Please enable JavaScript.
Coggle requires JavaScript to display documents.
RAISING CAPITAL - Coggle Diagram
RAISING CAPITAL
Venture Capital
:star: Venture capital refers to financing for new, often high-risk venture :star: The aim is to grow the company so that it can be sold to the public in an IPO. :star: To earn high return, some venture capitalist may sell the company to other investors before IPO
4 main players in venture capital industry :
:check: Entrepreneurs who need funding
:check: Investors who want high risk
:check: Investment bankers who need companies to sell
:check: Venture capitalist who make money for themselves by making a market for the other three.
:explode: bigger deals usually financed by venture capitalist firms which specialize in pooling funds from various sources
:explode: The sources of funds are pension funds, insurance companies and large corporations
- First-stage financing would be seed for money to build a prototype and complete a manufacturing plan
- Second-stage financing would be financing to actually begin manufacturing the product
- further stage of financing provide for marketing and distributing the manufactured product.
Considerations in choosing VC :
:star: Financial Strength - VC have sufficient resources and finances for funding future stages
:star: Style - How the VC involve in the management
:star: References - VC's track record and past experiences in dealing difficult situations
:star: Contacts - VC have many networks
:star: Exit Strategy - How VC exit from the business
Underwriters
:fire: An underwriter is refer to any party that evaluates and assumes another party's risk for a fee like commission, premium and interest
:fire: It operate in many aspects of the financial world such as mortgage industry, insurance industry, equity market and common types of debt securities
:fire: considered to be risk experts of financial world
:fire: Investors depend on the to determine if a business risk is worth taking
:fire: contribute to sales-type activities
Roles of Underwriters
:pencil2:In IPO, the issuer or company raising capital brings in underwriting firms or investment bank to help determine the best type of security to issue
:pencil2: IPO underwriters are financial specialist who work closely with the issuing body to determine the initial offering price of the securities, buy from issuer and sell to investors
:pencil2: IPO underwriters are typically investment banks that have IPO specialist on staff
:pencil2: Investment banks work with a company to ensure that all regulatory requirements are satisfied.
Service provided by underwriter :
:check: Formulate method used to issue securities
:check: Price the securities
:check: Sell the securities
:check: Price stabilization by lead underwriter
-
-
Seed Money
- Seed Money refers to the first round of capital for a start-up business
- It gets the name from the idea where at early stage financing plants the seed that enable small business to grow.
- It is one of the most critical aspect of starting small business
-
- Raising capital is depending on the size of the firm, its life-cycle stage and its growth prospect
IPO underpricing
- An underpriced IPO means that the firm and pre-IPO shareholders are shortchanged as they getting less money for the offer than they actually deserved
- may be difficult to price IPO because there isn't a current market price available
New equity issue and price
- Stock price tend to decline when new equity is issued
Rights offerings
- Issue of common stock offered to existing shareholders
- allow current shareholders to avoid the dilution that can occur with a new stock
- Rights are given to the shareholder