Initial_Public_Offerings_and_Investment_Banking

Initial_Public_Offerings_and_Investment_Banking - Initial...

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1 Initial Public Offerings and Investment Banking Chapter 18
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2 Financing Start-ups Founder’s resources Angels Venture capital funds Most capital in fund is provided by institutional investors Managers of fund are called venture capitalists Venture capitalists (VCs) sit on boards of companies they fund & are active in day to day management
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3 Private Placement vs. Public Offering In a private placement , such as to angels or VCs, securities are sold to a few investors rather than to the public at large In a public offering , securities are offered to the public and must be registered with SEC Privately placed stock is not registered, so sales must be to “accredited” (high net worth) investors. Send out “offering memorandum” with 20-30 pages of data and information, prepared by securities lawyers. Buyers certify that they meet net worth/income requirements and they will not sell to unqualified investors
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4 Going Public Advantages Current stockholders can diversify Signal? Liquidity is increased Easier to raise capital in the future Going public establishes firm value Makes it more feasible to use stock as employee incentives Increases customer recognition
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5 Going Public Disadvantages Costs of filing numerous reports Operating data must be disclosed Officers must disclose holdings/compensation Insider dealing becomes more difficult A small new issue will not be actively traded, so market-determined price may not reflect true value Managing investor relations is time consuming Dilution
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6 Steps of an IPO Select investment banker File registration document (S-1) with SEC Choose price range for preliminary (or “red herring”) prospectus Go on roadshow Set final offer price in final prospectus
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7 Choosing an Investment Banker Firms consider Reputation and experience in this industry Existing mix of institutional and retail (i.e., individual) clients Support in the post-IPO secondary market Reputation of analyst covering the stock
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8 Negotiated vs. Competitive Usually a negotiated deal Competitive bid process is only feasible for large issues by major firms Still rare for equity issues It would cost investment bankers too much to learn enough about the company to make an intelligent bid
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9 Best Efforts vs. Firm Commitment Usually firm commitment (underwritten) In very small, risky deals, the investment
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This note was uploaded on 05/20/2010 for the course DOF AAf001-6 taught by Professor Changchungdo during the Spring '10 term at 카이스트, 한국과학기술원.

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Initial_Public_Offerings_and_Investment_Banking - Initial...

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