Class notes # 8

Class notes # 8 - Venture Capital I. Objectives: 1. To...

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Venture Capital I. Objectives : 1. To understand the role of debt and equity financing for innovative firms 2. To study the key feature of venture capital financing and how they compare to other forms of financing 3. Case Analysis: Venture Capital and Financial Services Regulatory Reform - This is the major legislation that passed this year that imposed many regulations to Venture Capitalists. II. Financing Innovation 1. Suppose you have an idea, to put it into the market you need capital, but most of the people don’t have the money to do it 2. To turn an idea into a business enterprise requires capital, which many innovators lack 3. There are two wars to acquire capital a. Debt in banks b. Equity 4. Debt: bank loans, private loans a. Often requires collateral to guarantee debt b. You have to give something in order to get money c. It is hard to acquire for innovative businesses because this is a high risk d. This is a bad option for an entrepreneur or innovator 5. Equity: this can come from friends/family, venture capital, private equity, angel investors, public stock offering a. Angel Inventors are wealthy individuals that support innovators b. Provides partial ownership in the firm. This increases the potential reward to people that are willing to lend money c. If the firm fails, you don’t need to own anything to others d. For many entrepreneurs and innovators are not really realistic e. Many people and the most common way is to get it from friends and family
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f. One role of those to provide equity is to identify where they can creat the greatest revenue. They are strategically providing money III. Venture Capital Process 1. Identify innovative ideas or firms that have the potential for a big payoff 2. You can’t earn above normal returns without above normal risks 3. The higher the risk the greater the return 4. Provide capital to firms at various stages from seed money to funds for expansion 5. Facebook had venture capital in 2006 when they had 10 million users will now they have 500,000 million users 6. Work closely with management to make sure Venture Capital goals and mgmt. goals are aligned 7. Tie future funding and prospects for IPO to performance targets 8. Venture Capitals are tied to performance
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Class notes # 8 - Venture Capital I. Objectives: 1. To...

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