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This useful guide walks venture capitalists through the principles of finance and the financial models that underlie venture capital decisions. It presents a new unified treatment of investment decision making and mark-to-market valuation. The discussions of risk-return and cost-of-capital calculations have been updated with the latest information. The most current industry data is included to demonstrate large changes in venture capital investments since 1999. The coverage of the real-options methodology has also been streamlined and includes new connections to venture capital valuation. In addition, venture capitalists will find revised information on the reality-check valuation model to allow for greater flexibility in growth assumptions.

Venture Capital and the Finance of Innovation

1. The VC Industry
2. VC Players
3. VC Returns
4. The Cost of Capital for VC
5. The Best VCs
6. VC Around the World
7. The Analysis of VC Investments
8. Term Sheets
9. Preferred Stock
10. The VC Method
11. DCF Analysis of Growth Companies
12. Comparables Analysis
13. Option Pricing
14. The Valuation of Preferred Stock
15. Later-Round Investments
16. Participating Convertible Preferred Stock
17. Implied Valuation
18. Complex Structures
19. R&D Finance
20. Monte Carlo Simulation
21. Real Options
22. Binomial Trees
23. Game Theory
24. R&D Valuation
App A. Sample Term Sheet
App B. The VCFI Spreadsheets
App C. Guide to Crystal Ball