The book is divided into five Parts which address all the major issues related to startup companies and venture capitalists. The Parts are organized in chronological order, starting from the initial idea or concept, through the establishment of the company and the raising of capital, to the eventual IPO or sale of the company.
Part I Establishment and Development of Ventures
Part I serves as a road map for startups. This part reviews the issues which the company must address in the early stages, starting from examining the idea and bringing the initial team together, through the establishment of the company and an examination of the sources of aid available to it in the preliminary stages, the corporate strategy and preparation of the business plan, recruitment and remuneration of employees, and ending in the registration of intellectual property and the economic ways of utilizing such property and realizing the economic benefits that it brings.
Part II Financing the Venture
The sources of capital that are available to startup companies are limited. Entrepreneurs usually lack the capital needed in order to realize their ideas and therefore require external sources of capital. In the first stages of the development of a company, internal sources of finance are customarily used, as well as financing from private investors. Then, in most cases, the company soon turns to venture capital funds and other investors. Part II describes the stages of development of the venture, its cash requirements, the milestones of capital raising and capital sources, and provides a practical description of the process of capital raising. It also contains an in-depth discussion of the main contractual arrangements involved in a venture capital investment. Finally, Part II discusses the valuation of the company: The valuation of companies and projects is an essential component of each and every stage in the development of a startup, whether for purposes of calculating the feasibility of projects and investments, or in order to raise capital and debt. This discussion also includes a review of the established valuation models and of their relevance to various types of companies and various stages of capital raising.
Part III Venture Capital Investors
Part III reviews the entities and institutions which invest in startup companies. The focus is on venture capital funds, which in the past few decades have constituted the most significant institutional segment of investors in startup companies. The discussion of venture capital funds also includes the funds' establishment, management, and liquidation mechanisms. A separate chapter is dedicated to private investors (Angels). A description of the methods of investment by corporate investors who, in addition to investing in venture capital funds, invest in startup companies directly or establish internal startup companies, is also included. Finally, Part III discusses direct investments in startup companies by investment banks and other financial institutions, and other sources of finance such as credit and leasing companies.
Part IV Raising Capital from the Public
Once development is completed and sales have commenced (and at times even earlier), comes the stage when the company can raise capital from the public. From the company's point of view, raising capital from the public is not only a vast source of capital, it also constitutes a transition from a private company, in which far more is concealed than is known, to a visible public company that is required to meet high standards of disclosure and transparency. Part IV reviews the advantages and disadvantages of going public, discusses the question of choosing the location of the company's IPO, and describes the process of going public in the United States.
It must be emphasized that going public is important not only to the company itself, but also to investors and entrepreneurs. From the investors' point of view, this means bringing them closer to realizing their investment. In recent decades, the majority of venture capitalists profits was based mainly on the increase in the value of the shares, and not on the stream of payments from a company's cash flow (interest or dividends). Investors therefore demand contractual rights that will award them a certain degree of control over the process of realizing/exiting their investment. From the perspective of entrepreneurs, an IPO renders their holdings in the company more liquid, although various restrictions hinder the immediate realization of the shares.
Part V Sale of Companies, Restructuring, and Dissolution
Part V focuses on mergers and acquisitions of companies, which are two of the main methods for realizing/exiting an investment and of the major factors underlying the technological revolution. The desire to be bought out by a leading company in the industry drives many entrepreneurs and companies, and allows for the financing of companies whose ability to exist independently in the long term is doubtful. The discussion in this Part reviews not only the phenomenon itself, but also the pros and cons of sales versus IPOs, as well as the main techniques used for mergers and acquisitions, including the contractual arrangements involved in merger and acquisition (M&A) transactions.
The last chapter in Part V discusses the dissolution of companies. With the collapse of technology stocks and the resultant blow to confidence in the venture capital market, an increasing number of companies are finding it difficult to finance their operations. Some of these companies merge with others, while other companies have no choice but to dissolve (either voluntarily or due to coercion by creditors).