ch 15 (Raising Capital)

ch 15 (Raising Capital) - Key Concepts and Skills...

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Chapter 15 Raising Capital Slide 15 - 1 Key Concepts and Skills ± Understand the venture capital market and its role in financing new businesses ± Understand how securities are sold to the public and the role of investment bankers ± Understand initial public offerings and the costs of going public ± Understand the rights offer and its effect on stock price Slide 15 - 2 Venture Capital ± Venture Capital (VC) z Venture capital is private financing for relatively new (often high- risk) businesses, provided by specialist venture capital firms, wealthy individuals and investment institutions. ¾ VC firms: A group of investors that pool capital and then have partners in the firm decide which companies will receive financing. Some large corporations have a VC division. ¾ Roles of venture capitalists: In addition to providing financing, venture capitalists often actively participate in running the firm, providing the benefit of experience with previous start-ups as well as general business expertise. Slide 15 - 3 Venture Capital z The company should have an “exit” strategy ¾ Sell the company – VC benefits from proceeds from sale ¾ Take the company public – VC benefits from IPO z Some facts about VC ¾ Venture capital financing is usually available in stages and is contingent on specified goals being met. ¾ For every 10 first-stage venture capital investments, only two or three may survive as successful, self-sufficient businesses, and only one may pay off big. ¾ If the developing business is going well, it is time for the original investors to cash in by selling stock to the investing public.
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Slide 15 - 4 Raising Capital by Selling Securities ± Methods of Selling Securities The basic procedure for selling debt and equity securities by firms to the investing public are essentially the same. So we focus on equity issuing. z Public issues (our main focus) New securities are sold to public , in which investment banks are involved and there is a underwriting process. Private placements New securities are directly sold to a small number of investors (including institutions such as insurance companies and pension funds). Advantage: Avoid costly procedures associated with the registration requirements (with the SEC) that are a part of public issues. Drawback: Limited marketability (small number of investors involved) Slide 15 - 5 Table 15.1 - I Slide 15 - 6 ± Some Terms z General cash offer, rights offer Cash offer: An issue of securities offered for sale to general public Rights offer: An issue of securities offered to existing shareholders z IPOs, SEOs Initial public offering (IPO): A company’s first equity issue made available to the public. With the IPO, the formerly privately owned company becomes public (which is called going public). Seasoned equity offering (SEO): An issue of equity by an already
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This note was uploaded on 04/18/2011 for the course FINA 1003 taught by Professor Lin during the Fall '11 term at HKU.

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ch 15 (Raising Capital) - Key Concepts and Skills...

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