Chapter 16 - Private Equity(Venture Capital Chapter 16 FINA...

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FINA 4082 - Marquette University Dr. David Krause Private Equity (Venture Capital) Chapter 16
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FINA 4082 - Marquette University Dr. David Krause Introduction to Traditional & Alternative Investments Investment Alternatives Traditional Alternatives Modern Alternatives Traditional Investments Private Equity Venture Capital Commodities Real Estate Hedge Funds Managed Futures Credit Derivatives ETFs Stocks Bonds
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Private Equity The “ Private Equity ” capital market provides capital to enterprises not quoted on a stock market in exchange for an equity participation. There are four distinct strategies: Venture capital Leveraged buyouts Mezzanine financing Distressed debt
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Venture Capital Defined Venture Capital (VC) is a sub-class of Private Equity and is characterized by investments made for the purpose of developing, launching, and expanding the commercialization of new products or services. According to Anson, VC is the supply of equity financing to startup companies that do not have a sufficient track record to attract investment capital from traditional sources.
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Venture Capital History Columbus’ trip was financed with venture capital. In the 1800s, when society shifted from an agricultural to an industrial one, the need for capital to make investments increased. Wealthy land barons began to finance entrepreneurs Merchant banks formed to help financing First US venture capital was formed in 1946 to finance companies in broadcasting, aerospace, and pharmaceuticals. 3
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Venture Capital History In 1958, Congress created Small Business Investment Companies (SBIC). These are licensed and regulated by the Small Business Association. These are government backed, but privately owned investment companies that provide both management assistance and venture financing for start-up companies. In 1958 the first venture capital limited partnerships formed – which became the standard organizational structure. This limited liability arrangement for the partners and added significant funding to the industry. In 1974, ERISA (employee retirement income act) added venture funds as a “prudent” investment. This added institutional money to the industry. 3
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Venture Capital History In the 1980s, private wealth began to invest into venture deals through gatekeepers (investment advisers focusing on alternative asset opportunities). VC financing grew dramatically during the 1990s,
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Chapter 16 - Private Equity(Venture Capital Chapter 16 FINA...

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