Chap12 Mba
Chap12 Mba
Chap12 Mba
McGraw-Hill/Irwin Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
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Risk capital markets provide debt and equity to no secure financing situations. Types of risk capital markets:
Informal risk capital market-market consisting mainly of individuals .e.g. Business Angels Venture-capital market- consist of formal companies. Public-equity market-risk capital consisting of publicly owner stocks of companies.
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Venture Capital
Nature of Venture Capital
A long-term investment discipline, usually occurring over a five-year period. The equity pool is formed from the resources of wealthy limited partners. Found in:
Creation of early-stage companies. Expansion and revitalization of businesses. Financing of leveraged buyouts of existing divisions of major corporations or privately owned businesses.
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Venture Capital
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Venture-Capital Process
Objective of a venture-capital firm - Generation of long-term capital appreciation through debt and equity investments.
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Venture Capital
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The Venture Capitalist expects a company to satisfy three general criteria: 1. The company must have a strong management team who individually must have solid experience and backgrounds Have a strong commitment to the capabilities. Capabilities in a specific area of expertise. The ability to meet challenges.
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Venture Capital
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The flexibility to scramble whenever necessary. Each spouse of each management team member must also be committed to the new venture. 2. Is the product and/or market opportunity unique? Will the venture have a differential advantage in a growing market? Securing a unique market niche is essential.
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Venture Capital
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This niche must be spelled out and is even stronger when it is protected by a patent or trade secret. 3. The business must have significant capital appreciation. The venture capitalist generally expects a 40 to 60 percent return on investment in most situations. This is both art (intuition) and science. (business plan)
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Venture Capital
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Venture Capital
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Stage II: Agreement on principal terms Between entrepreneur and venture capitalist. Stage III: Due diligence This is the longest stage and can last from 1-3 months. The upside and risk potential are assessed. Complete background of all management members is completed. Thorough evaluation of the markets. Stage IV: Final approval - Document showing the final terms of the deal.
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Venture Capital
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Serves as a measure of financial strengths and weaknesses of the venture but should be used with caution. It is typically used on actual financial results. Provides a sense of where problems exist in the pro forma statements.
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6. Factor approach uses the major aspects of the company to determine its worth. 7. Liquidation value is the worth of the company based selling everything today.
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Going Public
Selling some part of the company by registering with the Securities and Exchange Commission (SEC).
Resulting capital infusion provides the company with:
Financial resources. A relatively liquid investment vehicle.
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Most initial public offerings will use a Form S-1 registration statement.
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Selected financial data Business, management, and owners Type of stock Underwriter information Actual financial statements.
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Blue-Sky Qualifications
Blue-sky laws - Laws of each state regulating public sale of stock. May cause additional delays and costs to the company. Many states allow their state securities administrators to prevent an offering from being sold in their state.
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Reporting Requirements
The company must file:
Annual reports on Form 10-K. Quarterly reports on Form 10-Q. Specific transaction or event reports on Form 8-K.
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