- What are various sources of equity investment?
Public Stock:
Holding shares in publicly traded companies. Usually associated with larger corporations such as Ford Motors, Nike, Citibank. They can trade freely on the New York Exchange and NASDAQ. Smaller companies also trade on these exchanges. The company can sell or buy stocks. It is no longer a private held company.
Private Equity:
- Venture Capital: Capital invested in a project in which there is a substantial element of risk, typically a new or expanding business.
- Leveraged Buyout: The purchase of a controlling share in a company by its management, using outside capital.
- Growth Capital: Usually a minority investment, in relatively mature companies that are looking for capital to expand or restructure operations, enter new markets or finance a significant acquisition without a change of control of the business
- Special Situations: Usually referred to a company where value can be unlocked as a result of a one-time opportunity (e.g. change in government regulations or market dislocation).
- Mezzanine Capital: Any subordinated debt or preferred equity instrument that represents a claim on a company’s assets which is senior only to that of the common shares
- What guidelines should entrepreneurs follow when they are selecting a venture capitalist?
The textbook mentions 6 different guidelines to follow when selecting the appropriate venture capitalist:
- Scrutinize your business with a critical eye: Work out solid financial projections to prove the results to the venture capitalist.
- Beef up management: Hire staffers who can make up the deficits.
- Keep a high profile so the VCs will visit: Make your company look good inside and out to attract potential investors.
- Target the search: Look for firms that specialize in the industry and the size of investment.
- Keep a lookout: Look for smaller VC firms that may be more flexible and more receptive to investing in a company.
- Investigate possible venture partners: Find out what the needs are for the venture capitalist so when a visit is made, the meeting can be more successful.
- What are the differences between a single-hit and a home-run business?
A single hit business is one that does not have a sustainable business model or product. A good example of this would be the selfie-stick. A home-run business, on the other hand, would be one like Apple, which is built on a firm foundation and builds off of its products.
- What are the four key factors that a banker seeks before providing a corporate loan?
The four Cs of lending are:
- Characters: That includes traits such as talent, reliability, and honesty.
- Cash Flow: To cover debt throughout the term of the obligation.
- Collateral: To support at least part of the loan if the company is unable to meet its obligations.
- Contribution: By the entrepreneur towards the funding requirement.
Great post. I agree, there are different classes of private equity but the main idea of it that there are investors and funds that make investments directly into private companies; and it is important to differentiate them from the public equity, which consists in that not only organization but also individuals can have access to.
Great examples for question 7.Overall this a very good post packed with every important detail from chapter 10!