Venture Capital, Private Firms, and the Capital Acquisition Process

This paper presents an empirical examination of the incentives motivating venture capitalists and sample of growth option intensive private firms with acute capital requirements to interact, the gains each group achieves through this association, the types of private firms successfully attracting venture capital, and mechanisms used in this funding process. Results show that venture capital backed firms achieve growth rates (1) greater than expected, and (2) greater than a matched sample of non-venture capital backed firms. This paper also finds that low collateral asset values, low profitability, and younger firm age to be significant determinants in which firms obtain venture capital funding. Finally, this paper shows that the use of the convertible preferred stock to be positively related to increasing firm risk, and that venture capital backed firms use convertible preferred stock more frequently than do non-venture capital backed firms

The Windfall Elimination Provision & Social Security Benefits: A Case Study

This case is appropriate for an introductory financial analysis course, intermediate case study in financial analysis, or any course that is preparing students to take the CFA exam. Because of the policy analysis that is included, it could also be used in a public finance class or an intermediate microeconomics course. It provides a basis for developing an understanding of how Social Security benefits are calculated. The specific focus of the case is on the Windfall Elimination Provision and the calculations which must be made to re-estimate benefits for those who are affected by this provision. The student plays the role of financial advisor. When advising a client about the stream of income which can be anticipated in retirement, it is vitally important to realize that, if the client has worked both as a government employee and in the private sector, the benefits the client will receive from Social Security may be less than what is indicated in the annual Social Security Statement. The policy implications section of the case also points out some of the surprising affects resulting from the structure of the Windfall Elimination Provision. The questions at the end of the case test the students’ understanding of the complexities of the system. Depending on the instructor’s guidance, students can familiarize themselves with the on-line calculators developed by the Social Security Administration

A Note on the Use of Debt by Venture Capital Backed Firms

Much of the current research regarding the venture capitalist examines samples of venture capital (VC) backed firms rather than the venture capitalist itself. While VC backed firms may represent the most reasonable proxy available for the study of the venture capitalist, consideration of firm-specific characteristics may need to be included to mitigate biased conclusions. Controlling for the determinants of capital structure, we examine the persistence of previously noted differences in capital structure choice and find that VC backing does not systematically alter the use of debt by firms. These results suggest that not controlling for firm specific differences when contrasting VC and non-VC backed firms may lead to inaccurate conclusions in venture capital research

Tiny Real Estate Bubbles

This case is appropriate for a course in introductory real estate, real estate analysis, or economics. It provides a basis for developing an understanding of the economics of real estate markets, price to rent ratios, and speculative bubbles. The student plays the role of an external consultant to a fictitious real estate investment firm. This firm is interested in expanding its investment portfolio in small towns with tourist based economies. Real data from the Durango real estate market is provided. There are signs that the market may currently be in or possibly nearing the end of a speculative real estate bubble. Students are asked to evaluate this market and form a conclusion regarding the markets over or under valued condition. This case provides students an opportunity to consider property values based on factors other than a discount cash flow analysis. Depending on the instructor’s guidance, students can examine the case from two processes; 1) use of only the real data provided in the case or 2) further research and gathering of additional micro and macro market data. In either case the main objective of the case is for the student to develop a formal analysis and draw a conclusion regarding the current local real estate market’s over or under valuation condition