Ch 15 Raising Capital

1. Financing life cycle of a firm: Early stage financing and venture capital Usually people with ideas contact banks at first. However if there is no track record or assets, it is not easy for them to receive financial supports.

1. Venture capital: capitals invested in new and high risk ventures. - Angels: individual VC investor. - Private equity: equity financing for nonpublic companies. - At each stage, money is invested to achieve specific goals. - Venture capital firms often specialize in different stage. Early stage means seed money, ground floor. Mezzanine level financing means financing after early stage.

Venture capitalists also participate in running the firm with their expertise. Venture capitalist pick up a proposal using informal networks with layers, accountant, bankers, other venture capitalists, etc. Venture capital is expensive. They typically request 40% or more equity of the firm and several seats on the board of directors or senior manager’s positions. Also they prefer to have voting preferred stocks. They are typically short term investors. They make money by selling the firm or IPO.

2. Choosing a venture capitalist Financial strength to deal with financing in different stage. Management style Reference or historical success Contacts to bring customers, suppliers, and other industry contacts Exit strategy

3. Selling securities to the public: The Basic Procedure Securities Act of 1933 is the original of federal regulations for new securities issues. Securities Exchange Act of 1934 is the basis for regulating securities already outstanding.