Private Equity  &  Due Diligence Lab

SECTION FOR MY ATTENDANT STUDENTS

• Syllabus; Class-Calendar

• Links:  PE&DD Zoom Link (same link always); Attendants 2023-24 proj works; 

• Factset activation link -> Factset video guide (pw will be given in class)

• Investor opinion: How important is the DD? Video on DD from VC1; Video from VC 2; 

• Webinars on Innovative Finance link; seminars by CreaRes

Welcome to the new course "PRIVATE EQUITY RISK MANAGEMENT"  & "DUE DILIGENCE LABORATORY", focused on Innovative Finance and Start-up Financing (for new ideas, new firms). 

• Level: Post-graduate (Master-level course); Credits: 9; Hours 72 (included the DD laboratory)

• Designed for: postgraduate students (only), enrolled in the FRM program of UNIFI, who already attended and passed a previous course on Financial Institutions (activated at the first year)-->see the FRM program  

• The course is an advanced course of Applied Entrepreneurial Finance. This course covers the most innovative topics in Venture Capital, Startup Financing, Crowdfunding, and  Private Equity Risk Management.

• This course is an optional post-graduate course, designed for students who are in the 2nd year of their Master degree in the "FIRM" program activated at the University of Florence (who already have gained previous knowledge in some essential and advanced topics, such as: 

  • • Corporate Finance (very important pre-condition)

    • Financial Mathematics

    • Statistics

    • Financial analysis 

     These are necessary prerequisites (that you must satisfy before taking this course). ---> see the FIRM program 

•  A fuent level of English is necessary to attend the course, to fluently discuss cases and present them 

The course is  composed of 2 courses or sub-parts:

a) Private Equity (PE) course in which you will learn theoretical concepts and basic applications. Our analyses will always refer to the investor perspective, i.e., the perspective of the PE investor (the person who provides money to firms). Therefore we will view & apply basic tools (e.g., business plan, due diligence analysis, valuation, contracting) in the view of attracting PE investors. You need to know them, in order to approach them properly! 

b) Due Diligence LAB (DD LAB) in which you will apply the theoretical concepts learned in the PE course (in order to give you the opportunity to work in teams on a series of application, and final course project).

In the DD Laboratory, you will have the opportunity to learn how to implement the Due Diligence from a PE investor perspective. You will apply theoretical concepts. You will learn how to properly discuss and present a case. Also, in the DD Laboratory, you will learn the  Content Analysis, in order to create a new database. We will apply the content analysis on Board Goverance studying the CG Reports 

• • • • Sample for CG Report It --> Link

      • Sample for CG Report Eng (Indra) --> Link

Opportunities for attendant students: BUSINESS COMPETITIONS

• Videoclip SOCIALEAT (sample for a videoclip of your idea)

• Other ideas (Edison pulse 2016)

--> Contests & Opportunities: Crowdfunding Female Entr

 --> Opportunities for students to work for innovative startups --> see the related Job Match  good luck :-)

-->  Future Potentials after the course --> Private Equity Training & Certificate Program

CONDITIONS 

• The course is organized with a series of sequential laboratories and applications.  This means that the course uses an empirical approach, where students have the opportunity to work on projects, applications, and business cases (to discuss and present in class).  

• Before deciding whether to add this course to your study plan, please note that all classes of this course are laboratory-based and require you to actively partake in discussions, presentations, and simulations. Please be prepared -  no passive participation is recommended. 

• BEFORE CONSIDERING ADDING THIS OPTIONAL COURSE TO YOUR STUDY PLAN, PLEASE CHECK IF YOU SATISFY THE ABOVE PREREQUISITES (FOR CORPORATE FINANCE), AND PLEASE READ CAREFULLY THE CONDITIONS TO ATTEND THIS COURSE (DESCRIBED BELOW).  

• LATE ENROLLMENT (after the first week of course) IS NOT RECOMMENDED (because, once the class-teams are formed and started to compete, you will not be able to join in and you risk being left alone). In conclusion, if you decide to take this course, then attend it regularly, from the first class, in which I will provide all the details you need)!! 

IN-CLASS PARTICIPATION

• If you decide to attend, please remember that you are expected to partake in class applications, discussions, and group projects organized during the course.

• Attendant students are required to ACTIVELY PARTAKE TO EACH CLASS in real-time (either in presence, or online, if they are sick) and read the theoretical material (available in the book or in the course package designed for attending students). Sometimes you are requested to read it  BEFORE class. 

• In class, it is required an ACTIVE INTERACTION on a real-time basis with me and/or  with your team members (GROUP INTERACTIONS is necessary).

TEAM WORKING

• Teams FOR ATTENDING STUDENTS will be completed within the second week,  over the first week of March. 

• Once the groups are formed and started the applications, NO MORE NEW ENTRANTS as attendant students are allowed inside the formed groups.

Books & Material - 

• For non-attending students:  please refer to the BOOK suggested in the syllabus available at the University of Florence webpage and, if you have some questions, please attend the first class of the course (anyway).  

• For attendant students (willing to actively partake in ALL classes, discussions, and laboratories) there is a personalized Book created specifically for the attendant students (see below). 

  • •  Zambelli, S., (Ed.) 2022, Private Equity and Due Diligence,  Mc Graw Hill, available online; or you  can order it at the local bookshop

    •  Zambelli, S., (2024).  Due Diligence in Private Equity, in The Palgrave Encyclopedia of Private Equity.  by Hammer, B.,   Cumming. D. (Eds)

    • Cumming, D.; Zambelli, S., 2017. Due Diligence and Investee Performance,  EUROPEAN FINANCIAL       MANAGEMENT 23, pp. 211 - 253. Available also in SSRN

• For Research projects (theory and methods): 

- Gender & ESG; 

- M&As dynamics; All That Glitter is not Gold

• For attending students, the specific study material is indicated class by class on this webpage (this study material is necessary only for students who decide to attend the course).

• Most of the time, theoretical material must be studied BEFORE class, as in class you will apply the theory and discuss it with the rest of the class. Please be aware of that: there is no point for you to enter if you are not willing to partake (actively). 

• For non-attendant students, the learning material is specified in the official syllabus, available at the University of Florence website (see above). Also a good overview of all the topics explained in the course is in the following texts:

-  Cumming - Johan, Venture Capital & Private Equity contracting  

-   Metrick - Yasuda, Venture Capital and Finance of Innovation 

• Other (optional):  More Tools for the laboratory are available in the following material:   Higgins, Analysis for Financial Management    -->Parts: part 1 (ch 1-2); + part 2 (ch 3); + part 4 (ch 7-8-9)

• The final exam consists oF a written project: detailed information are provided  on the first day of the course. So please come to the first class, because otherwise you will not capture important information on the course (and I will not have the possibility to repeat them during the rest of the course. 

•  All students (auditing and non-auditing) are kindly requested to attend the first class (where I provide all information about course, study material, evaluation, paper suggestions, evaluation requirements, evaluation instructions).

• Evaluation (for non auditing students): Written project on Private Equity Financing (25-30 pages) to be sent via email to the following addresses:  simona.zambelli@unifi.it   by carefully following the instructions reported below (otherwise your project will be ignored).

1) In the subject of the email write "PE",  otherwise, your email will be automatically cancelled by the server.

2) Inside the email and in the front page of the word-document write: the title of the project, your names and id number, otherwise, your project will be automatically deleted.

• As a sample for the written project please look at the following articles and surveys:

1) Daluwathumullagamage, D. J.,  and Sims, A. (2020) Blockchain-Enabled  Corporate Governance & Regulation, Int. J. Financial Stud. 8, 36

2) Denis, D. J. (2004). Entrepreneurial finance: An overview of the issues and evidence. Journal of Corporate Finance, 10(2), 301-326. 

3) Renneboog, L., Vansteenkiste, C., 2017.  Leveraged Buyouts: A Survey of the Literature. European Corporate Governance Institute (ECGI) - Finance Working Paper No. 492/2017. Available at SSRN: https://ssrn.com/abstract=2896653 or http://dx.doi.org/10.2139/ssrn.2896653

3) Block, J., Sandner, P., De Vries, G. (2010). Venture capital and the financial crisis: an empirical study across industries and countries. Available  at   http://mpra.ub.uni-muenchen.de/20287/  MPRA Paper No. 20287.

4) Tykvová, Tereza (2007), “What do economists tell us about venture capital contracts?”Journal of Economic Surveys, 21, 65-89

• For the final written project please follow carefully the format-style of JOURNAL OF BANKING AND FINANCE (especially for the citations inside the text, and reference list in the end of every article)

Reference Material related to previous parts that you are supposed to know and that are assumed within the course. If you want to have a quick review on previous assumed parts, please look at the options below:

• Edmonds M Mcnair Olds, Fundamental Financial Accounting Concepts (optional book on previous parts)

  --> Quick Review of Balance Sheets  Income Statement  The Free Cash Flow

  --> Cap Budg --> Link FAO

PROJ WORK TOPICS (SUITABLE for content analysis applications in the Laboratory):

For Content Analysis (5 groups on Board) --> please see below specific instructions for attending students

• Topics: Corporate Governance CG & Venture Phil. 

• CG Report It (Mediobanca)--> Link (IT);   Link (Eng)

• CG Report Eng (Indra) --> Link (Eng)

• Content Analysis Applications on VPH (look at the EVPA website, and then inside the website of each Investor  and of each target firm)

• Content Analysis Applications on CG Reports --> Instructions  on HOW TO FIND CG REPORTS:  There are different ways to gather the  information you need (please see below)

OPTION 1:

- Write in Google.com search: name of the company,  corporate governance annual report, YEAR. 

Most of the data should be obtained that way. But there will be companies or earlier years that will not have a corporate Governance report. Then

OPTION 2:

- Write in Google.com search: name of the company and annual report 2021 (Or later other years). Sometimes corporate governance report is in the annual financial report

OPTION 3:

- Go to Web page of the company. 

- Find the section called "investor relations" or "corporate Governance" 

- Find corporate Governance report or annual report 

- Each company has annual statements/reports/CG reports from previous years archived on Web page. 

START FROM THE LATEST YEAR (2020) AND THEN GO BACK IN THE YEARS. 

CG data changes every 3-5 years.

OPTION 4:

sometimes CG reports are also published in the webpage of the national stock exchange. In this case, write in Google.com search: name of the company name of the stock exchange coporate governance annual report. For example "borsa italiana documenti societari acea"

Also in this case you can find an archive with all the documents related to acea. Search for corporate governance

All the info that you have to collect are usually into a table or in a specific session of the CG reports.

DATA/STATISTICS ON ITALIAN BANKS: BI STATISTICS

OTHER  TOPICS:

• •  Video on CF;     Video on Bailin Origin

  • CF Def Consob; Various Platforms; Origin (in It 2015)

  • Equity CF Reg Ordin Consob; Equity CF Reg Speciale Consob; 

  • Summary Eq CF IT market; 

  • Summary campaigns success 

  •   BAILIN: Bailin or Bailout? Video on Bailin (funny critics); Video on Bailin Origin

  • 10 Years after the Financial Crisis

  • - New Financial Regulations In USA and EU

  • - From Basil 2 to Basil 3 (other video); updates on Basel 3

  • - From Bailout to Bailin (Bailin def)

  • - EU and AIFD ; AIFMD Directive text

  • - US and Volcker Rule --> Video explanation

  • - LBOs and fiscal issues: New Fiscal Authority interpretation; Diritto 24 (2016)

Interesting Link: SNA

Other Useful material for your class project -  As a sample for the final written project, please look at the following articles and surveys:

• Daluwathumullagamage, D. J.,  and Sims, A. (2020) Blockchain-Enabled  Corporate Governance & Regulation , Int. J. Financial Stud. 8, 36

• Denis, D. J. (2004). Entrepreneurial finance: An overview of the issues and evidence. Journal of Corporate Finance, 10(2), 301-326. 

• Renneboog, L., Vansteenkiste, C., 2017.  Leveraged Buyouts: A Survey of the Literature. European Corporate Governance Institute (ECGI) - Finance Working Paper No. 492/2017. Available at SSRN: https://ssrn.com/abstract=2896653 or http://dx.doi.org/10.2139/ssrn.2896653

• Block, J., Sandner, P., De Vries, G. (2010). Venture capital and the financial crisis: an empirical study across industries and countries. Available  at   http://mpra.ub.uni-muenchen.de/20287/  MPRA Paper No. 20287.

• Tykvová, Tereza (2007), “What do economists tell us about venture capital contracts?”Journal of Economic Surveys, 21, 65-89

Specific Books and other Reference Material

For Attending Students, I have prepared  a special course package.  

Other very good material is available below:

- Higgins, Analysis for Financial Management , chapters 3-4-5-56

-Metrick - Yasuda, Venture Capital and Finance of Innovation 

-Cumming - Johan, Venture Capital & Private Equity contracting                                         

For those who want a book in Italian, please see the following Tecniche di Private Equity

Week 1 (Classes 1-2):  Course presentation, Introduction, best previous years presentations

In the first class, we present the course and the evaluation requirements. 

• We will also provide an Introduction  on how to write a paper;

• Evaluation Test; 

• Group selection.

Week 2 -TUTORIALS & LABORATORY on FIN PERFORMANCE

• Tutorial on Library Resources & Databases: Review of Databases available in Unifi

• Tutorial on FactSet Database

Weeks 3-4 TUTORIALS, THEORY & LABORATORY on FIN PERFORMANCE

• Tutorial on Library Resources & Databases: Review of Databases available in Unifi

• Tutorial on FactSet Database

Weeks 3  Theory on Venture Capital Financing *

W3 focuses on PE financing. We will focus on the difference in Private Equity, Venture Capital, and VC cycle. 

Related Summary Material of everything we explained in class

• Summary and Video on PE theory; 

• Summary on HOW VENTURE CAPITAL WORKS  -- HARVARD BUSINESS REVIEW

• Covenants and contractual provisions in PE settings

• Importance of Syndication  in PE settings

• Zambelli, S. (2014). 'If the facts don't fit the theory ... ': The security design puzzle in venture finance. International Journal of Management Reviews, 16(4), 500-520. doi:10.1111/ijmr.12032

Other Readings  after class: 

• Tykvová, Tereza (2007), “What do economists tell us about venture capital contracts?”, Journal of Economic Surveys, 21, 65-89

• Sahlman, W. "The Structure and Governance of Venture Capital Organizations",    Journal of Financial Economics, 27, 473-521

• Kut, C.,  Pramborg, B.,  Smolarski, J. 2007. Managing Financial Risk and Uncertainty: The Case of Venture Capital and Buy-out Funds. Global Business and Organizational Excellence. 26 (2),53-64.  https://doi.org/10.1002/joe.20132       

• Gompers, P,  Lerners, J. ( 1996); The Use of Covenants: An Empirical Analysis of Venture Partnership Agreements, Journal of Law & Economics, 39, 463-498  --> link to   covenants

Optional to read:

• Denis, D. J. (2004). Entrepreneurial finance: An overview of the issues and evidence. Journal of Corporate Finance, 10(2), 301-326.  

• Chemmanur, T. J., Fulghieri, P. (2014). Entrepreneurial finance and innovation: an introduction and agenda for future research, The Review of Financial Studies 27 (1), 1-19

• Drover, W, Busenitz, L, Matusik, S, Townsend, D, Anglin, A, Dushnitsky, G (2017). A Review and Road Map of Entrepreneurial Equity Financing Research: Venture Capital, Corporate Venture Capital, Angel Investment, Crowdfunding, and Accelerators. Journal of Management 43, 1820-1853.

• Block, J., Sandner, P., De Vries, G. (2010). Venture capital and the financial crisis: an empirical study across industries and countries. Available  at   http://mpra.ub.uni-muenchen.de/20287/  MPRA Paper No. 20287.

• Tykvová, Tereza (2007), “What do economists tell us about venture capital contracts?”, Journal of Economic Surveys, 21, 65-89;

Video 

• VIDEO ON Due Diligence (TO DISCUSS in class)  by Steve Baleban

Before Week 5:

 please read the BP you received 

Before Week 6: please read the HBS case: please download the HE Case from Harvard Business Library. Harvard Business School Case 384-079. Buy Heather Evans Case 384-079 from HBR  - 

Remember to register yourself, before purchasing it. Enjoy and have a good work! 

Weeks 6 B Final Insights on DUE DILIGENCE & BP 

Related theoretical material 

• Due Diligence Overview (paper); 

• PE notes 2 (mod. 2 BP) 

Video to discuss

• Video 1 on  Due Diligence (TO DISCUSS in class)  by Steve Baleban

• Video 2 on Due Diligence in details by Steve Baleban

Week 7 (Classes 10) - VC Cycle Phase 2b- BUSINESS VALUATION - Class Discussion and Laboratory Valuation. 

Class 10 will focus on step 3 of VC cycle: Valuation in PE contexts. In the first class of the week, of PE, we will review the Evaluation process implemented by venture capitalists. 

After completing the theoretical part for general valuation in a private equity setting, I kindly ask you to discuss the case (HE), I mentioned in class (please see the link below   available at HBR website1   

Related Summary Material 

• HBR 2: Note on Valuation in Private Equity Settings 

• HBS notes 3: VC Method

Helpful Links

• Please find here an application of a "what if" scenario analysis (source: Youtube)-

• WACC 1 (Capm & Cost of Debt) Explanations, Links&Application (by Analisi Fondam.)

• WACC 2 (Capm & Cost of Debt) Explanation (by Analisi Fondam.)

• For Rf; Beta and Risk Premium -- see the links inside my Investments course

• For Tax rate -- see the following link

Week 6 (Classes 11-12) - VC Cycle Phase 4: DEAL STRUCTURING -  Class Discussion and Laboratory on Deal Structure

CLASS 11

In this week we  will focus on step 4 of VC cycle: PE  Negotiation and Deal structure

--> tutorials on PE Term-sheet & videoclip from the market

Before class, please read again the case study of H.E. and we will continue the discussion of the case

Before Class please download the following:

•  Paper to discuss in Class: Kaplan and Stromberg (2003)  Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts,  The Review of Economic Studies, 70, 2, 281–315 

• Cumming D., (2005). Capital Structure in Venture Finance.  Journal of Corporate Finance, 11, 550-585.  

After Class (as reading material for class 4):  Material important for negotiation and deal structure in VC financing: 

--> Download the 1st part of the article  - Zambelli (2014) - PART A "If the Facts don't Fit the Theory"; (Text) International Journal of Management Reviews, 2014

 --> Download the 1st part of the article  - Zambelli (2014) PART B (Tables and Appendices) International Journal of Management Reviews, 2014

Summary:

• Zambelli, S. (2014). 'If the facts don't fit the theory ... ': The security design puzzle in venture finance. International Journal of Management Reviews, 16(4), 500-520. doi:10.1111/ijmr.12032

  • • Negotiation and control rights PART A (Text),  Zambelli 2014

    • Negotiation and control rights PART B (Tables and Appendices), Zambelli 2014

• Cumming D., (2005). Capital Structure in Venture Finance. Journal of Corporate Finance, 11, 550-585.     

• Tykvová, Tereza (2007), “What do economists tell us about venture capital contracts?”Journal of Economic Surveys, 21, 65-89

CLASS 12

Corporate Governance Issues and Buyouts

1) Private Equity Performance under Extreme Regulation,  Journal of Banking and Finance, 2013 ,

2) Illegal Buyouts, Journal of Banking and Finance, 2010 (34), 441-456.

  a) Paper 1;   

  b) Paper 2

Week 7 (Class 13 - April 19): Lab & Project Work 

This class will start at 16

Week 8 (Class 14 - April 26): Lab & Project Work

This class will start at 16

Week 9 (Class 15 - May 17): Final Discussion

Conference Simulation & Class Discussions on: structure and governance of PE funds 

This class will start at 16

Final Presentations and Class Discussions 

Suggestions!! When you present your paper, please use a clear-logical framework, including the following parts

 --> Objective 

-->Literature Review 

-->New contribution

--> Research Questions

--> Sample (potential)

 --> Results (potential)

 --> Conclusions (in which you can provide final remarks and policy implications)

Keep in mind that you have 20 minutes! 

I cannot wait to hear your presentation!!! Good Luck!!!!

 THE END!!!!!!! Course Valuation Attending Students

1) Accedere alla propria area personale su SOL - Servizi online sezione studenti.

2)  Nel menu in alto a destra, selezionare "Questionari".

3) Cliccare sull'icona rossa nella colonna "Q.Val" sulla riga corrispondente al corso oggetto di valutazione. 

4) Compilare il questionario e confermare la compilazione. 

Week 3 (Classes 5-6) - VC Cycle Phase 2 - BUSINESS SIMULATION

Business Simulation --> Presentation scheme:

                       E     VC

1 (HT)            G1    G2

2 (SPA)          G2    G3

3 (Rest)         G3    G1

•   -->  BP simulation: 1; 2; 3

• Group Projects: 1(HT); 2(SPA); 3 (RES)

Other material to read:

• Summary of BP summary and outline from the VCs perspective  PE notes 2