Financing cycle
order of cycle
1) bootstrapping
2) seed-stage
3) early-stage
4) latter-stage
5) exit stage
IPO advantage and disadvantage
advantage
- able to raise $ quick
- able to raise lots of $
- raise $ without losing ownership
- attract top management
- create secondary market
Disadvantage
- expensive
- SEC disclosure requirement
- transparency
- managers focus short term (quarterly)
why chose private market
- cheep
- stable when market is unstable
define dividend policy
firm policy about distribution of value to shareholder
what is stock repurchase
buying back ownership
remove stocks from circulation
VC role and why
role
- help new business by funding and provide advice
why
- high risk
- productive asset
- informational asymmetry problem
what does IPO investment banker do
- expert
- provide: origination, underwriting, distribution
what is private placement
sell unregistered securities directly to investors
what reduces the value of shareholder claims
the distribution of dividends
1) board vote
2) declaration date
3) ex-dividend date
4) record date
5) payable date
how VC reduce risk
1) fund in stages
2) require entrepreneurs to personally invest
3) syndicate investments
4) in depth knowledge
types of underwriting
1) best effort basis
2) firm commitment basis
what is general cash offer and the types
sale of debt and equity by public company
1) competitive sale
2) negotiated sale
types of dividend
- regular cash
- extra dividend
- special dividend
- liquidating dividend
ways to repurchase stock
- open market repurchase
- targeted stock repurchase
- tender offer : fixed vs dutch auction
what is syndication
VC sell % of deal to another VC
what is underwriting syndicate
share risk by teaming up with others
pros and cons of private placement
pros
- negotiation
- resolve issues without court
- speed
- flexibility
cons
- resale restriction
how are dividends payed
pro-rata basis
stock dividends vs stock splits
stock dividends distribute more stocks
stock split divides existing shares
**does not change value of stocks**
how VC exit
1) strategic buyer
2) financial buyer
3) IPO stock
IPO pricing
1) underwriting spread
2) out-of-pocket expenses
3) underpricing
benefit of dividends
1) attracts investors
2) shows financial strength
3) aligns shareholders and managers
4) manage capital structure
dividend policy consideration
1) how much do we earn from investments (long term)
2) do we have enough $ reserves to pay when earnings drop
3) enough flexibility to pay dividends if reserves are wiped
4) what happens if we increase shareholder implications by sell equity
5) can we quickly raise equity capital if needed