Alternative Investments Lab

15.S73 SSIM: Alternative Investments Lab

This Action Learning lab focuses on diligence expertise in the deals of alternative investment firms. Students are matched with alternative investment (private equity, venture capital and hedge fund) hosts and work on a deal or project defined and managed by the host.

Projects are driven by the specific needs of the hosts, and typically cover:

• Private capital (LBO, growth equity, VC)
• Hedge funds (ARB, global macro, equity long/short, quantitative strategy, stressed/distressed debt) 
• Real assets (real estate, commodities, timber)

This course offers an opportunity to have actual diligence expertise in deals by working in tandem as a team with a small group of selected private equity, venture capital or hedge funds. It allows students to develop close relationships with hosting firms, as well as use MIT Sloan resources (e.g., people, available datasets, etc.) to learn how to analyze the viability of a potential investment that an alternative investment fund is considering.

Sample projects

Middle market private equity buyout fund focused on cleantech

Project scope:   The host fund had started fundraising for a middle-market (approx. $250-300 million) private equity fund that was focused on investing in companies that were developing clean tech products.  The target companies for the fund were: revenue and EBITDA positive, had an existing management team and focused on growing their footprint.  The fund asked their student team to conduct the following analysis:

1. Evaluate and identify the LP investment market for potential investors into a cleantech PE fund (institutional, high net worth, family office and endowment/foundations)
2. Provide a competitive landscape and points of differentiation for their fund against other funds that were currently investing in clean tech
3. Highlight and differentiate the various sub-sectors within the clean tech market from the following perspectives: market size, growth, geographic penetration, competitive dynamics and investment potential and
4. Identify potential target cleantech investments within each sub-sector including those that had received private equity and venture capital investments.  Students had to also develop a set of analyses for valuations for these investments and the key PE/VC competitive players that been active in those sub-sectors

Early stage A/B round venture capital fund considering investments in generative AI

Project scope: The host fund was a very notable and well established VC firm with offices in both Cambridge and San Francisco that provided early-stage venture capital funding to A/B round companies across a multitude of sectors including: enterprise, consumer and healthcare.  The host fund was founded by a group of partners who had spun off from some leading VC firms like NEA and had had numerous investment realizations in companies like: SpaceX, Twilio and Box. The student team was asked to evaluate the GenAI market from two perspectives: the current state and the future state.  In the future state, the student team was asked to evaluate how Generative AI could disrupt various domestic and international markets.  In conducting their evaluation, the student team analyzed the following:

1. The competition from existing GP or VC fund investors currently involved in GenAI
2. New markets that could potentially be disrupted by GenAI that had not yet experienced disruption from the technology
3. The market size and investment potential for those new markets and finally
4. Potential target or acquisition companies that could be or were involved in the disruption of those markets

Any further questions about the these projects or any other projects should be directed to Luis Barros at lbarros@mit.edu

The class

Students will work in groups and will have to aid selected funds in conducting due diligence on deals that the funds are currently reviewing for a potential investment. They will have to apply all of the valuation and diligence techniques that are taught in 15.S72 Valuation Skills and Analytics Required for Alternative Investments in order to analyze the viability of a potential investment being considered by an alternative investment fund. Included in the final report that will be provided to the fund, the student teams will have to review topics like: industry trends, management capability, company strengths and weaknesses, financial projections, valuation, competitor dynamics and exit alternatives.