IBBC CAPITAL ACADEMY / 2027
Private equity across a company’s life
Independent IBBC Capital draft content for self-study. Not affiliated with or endorsed by CFA Institute. New lessons await subject-matter review. No CFA designation or official PSM credit is awarded.
Learning goals
- Diagnose the case using the stated constraints and quantitative evidence.
- Defend a conditional decision and identify what further evidence could reverse it.
Draft · approximately 65 minutes, excluding further revision.
Decision case · fictional facts
An early-stage company raises 5 m at 15 m pre-money value. A separate buyout has entry EV 100 m, debt 60 m, equity 40 m. After five years, exit EV 130 m and remaining debt 40 m; ignore fees, tax and interim cash flows. The investment committee must distinguish venture dilution from buyout leverage.
Stage changes the underwriting question
Venture capital often finances uncertain products, teams and market adoption; growth equity supports expansion with more established revenue; buyouts emphasize control, cash generation and financing. Instruments can include preferences, convertibles and staged commitments, so headline ownership can differ from exit economics. Analyze liquidation priorities, dilution and future financing needs.
Bridge enterprise to equity value
Equity value follows enterprise value less net debt and senior claims, with cash and other adjustments as appropriate. In a buyout, growth, margin, valuation multiple and debt repayment each influence exit equity. Venture pre-money plus new capital yields post-money only under the stated simple financing assumptions; option pools and preference rights can materially change effective dilution.
Fit strategy into a portfolio
Venture outcomes can be highly skewed and dependent on follow-on funding. Buyouts face leverage, covenant, refinancing and cyclical risks. Growth portfolios remain exposed to valuation and execution. Investment horizon, vintage diversification, manager skill and cash-call capacity matter more than assuming one private-equity category always dominates public equity.
Stage risk changes portfolio cash needs
Venture funds can require follow-on reserves before successful exits and may concentrate returns in a few outcomes. Buyouts have more developed operations but add debt and refinancing risk. Growth equity can face valuation compression even with rising sales. Compare cash-call paths, vintage exposure, sector concentration and downside funding rather than ranking strategies solely on a headline IRR.
Formula and assumptions
Post-money=pre-money+new capital;equity=EV−net debt;MOIC=exit equity/entry equity
Compare with the model response after drafting
- Simple post-money=20 m; new investor owns 25%.Buyout exit equity=130−40=90 m, MOIC=90/40=2.25 x; annualized five-year return≈17.61%.
- Stress lower exit multiple and stalled debt paydown; for venture, model preference and new rounds before relying on 25%.
Errors to catch
- Using enterprise value as proceeds to common equity.
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