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FMI week3 Primary Market of Equity - Coggle Diagram
FMI week3 Primary Market of Equity
Private source of equity
Angel investor
wealthy individual
provides capital at
seed/start up
stages in exchange for debt/equity.
retired with experience and networks
invest own funds
fills gap between seed and start up
most risky, require high return: 10 times in 5 years
referrals/networks to meet
Venture Capital
institutional investors
fund
young businesses
and
active in advising managements
.
early stages, mostly tech industry
high risk, high payoff
require stake less than 50%
process:
submit plan, VC perform due diligence investigation, pledge investment for equity, exit company after period of time.
management fees and carried interest for VC fund manager
Private equity
invest in
established businesses
for growth/financial distress
active management
mostly buy full ownership
mature company, any industry
large investments
exit 4-7 years
larger in size than VC
Equity Crowdfunding
private company equity to a
large group of people
for investment via
online platform
since 2009, emerge from reward/donation/debt-based(kickstarter) crowdfunding
great for seed/early stage firms
fast, valuable marketing and test public reactions. +
information asymmetry -
not prohibited nor regulated, but 1.
corporation act
restrict employee numbers. 2. 2015, ASIC new laws put in place to regulate crowd funding.: capped investment, cooling period.
Public offer
Proprietary/private companies
no more than
50 non-employee shareholders
1) revenue> 25m 2) assets > 12.5m 3)no. employee > 50 3 out of 2 are large firms
least one director
raise funds from exisiting shareholders and employees
lodge financial statements, director's report and audited account with ASIC
Public companies
more than
50 non-employee shareholders
could be unlisted/listed
at least three directors, one company secretary, registered office
raise funds from public by issuing securities with disclosure statement
must disclose financial statement, director's report, audited accounts, available to shareholders, annual meeting, share register.
disclosure documents
public company must provide when offer securities
three types
prospectus
offer information statement
profile statement
exception: private offer
20 people 2 million max.
Initial public offering(IPO):
first sale of stock by unlisted company to the public.
Benefits
access to capital
greater efficiency
provide secondary market
higher public profile
align management incentives
easy raise capital in future
facilitate exit for shareholders (PE,VC)
Costs
significant costs
significant disclosure
media exposure
susceptial to market condition
loss of control
Lists requirements
profit test
asset test
free float
minimum 300 shareholders
Listing process
1.appoint and consult with advisors.
2.Prospectus: help investors assess risks&returns. Due diligence process
3.red herring: draft prospectus, roadshows to see demands, determine price
lodge prospectus with ASIC
5.lodge listing application with ASX
6.marketing and offer period
7.closing offer, share allocation, commence trading
Underwritting
two types of contracts
Firm commitment contract: buy new shares, bear the risk
Best effort contract: sell as many as possible
syndicate:
multiple underwriters come together, work on a large IPO, mitigate risk,
fees: discount from price of share sold
Pricing
fixed price
through auction
once listed, will be traded on secondary market, determine by the market.
Share allocation
underwriter decides who gets the shares
Dutch auction
Overview
Equity:
an ownership claim over a firm's profit
Ordinary share
basic ownership
residual claim
entitled to dividend
voting rights
Preference share
preferential claim to dividend and assets
restricted voting rights
Convertiable preference share
convert to ordinary share at pre-determined rate
Financing in different stages
Seed: early development/idea
Early stage
start-up: product development and initial marketing
first-stage: initiation of manufacturing and sales
Later stage
second-stage: initial expansion
third-stage: major expansion
Bridge/Mezzanine: bridge between expanding and going public
Seasoned equity offering
Right issues/entitlement issues
issue to
existing shareholders
,
pro rata
to existing holdings.
normally 1new share for 1-10 shares held
offers discount
have choice to accept all/part
if renounceable, then can sell rights through market
take longer, more risk
accelerated right issues: 2 stages, accelerated for
institutional
private placement
limited number of new shares to
institutional investors
by agent
agent negotiate with investors and charge commissions
small discount
trading halted
faster approach, less risky
restrictions on raising capitals: prevent over dilution. can have SPP to prevent it.
Share purchase plan(SPP)
set dollar value to
exisiting shareholders
not a pro rata offer
, who want to buy then buy
company specify capital required, could scale back
Dividend reinvestment plan(DRP)
all shareholders
, reinvest all/part dividends into new shares
only when companies pay dividends, not for emergencies
offer discount