Public and Private Financing: Initial offerings and seasoned offerings

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Lecture 1
Safiya Caesar
Flashcards by Safiya Caesar, updated more than 1 year ago
Safiya Caesar
Created by Safiya Caesar almost 7 years ago
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Question Answer
What are the different types of financing available to a private company? Friends and family, Bank loans, Angel investors, Venture Capital Funds
What are the 5 ways to raise funds in the capital market? Private placement IPO Seasoned equity offering The valuation of rights issues Asset securitisation
What is private placement? the sale of stocks, bonds or securities to a private investor. 2 types: Angel investors and Venture Capitalists
What is an Angel Investor? Someone that provides the first round of external financing to start up companies
What do angel investors receive in return for their investment? Shares and perhaps a seat on the board of directors
What is venture capital? A pool of institutional investors investing money to provide funds for companies
What is a VC and what do they do? Venture Capitalists are managers of the fund. They sit on the boards of the companies they fund and do this by lending the funds to companies and receiving interest before distributing it to the other investors
What does it mean to go public? selling some of a company's shares to outside investors in an IPO then letting the share trade in public markets
Public offering securities are offered to the public and must be registered with the SEC (USA) or the FSA (UK)
Give a few advantages of going public - Diversification of stockholders - Increased liquidity - Increases customer recognition/exposure - Makes it more feasible to use stock as employee incentives.
Give a few disadvantages of going public - Must file numerous reports - Operating data must be disclosed which is available to competitors - Managing investor relations is time consuming - Special deals to insiders more difficult
What are seasoned equity offerings? Aka secondary/follow up offerings. Company issues additional shares Offer price based on existing price
What is a rights issue? Giving existing shareholders the right to buy new shares first or sell the right to buy. --> Maintains their wealth Given in proportion to their existing holdings
Theoretical ex-right price formula
How do you calculate the right Value per new share after a rights issue? Theoretical ex-right price - new price
What happens to shareholders that do not take up their right? They are in danger as their holdings are diluted
How does a public company go private? Managers and outside investors team up to purchase all publicly held shares. This is called a Leveraged Buyout (LBO)
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