Chapter 8 - Funding the venture, part 2: Equity and debt financing for high growth. The contents of this chapter include all of the following: Important terms used in equity investment, the current status of the venture capital sector, the venture capital process, the private placement process, bank loans, valuing an early stage company, general guidelines. | Copyright 2015 Jack M. Kaplan & Anthony C. Warren Equity and Debt Financing for High Growth Patterns of Entrepreneurship Management 5th Edition, Chapter 8, Part 2 Funding the Venture – Part 2 Ch 8, Pt. 2 Fundamentals Valuations VC Status VC Process Bank Debt PPM’s Crowd-Funding Copyright 2015 Jack M. Kaplan & Anthony C. Warren Presentation Outline Important terms used in equity investment The current status of the venture capital sector The venture capital process The private placement process Bank loans Valuing an early stage company General guidelines Ch 8, Pt. 2 Fundamentals Valuations VC Status VC Process Bank Debt PPM’s Crowd-Funding Copyright 2015 Jack M. Kaplan & Anthony C. Warren Key Terms For Equity Investments - 1 Equity Investment occurs when an entrepreneur sells part ownership in the company to raise funds In Private Equity, shares are illiquid and cannot easily be sold until a liquidity event, also known as an Exit, occurs In doing so the entrepreneur suffers Dilution as | Copyright 2015 Jack M. Kaplan & Anthony C. Warren Equity and Debt Financing for High Growth Patterns of Entrepreneurship Management 5th Edition, Chapter 8, Part 2 Funding the Venture – Part 2 Ch 8, Pt. 2 Fundamentals Valuations VC Status VC Process Bank Debt PPM’s Crowd-Funding Copyright 2015 Jack M. Kaplan & Anthony C. Warren Presentation Outline Important terms used in equity investment The current status of the venture capital sector The venture capital process The private placement process Bank loans Valuing an early stage company General guidelines Ch 8, Pt. 2 Fundamentals Valuations VC Status VC Process Bank Debt PPM’s Crowd-Funding Copyright 2015 Jack M. Kaplan & Anthony C. Warren Key Terms For Equity Investments - 1 Equity Investment occurs when an entrepreneur sells part ownership in the company to raise funds In Private Equity, shares are illiquid and cannot easily be sold until a liquidity event, also known as an Exit, occurs In doing so the entrepreneur suffers Dilution as they now own less of the company The value of the company prior to the investment is termed Pre-money, and after, Post-money Investors usually own Preferred Stock, which carries certain Preferences over the founders(s) Convertible Loans are a form on investment that starts out as a loan but can be converted later into ownership Ch 8, Pt. 2 Fundamentals Valuations VC Status VC Process Bank Debt PPM’s Crowd-Funding Copyright 2015 Jack M. Kaplan & Anthony C. Warren Key Terms For Equity Investments - 2 Investments occur in Rounds termed seed, A, B, C etc. If value decreases between rounds it is a Down Round A Capit(alization) Table lists the % ownership Investors expect to earn a high Internal Rate of Return, IRR of at least 30% for taking a high risk Investors may also receive Stock Options or Warrants permitting them to buy more ownership at a later date at a pre-determined (low) value Private Stock rarely pays a Dividend, or if one exits it is usually accrued until a liquidity .
