1. HARVESTING THE BUSINESS VENTURE INVESTMENT
ENTREPRENEURIAL FINANCE
Leach & Melicher
Chapter 15
HARVESTING THE BUSINESS VENTURE INVESTMENT
© 2003 South-Western College Publishing

2. CHAPTER 15 : LEARNING OBJECTIVES
Describe the process of going public
Identify what investment banking involves
Explain “due diligence” and “security registration” of new securities

3. CHAPTER 15 : LEARNING OBJECTIVES
Describe reorganization under Chapter 11 of the U.S. Bankruptcy laws
Describe liquidation under Chapter 7 of the U.S. Bankruptcy laws

4. HARVESTING
Harvesting – process of exiting the privately held business venture to unlock the owners’ investment value
Methods of harvesting
1. Through a systematic distribution of assets directly to the owners
2. Through an outright sale of going concern to others
3. Through a two-step public equity registration and sale

5. METHODS OF EXITING A PRIVATELY HELD VENTURE
Systematic Liquidation – venture liquidated by distributing the venture’s cask flows to the owners
Outright Sale – venture sold to others including family members, managers, employees, or external buyers

6. METHODS OF EXITING A PRIVATELY HELD VENTURE
Leveraged Buyout (LBO) – purchase price of a firm is financed largely with debt financial capital
Management Buyout (MBO) special type of LBO where the firm’s top management continues to run the firm and has substantial equity position in the reorganized firm

7. GOING PUBLIC
Initial Public Offering (IPO) – shares registered with the Securities Exchange Commission (SEC) and state regulators and sold to the public
Primary Offering – sale of new securities
Secondary Offering – sale of used securities
Investment Banking – assist in the creation, sale, and distribution of financial assets

8. GOING PUBLIC
Underwriting Spread – difference between what the investment bank gets from selling securities to public investors and what they pay to the issuing firm
Red Herring Disclaimer – obligatory disclaimer disavowing any intent to act as an offer to sell, or solicit an offer to buy securities
Due Diligence – process of ascertaining, to the extent possible, an issuing firm’s financial condition and investment intent

9. GOING PUBLIC
Firm Commitment – type of agreement with investment bank involving the investment bank’s underwritten purchase and resale of securities
Best Efforts – type of agreement with investment bank employing only marketing and distribution efforts
IPO Underpricing – syndicate’s offering price when it is less than the market price immediately following the offering

10. NYSE LISTING REQUIREMENTS
At least 2000 holders of > 100 shares
At least 1,100,000 share outstanding, held by public
At least $60 million in market value
At least $2.5 million before tax profits in last 2 years & $2 million in each of previous 2 years

11. AFTERMARKET SECURITY TRADING
Market Order – order to be executed as soon as possible at the prevailing market price
Limit Order – order that can be executed only at a specified price or better
Stop Order – order that converts to a market order once a certain price is achieved