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Lecture note Essentials of corporate finance – Chater 15: Raising capital

The topic discussed in chapter 15 is raising capital. This chapter include objectives: Understand the venture capital market and its role in financing new businesses, understand how securities are sold to the public and the role of investment bankers, understand initial public offerings and the costs of going public. | 15- Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15- Key Concepts and Skills Understand: The venture capital market and its role in financing new businesses How securities are sold to the public, and the role of investment bankers Initial public offerings, and the costs of going public 15- Chapter Outline 15.1 The Financing Life Cycle of a Firm: Early- Stage Financing and Venture Capital 15.2 Selling Securities to the Public: The Basic Procedure 15.3 Alternative Issue Methods 15.4 Underwriters 15.5 IPOs and Underpricing 15.6 New Equity Sales and the Value of the Firm 15.7 The Cost of Issuing Securities 15.8 Issuing Long-Term Debt 15.9 Shelf Registration 15- Venture Capital “Private Equity” Private financing for new, high risk businesses in exchange for stock Individual investors Venture capital firms Usually involves active participation by VC Ultimate goal: take company public; the VC will benefit from the capital | 15- Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15- Key Concepts and Skills Understand: The venture capital market and its role in financing new businesses How securities are sold to the public, and the role of investment bankers Initial public offerings, and the costs of going public 15- Chapter Outline 15.1 The Financing Life Cycle of a Firm: Early- Stage Financing and Venture Capital 15.2 Selling Securities to the Public: The Basic Procedure 15.3 Alternative Issue Methods 15.4 Underwriters 15.5 IPOs and Underpricing 15.6 New Equity Sales and the Value of the Firm 15.7 The Cost of Issuing Securities 15.8 Issuing Long-Term Debt 15.9 Shelf Registration 15- Venture Capital “Private Equity” Private financing for new, high risk businesses in exchange for stock Individual investors Venture capital firms Usually involves active participation by VC Ultimate goal: take company public; the VC will benefit from the capital raised in the IPO Hard to find Expensive Return to Quick Quiz 15- Venture Capital Stage Financing Funding provided in several stages Contingent upon specified goals at each stage First stage “Ground floor” or “Seed money” Fund prototype and manufacturing plan Second Stage “Mezzanine” financing Begin manufacturing, marketing & distribution 15- Choosing a Venture Capitalist Financial strength Compatible management style Obtain and check references Contacts Exit strategy 15- Selling Securities to the Public Management obtains permission from the Board of Directors Firm files a registration statement with the SEC SEC examines the registration during a 20-day waiting period Securities may not be sold during the waiting period 15- Selling Securities to the Public A preliminary prospectus, called a red herring, is distributed during the waiting period - If problems, the company amends the registration, and the waiting period starts over Price per share determined .