1.Evaluate Palmer and his decision to create a new venture capital fund.
Maclean Palmer and 4 partners are about to quit their jobs and move to Boston with their families to begin crafting an offering memorandum for a private equity fund.
•Private equity is an asset class consisting of equity securities in operating companies that are not public trade on a stock exchange. •Private equity investments are primarily made by private equity firms, venture capital firms, or angel investors, each with their own set of goals, preferences and investment strategies. •The most common investment strategies in private equity are: leverage buyout, venture capital and mezzanine capital.
The venture capital investing process:
•Investing in compelling new business opportunities. The process began with conceptualization of an investment opportunity. •Their aim was long term value creation for themselves and stakeholders.
The venture capital flow
•The general partners acted as organizers and investment managers of the fund •The limited partners role in fund management and limited liability for any fund activity Facts:
-The latest five year trends showed venture returns for ahead of lackluster buyout performance and failing U.S. blue chip prices. -Year 2000 was shaping up to be a record breaking period for venture fund raising.
Palmer had an idea in 1999 for developing a fund for minority business. He created concept of the idea and kept it working on until he would find the moment to take a good decision. Palmer’s background is a plus with five years of direct investing experience and 17 years of operating experience at Point West Partners in San Francisco.
The moment was good when he saw an opportunity on minority business, while traditional venture capitalists were not focused in minority business due to considering it “too risky”. In order for the business to be successful he needed to build a team to handle it with professionalism. The team profile and experience would be crucial to lower risks of such investment. So Palmer new team should use management centric. Core Strategy is to identify and recruit top talent from Fortune 50 and build operating orientation ability to leverage their combined operating and investing expertise.
Palmer seeks for advice and entrepreneurs are not all knowledgeable so he got his first advice by Wanda Felton “Due Diligence” on new funds. Advice he got from Wanda Felton on the issue was: Select a limited partner and look for a successful venture, because private equity investment is too risky (10 year commitment and no result guarantee).
The second advice he got from Dave Mazza – GSA.
GSA (1997) founders are Clint Harris and Catherine Crocket. GSA objective was to provide a unique investment for institutional top tier. “Top tier private equity fund, traditional gatekeeper think first time fund for private equity is too risky. State pension funds are not set up to make a small investment. GSA has a capability of nontraditional funds by using GSA evaluation process to assess new venture opportunities. -Traditional investor is a guy who made money before and could make money again -Nontraditional (minority) new venture but no money support (may be some from government)
Second advice from Dave Mazza GSA to Maclean Palmer was:
•Put a lot of efforts to be a top entrepreneur
•Need high profile group with private equity expertise, buyout expertise, •Some of the team names should be in top ranking
Palmer felt that he had too much emphasis in minority aspect and has his own vision about sorting of the partners. From GSA, Palmer is clear that partners must make a lot of deal experiences and track record but no need for prior experience in working together.
According to the information provided, Palmer decision and evaluation for his business he: •Palmer was with 5 years of direct investing...