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** Section 4 - Venture Capital part 2: Security/ Legal Structures to Protect you and make you more money
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** Section 4 - Venture Capital part 2: Security/ Legal Structures to Protect you and make you more money
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*** [[./mba/ch23.org][Chapter 23. VC History Review]]
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*** [[./mba/ch23.org][Chapter 23. VC History Review]]
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*** [[./mba/ch24.org][Chapter 24. What Investors You Should Target + How Investors do Due Dilligence on You]]
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*** [[./mba/ch25.org][Chapter 25. Security Structures]]
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** Section 5 - Investor Valuation Topics and Dilution
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*** [[./mba/ch30.org][Chapter 30. Case Study on How to Deal with VC Firms Investing in Your Company]]
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- [[https://www.udemy.com/course/an-entire-mba-in-1-courseaward-winning-business-school-prof/learn/lecture/4282862#overview][S04:L23 - VC History is Crucial to Review]]
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- [[https://www.udemy.com/course/an-entire-mba-in-1-courseaward-winning-business-school-prof/learn/lecture/4282862#overview][S04:L23 - VC History is Crucial to Review]]
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* Notes
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* Notes
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Venture Capital History
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** Cold War
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- fear of Soviet Union Communism led to creation of Venture Capitalism
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- US invested in weapons technologies
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- database was created by Oracle on behalf of the CIA
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- GPS for missile technology
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- Palantir (largers employer in Palo Alto) financed by CIAs VC division
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** Peace Movement
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- San Francisco youth rebelled
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- Berkely
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- Stanford
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- Stanford got rid of all weapons research
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- Stanford allowed students and teachers to create business models and make money
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#+HTML_HEAD: <link rel="stylesheet" type="text/css" href="../../../../_share/media/css/org-mode.css" />
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#+HTML_HEAD: <link rel="stylesheet" type="text/css" href="../_share/media/css/theme-business.css" />
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#+title: Section 4 | Lesson 24 - What Investors You Should Target + How Investord do Due Dilligence on You
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* Links
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- [[./../mba-main.org][<Back to Main MBA]]
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- [[https://www.udemy.com/course/an-entire-mba-in-1-courseaward-winning-business-school-prof/learn/lecture/4282924#overview][S04:L24 - What Investors You Should Target / Due Dilligence]]
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* Notes
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** NASA
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Nasa was created to compete with sputnik.
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Fairchild was financed by Nasa to figure out how to put transistors into the Apollo rocket.
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Fairchild got too big to innovate, and people quit.
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These people went on to create other companies
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- AMD
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- NVIDIA
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** The Process
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1. Founder wants to change the world
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2. The company gets big
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3. The executives either want to change the world or just get a paycheck
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4. If they want a paycheck they won't take risks3
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5. If they want to change the world they can't stand the culture and start their own company
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** VC's
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- VC's love backing the same executives
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- top VC firms get all the great deals
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- Sequoia is the best investor in CA
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- Most VC's are in the bay area
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- Industry is cyclical
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- not as bad lately
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- businsesses are easier to start and run because of all the innovations in software and hardware
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** What VC's should you target
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things to know:
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1. stage focus
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- stages are: a, b, c, d, e
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- waht stage of a business do they prefer to focus on
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- some businesses focus on earlier stage, some later
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2. sector focus
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- what industries do they tend to work with
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3. reputation
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- NEVER do business with bad people
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- once they are on your board you are STUCK with them
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4. target return date
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- make sure the company understands where you are focused on getting results
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5. are they founder friendly?
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- do they tend to fire founders?
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- do they like working with founders?
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- are they here to help, or here to be a pain in the ass?
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6. growth or value?
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a. growth
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- growing fast
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- they dont' care about valuation
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- good at investing in tech companies
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b. value
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- buy low sell high
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- bad at investing in tech companies
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7. do you enjoy their company
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- you will be spending a LOT of time with them
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- life is too short to spend on jerks
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8. do you trust them?
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- first 20 min your gut will tell you
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- trust your gut
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** how do VC firms make money: 2 and 20
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1. 2% annual management fee
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2. 20% incentive fee
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- they take 20%
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3. similar to a hedge fund
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** VC legal paperwork
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a. accredited investors
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- legally recognized by financial authorities as eligible to invest in private markets
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- venture capital
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- hedge funds
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- private equity
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- based on income, net worth and professional criteria
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- requirements for an individual
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- over 200k per year for prev 2 years
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- net worth exceeding $1 million, excluding priamry residence
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b. offering memorandum
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- legally documents that everyone has to read
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** How does investing in VC work
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a. capital calls
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- they call you for the capital when they need it
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- you agree to make an investment
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- when they need part of it, they will call for part of it
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b. 20% left over to avoid dilution
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- they avoid using 20% of what you agreed to invest to avoid getting diluted
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** How do VC firms get deals?
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a. network
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b. past investments
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c. other VC introduce firms to VC
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- firms compete and cooperate
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d. work for it
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- if it seems "super lucky" be skeptical
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e. universities
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- you meet the guys who are about to do something amazing
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** How do VCs do due diligence
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1. analyze competitive market
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2. a report can take up to 400 pages
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- linked in
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- call people who know people
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- size up market and create in depth financial model
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** How the deals are structures
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all venture capital deals will have one lead investor and a bunch of smaller investors
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** Preferred Shares and Harvesting
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*** who do we back
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1. strong management team
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- they know what they are doing, had a good exit
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- good board of advisors
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- ok if they failed before
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2. huge tam
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- (total adjustable market)
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- should be at least 20 billion usd
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3. strong syndicate
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- the other investors before you are high quality
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4. disruptive business model
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- something that will change the world
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#+HTML_HEAD: <link rel="stylesheet" type="text/css" href="../../../../_share/media/css/org-mode.css" />
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#+HTML_HEAD: <link rel="stylesheet" type="text/css" href="../_share/media/css/theme-business.css" />
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#+title: Section 4 | Lesson 25 - Not Understanding Security Structures can Hurt You
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* Links
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- [[./../mba-main.org][<Back to Main MBA]]
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- [[https://www.udemy.com/course/an-entire-mba-in-1-courseaward-winning-business-school-prof/learn/lecture/4311456#overview][S04:L25 - Not Understanding Security Structures Can Hurt You]]
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* Notes
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Not understanding security structures is a death sentence
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Many great websites that can also help
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** common stock
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- lowest of the low
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- last claim on company
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- can be sold to others
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- if you invest in publicly trading company you'll get common
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- employees usually get this
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** preferred shares
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- better
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- liquidation preference
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- in case of bankruptcy get paid first
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- get dividends
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- conversion
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- at the IPO preferred shares convert to common shares
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- usually not allowed to sell them for a period of time (6 months)
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** rounds
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*** down round
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if you price yourself to high on a particular round, you will not be able to meet that value on the coming round, which means no one will invest in you again.
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at that point you will get diluted
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*** up round
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if you price low, then your b series will be at a higher valuation
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the venture capitalist that invested in the A round will be allowed to buy enough to give him the same number of shares.
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** Convertible debt
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- if the firm that gets the convertible note and can't pay the debt back, it can be converted back into stock for the investor
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- company needs money between rounds
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- they go to investor and say hey, gimme money as a loan
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- if i can't pay back the loan, you get shares at a discount for the next round
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- debt instrument and has senior debt claims over preferred shareholders3
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- if firm can't pay the debt than the convertible debt holder can take the companies stuff
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** Warrants
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- an option to get shares later for free if they invest early
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** Options
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- call option: the right to BUY shares at a specified price in the future
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- usually given to employees to incentivize them to stay in the company
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#+HTML_HEAD: <link rel="stylesheet" type="text/css" href="../../../../_share/media/css/org-mode.css" />
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#+HTML_HEAD: <link rel="stylesheet" type="text/css" href="../_share/media/css/theme-business.css" />
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#+title: Section 5 | Lesson 30 - Venture Capital Part 3
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* Links
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- [[./../mba-main.org][<Back to Main MBA]]
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- [[https://www.udemy.com/course/an-entire-mba-in-1-courseaward-winning-business-school-prof/learn/lecture/4311466#overview][S05:L30 Venture Capital Part 3]]
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* Notes
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