chapter 2: the internet 1 raising capital new businesses five year success rate banks sources of...
TRANSCRIPT
Chapter 2: The Internet 1
Raising Capital
New businessesFive year success rateBanksSources of funding
Structure? Security law violations?
Chapter 2: The Internet 2
Raising Capital
“Crowd” funding: Companies can raise up to $ 1 million Investors:
Invest up to < $10,000; 10% of incomeNo need to register securities with
SEC/state
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Private offerings
35 or fewer investors and accredited investors Accredited investors
Assets > $ 1 million (not home) or income > $200,000
35 other investors: must be able to judge merits
No registration statement with the SEC needs to be filed
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Venture capital: financing for new businesses Financing provided in stages Initial financing includes goals
Fail to meet goals, financing endsGoals met, additional financing provided
May be provided by another vc firm
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Venture capital: financing for new businesses Financing not cheap
Will get large equity position in the company
Often preferred stock Not long-term money. “Exit strategy”
Hope to sell in IPO or when founders are able to get financing to buy them out.
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Venture capitalists
Hope 1 in 10 will be a home run Introductions to “sell” concept Some "hands on"; others provide
guidance when they are asked
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Public offerings
Seasoned offeringReaction of market
Why not debt? Signal regarding stock price?
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Public offerings
IPO Must file registration statement
contains financial statements, summary of business and use of financing
Similar to Form 10-K SEC has 20 days to review the registration statement
Doesn't judge merit of offering Only makes sure required disclosure is made Shelf registration: sell during next two years if
requirements met
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Public offerings
Prospectus issued to potential investors during registration period
Management will do "road shows" for potential institutional investors such as Fidelity
After the review period ends, securities can be offered to the public
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Underpricing IPOs
Occurs most often when markets strong Annies IPO at $19, raising $95 million Stock closed first day at $34.65
Company left $15 per share or $75+ million on the table
Recent study: underpricing not a concern Existing owners getting rich, don't mind millions left
on the table
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IPOs: investor’s perspective
Difficult for most investors to get their hands on IPO issuesLarge investorsExecs of other companiesPoliticians
Small investorsAble to get shares, IPO that does not do
wellWinners curse
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Underpricing IPOs
Google: auction to set IPO price for sharesThen accept offers at that price ($85)Allow small investors to participate
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Public offerings
Lockup period: stock can not be sold for a period of time Typically six months (Ferraris > Linked In)
Underwriters: syndicate of investment firms shares risk of selling the issue Discourage flipping Lead underwriter will price issue
Too high, issue may be forced to be withdrawn Too low, company/existing shareholders leaving
money on table
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Costs of raising capital
As percent, much higher for small issues
Higher for IPOs vs. seasoned equity Higher for equity versus bonds Higher for junk bonds versus
investment grade bonds
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Issuing bonds
Often in private placementsLife insurance companies, pension plans
and mutual funds