1. Chapter 14 Fundamentals of Corporate Finance Fifth Edition Slides by Matthew Will McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved Venture Capital, IPOs, and Seasoned Offerings

2. Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 2 Topics Covered  Venture Capital  The Initial Public Offering  The Underwriters  General Cash Offers by Public Companies  The Private Placement

3. Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 3 Venture Capital

4. Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 4 Venture Capital Since success of a new firm is highly dependent on the effort of the managers, restrictions are placed on management by the venture capital company and funds are usually dispersed in stages, after a certain level of success is achieved. Venture Capital Money invested to finance a new firm

5. Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 5 Venture Capital

6. Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 6 Venture Capital

7. Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 7 Initial Offering Initial Public Offering (IPO) - First offering of stock to the general public. Underwriter - Firm that buys an issue of securities from a company and resells it to the public. Spread - Difference between public offer price and price paid by underwriter. Prospectus - Formal summary that provides information on an issue of securities. Underpricing - Issuing securities at an offering price set below the true value of the security.

8. Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 8 Initial Public Offering

9. Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 9 Initial Public Offering Expenses

10. Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 10 The Underwriters

11. Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 11 General Cash Offers Seasoned Offering - Sale of securities by a firm that is already publicly traded. General Cash Offer - Sale of securities open to all investors by an already public company. Shelf Registration - A procedure that allows firms to file one registration statement for several issues of the same security. Private Placement - Sale of securities to a limited number of investors without a public offering.

12. Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 12 Rights Issue Rights Issue - Issue of securities offered only to current stockholders.

13. Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 13 Rights Issue Rights Issue - Issue of securities offered only to current stockholders. Example - YRU Corp currently has 9 million shares outstanding. The market price is $15/sh. YRU decides to raise additional funds via a 1 for 3 rights offer at $12 per share. If we assume 100% subscription, what is the value of each right?

14. Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 14 Rights Issue  Current Market Value = 9 mil x $15 = $135 mil  Total Shares = 9 mil + 3 mil = 12 mil  Amount of new funds = 3 mil x $12 = $36 mil  New Share Price = (136 + 36) / 12 = $14.25/sh  Value of a Right = 15 - 14.25 = $0.75 Example - YRU Corp currently has 9 million shares outstanding. The market price is $15/sh. YRU decides to raise additional funds via a 1 for 3 rights offer at $12 per share. If we assume 100% subscription, what is the value of each right?

15. Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin 14 - 15 Web Resources www.ventureeconomics.com www.vnpartners.com www.v1.com www.nvca.org http://biz.yahoo.com/ipo www.ipodata.com www.ipohome.com www.hoovers.com Click to access web sites Internet connection required http://cbsmarketwatch.com www.dealflow.com www.vfinance.com http://thomson.com/financial http://bear.cba.ufl.edu/ritter www.edgar-online.com