Chapters5and6(1)

Chapters5and6(1) - Private Equity and Venture Capital Click...

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Click to edit Master subtitle style /12/11 Private Equity and Venture Capital Private Equity is the used for the rapidly growing area of equity financing for nonpublic companies. Banks are generally not interested in making loans to start-up companies, especially ones: with no assets (other than an idea) run by fledgling entrepreneurs with no track record. Firms with this profile search for venture capital (VC) , an important part of the private equity markets.
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/12/11 Venture Capital ………………. Venture Capital refers to financing new, often high-risk, start-ups . Individual venture capitalists invest their own money. Venture capital firms pool funds from various sources, like Individuals Pension funds Insurance companies Large corporations University endowments Venture capitalists know that many new companies will fail.
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/12/11 Venture Capital…….Cont’d To limit their risk: Venture capitalists generally provide financing in stages. Venture capitalists actively help run the company. At each stage, enough money is invested to reach the next stage. _ Seed Capital Ground-floor financing Mezzanine Level financing At each stage of financing, the value of the founder’s stake grows and the probability of success rises. If goals are not met, the venture capitalists withhold further financing. If a start-up succeeds:
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/12/11 Some West Michigan VC » http:// www.grandangels.org/resources.asp » http:// www.lakeshoreadvantage.com/launch.asp » http://www.davincicapital.net/ » http://www.rightplace.org/
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/12/11 Selling Securities to the Public » The primary market is the market where investors purchase newly issued securities. ˃ Initial public offering (IPO): An IPO occurs when a company offers stock for sale to the public for the first time. ˃ Seasoned equity offering (SEO): If a company already has public shares, an SEO occurs when a company raises more equity. » The secondary market is the market where investors trade previously issued securities. An investor can trade: ˃ Directly with other investors. ˃ Indirectly through a broker who arranges transactions for others.
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The Primary Market for Common Stock An IPO (and an SEO) involves several steps. Company appoints investment banking firm to arrange financing. Investment banker designs the stock issue and arranges for fixed commitment or best effort underwriting . Company prepares a prospectus (usually with outside help) and submits it to the Securities and Exchange Commission (SEC) for approval. Investment banker circulates preliminary prospectus ( red herring ). Upon obtaining SEC approval, company finalizes prospectus.
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Chapters5and6(1) - Private Equity and Venture Capital Click...

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