fin 351 quiz 4.docx - Types of VC Angel investors...

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Types of VC Angel investors Individual investors who finance companies in their earliest stages of growth. Professional Venture Capital Fund Independently managed, dedicated pools of capital that focus on equity or equity-linked instruments in privately held, high-growth companies. Corporate Ventures (Corporate Venture Program) Corporations that offer venture assistance to finance young, promising companies. VC fund Independently managed, dedicated pools of capital that focus on equity or equity-linked instruments in privately held, high-growth companies. A VC firm typically raises money through a partnership (the VC fund), and invests the money in new ventures. Venture capitalists work for the VC firm, and are general partners in the partnerships. What VC does Raise money from corporations, financial institutions, private foundations, and high net-worth individuals Invest directly in new and rapidly-growing private companies in exchange for equity Sit on Board of Directors and add value to the company through active participation and industry expertise Take higher risks and sacrifice short-term liquidity with the expectation of higher rewards in long- term Exiting VC Investors in private equity cannot (easily) liquidate their investment by selling their stock. Exit strategies: Merger and Acquisition Roughly 85% of venture capital exits from 2001 to 2015 occurred through mergers or acquisitions in US. IPO An alternative way to obtain liquidity is for the company to become a publicly traded company. Out of every 10 investments •3 go bankrupt / 2 to 4 living dead / 2 returns solid / 1 big winner Initial Public Offering When a firm requires more capital than private investors can provide, it can choose to go public through an initial public offering, or IPO -Primary Offering When new shares are sold to raise additional cash for the company -Secondary Offering When the company’s founders and venture capitalists cash in on some of their gains by selling shares Initial Public Offering (IPO) - First offering of stock to the general public Underwriter - Firm that buys an issue of securities from a company and resells it to the public Spread - Difference between public offer price and price paid by underwriter Prospectus - Formal summary that provides information on an issue of securities Underpricing - Issuing securities at an offering price set below the true value of the security Spread - the difference between the public offer price and the price paid by underwriter.
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