricing and terms

Regulatory and GP Approval: transaction often requires approval from fund’s GP

Closing: legal and financial due diligence is finalized, ownership transfers to buyer

Question 13

Advantages of secondaries to sellers

Answer 13

Liquidity: provides exit option in illiquid market

Portfolio Rebalancing: allows LP to optimize their portfolios by reallocating capital

Market Timing: enables exit during favorable valuation periods

Question 14

Advantages of secondaries to buyers

Answer 14

Discounted Entry: buyers often acquire stakes below NAV

Diversification: provide access to mature funds and variety of assets

Reduced J-Curve Effect: immediate exposure to cash-generating investments eliminates the early-stage cash flow lag

Question 15

Challenges and drawbacks of secondaries

Answer 15

Pricing Risk: difficult to assess fair value

Due Diligence Complexity: buyers must thoroughly understand fund’s assets

Approval Delays: transaction can be delayed or rejected by GPs

Market Volatility: secondary market activity can fluctuate based on macroeconomic conditions, impacting pricing and liquidity

Question 16

What are secondaries?

Answer 16

Secondaries refer to the resale or transfer of pre-existing investor commitments in private equity funds or direct ownership of portfolio companies. They provide liquidity to investors in otherwise illiquid asset classes like private equity.