Financial const: lack of trust. M failure: cuz of asym info (risk est value: VPOST = Xe * (1-z)T / (1+d)T, ! = (d+z)/(1-z). 2)Discounted CF deal (more money&risk). Lead In leads process, nego, sits on board; what individual partners can do (personal in.ment, in.ment in similar income less corporate income tax as they make less revenue, making Public debt: a public bond issue similar to stock issue, btw
incor) , adverse sel, moral h. Credit rationing: Adverse sel – model: less popular cuz of assum, uncert of En.ial ventures follower provide capital & on-demand expertise &networks. These firms). LPA GP comp. 2/20: mng fee is 2% of capital and carried equity fin more attractive for high-tax In (angels, eq CF In). Mature bondissuer and trust firm (intermediary, represent bondholders / Ins).
Stiglitz&Weiss (unknown risk type, risky vs safe proj, interest, max own (turnover&costs) makes it less appllicable, though being able to ignor deals tend to perform better. 4)Negotiation. NI bargaining theory, to interest is 20% of profits, to cover operating costs and still provide firms cannot easily avoid paying taxes, therefore prefer debt which is Corporate bond: pay coupon semi-annually (zero-coupon bonds also
profit), moralH –Holmstrom&Tirole (eGort vs collat, skin itg, leisure). 01. '('! ./!
understand what deal 2 parties would become. We need: each party’s incentives to max final fund value. Mng fee: for GP, cover operating cheaper and attr for low-tax In. Bankruptcy costs: when having to exist), principal amount is denominated in standard increments, face
debt makes it easier. "$%& !"# = ∑012 (*+,)" + (*+,)" + '()ℎ0 , TVT =
Eco conseq of fin const: Exp, inv, A/sales/empment gr, startup outside option (build over time by talking to other Ins), joint value, rule costs, create incentive to raise large funds, like fixed amount, paid much debt in bad times. Distress costs: money spend to avoid formal value not always = actual money raised cuz of underwritten fees or
FCFT*(1+g) / (d-g), d < !. 3)Comparable method: est V by comparing
formation. Studies: neg shock, cred prob, fin const, dep on banks, for splitting surplus. “Zone of Possible Arrangements” (ZOPA), set of quarterly. Carried interest: to align LP& GP incen, profits=exit bankruptcy, fear liq, supp&cust asking for better terms. These favour bonds issued at a discount. Bearer bonds: who physically holds the
to similar firms. Two appr: In.ment and exit comparable. 2 crucial
govern.. En.ial fin: young ≠small, inno, growth-orie, death is rule, avail deals which is better for both compared to outside option. In proceed-contr capital&mng fee. Hurdle rate is LP first get at least 8% eq over debt as cheaper fin tool. The tradeoa theory: too little debt certificate is owner, get coupon giving proof of Owship. Registered
choices: set comparable firms & comparison metrics. MjComp = XjComp /
gazelles, only few but big impact. 3 princ of En.ship: gather&recomb prefer downside protection (to min risk) and En low V (bar for succes of return before carry, of the rest GPs will get 20%. European waterfall: and firm pays too much corporate income tax and impose too high bonds: list of holders, almost all bonds this type. Unsecured debt:
PMjComp, MComp = Avg(MiComp), Xe = PMe * MComp. 4)Probabilistic
existing resources, uncertain envir, experimentation/ explor. NI: TFP is lower). Place in ZOPA depend on deal-specific conds. SV=JV–OOE– carry paid to GP when liquidated, American waterfall: at each exit personal taxes, too much debt and firms suGers in case of trouble. gives bondhols claim to only A of firm that are not pledged as coll in
approachs w/ model uncertainty: this incorporates the prob of ≠
(techn process to grow eco when labour&capital are fully employed) OOI , BEE=OOE+BSE*SV, BVI=OOI+BSI*SV; Surplus, Joint value, Outside event though then they need to pay back carry when fund is perf bad. Capital structure not only aGects tax benefits and bankruptcy costs, event of bankruptcy. Secured debt: mortgage bond (real property as
events. 3 approachs: scenario analysis (bad, middle and good scen &
drives eco growth. FIRE: fit (find&select each other), invest (needs of option, Bargaining value. 5)Deal closing: need to coord various activs: For large funds, mng fee > carry. Venture investing is not always but also incentives of owners and managers. Agency conflicts: debt coll) and A-backed bonds (secured w/ any A). Tranches: all classes of
their prob), simulation (very parameters random), PROFEX (computes
En&In, exp, M cond), ride (jointly grow, learn ab M&firm, governance, En takes initiative (though founders need to be on same line)& In scalable. GPs want to keep raising funds to get fees though the aGects CF and behav of managers. The probs often favour debt over securities are paid from same CF source. Covenants: clauses that
V for all rounds for diG exit outcomes: success, continuing, failure).
staged fin, milestones, option value of waiting), exit (when&how). contrib experience & balancing hand. Living w/ the deal: need to trust in.ment horizon is limited.. Venture capital firms: small and very equity: reduces free CF and thus urge of managers to build empires, limit issuer from undercutting ability to repay (e;g. dividends, maintain
FUEL ab In, fundamental stru (who), underlying motiv (wants), the other.. Corporate govern: set of acts w/ which In try to ensure to hierarchical, though lack in diversity btw partners, use unanimity reduces theft and improves verification, and reduces stakeholder min WC). Repayment: typically w/ coupon and principal, but also
LRD: brings ideas to M.Gemma Frisuis fund: fund for spinoGs. KUL is
expertise&networks, logic&style.. VEM: structured appr to evaluate receive return from their In.ment, to guide En and protect In’s In.ment. model, succession&pay are sources of internal tension. First round is holdup power for demanding all the surplus. Thoug debt can also repurchase fractions of outstanding bonds in M, tender oGer for the
innovation &technology transfer. KICK: prepares for changing labor M
the strengths of En.ial idea, how it will generate money, set up LT buss Three levels of control. 1)Voting rights: simple vs super maj, equal most diG: no track record, no cornerstone LP, no past perf. VC impost costs cuz of expropriate bondholders: managers can incr risk entire issue, exercise a call provision. Callable bonds: allows issuer
(awareness, learnbydoing, startup support).
plan to convince In. (cus, company, En)(value prop, indus, voting power, Sh class voting, dual-class Shs. 2)Board of directors: networks matter for relations, fundraising, supporting. VC In.ment in name of Sholds at expense of existing bondholders. Exproporation (firm) to buy back bonds at predetermined (call) price. Do this when i
strategy)(need, solution, team, M, competition, network, sales, make stratgic decisions (M, products, hire), members are nominated, strategy: defs how the VC should operate in every phase of In.ment remedies: allowing creditors to block projs or include conversion have fallen, then they can ref.ing the issue at lower rate. In has to
Agency conflict: En&In need to nego ab CF and who makes decisions.
production, organization) (value, scale, growth)(access, entry barrier, BoD is boss, monitor, coach and promotor. Have fiduciary duty: must cycle. Vc can raise funds w/ diG strategies, who have 3 dims. 1)Only features to all creditors to share the upside. Another form of reinvest the proceeds at a M rates < coupon rate they currently had,
In En.ial firms there is more uncertainty, so you maybe need to give
competencies). Used to identify strength and weakn of venture, put interests of Sholds first. Some In have observer role. Dual board certaint industries are venturable: you need dynamic progress (tech), exprioriation is when creditors lose if a firm takeson new debts of makes them less attractive therefore they trade at lower price (and
away control. NPVH > 0 > NPVL, NPVH = pHRb – A + pHRi – I – A, NPVL =
identify uncert, expose assump, def buss opport, what can be structure is a supervisory and mngm board. 3)Informal control, 3 intermediate level of capital, scalability. 2)Proximity is a hallmark of equal priority or earlier maturities, remedies are covenanted to have a higher yield). Yield < coupon: bond will be called. They can be
pLRb + B – A + pLRi – I – A. En’s incentive compability const: pHRb ≥
improved. Use VEM to structure BP: strat framework for guidance, types powers: power of the purse (staged fin gives subst power to In), VC in.ing: VC want contact w/ firm, though gr.ing trend of distand prevent higher senior debt equity payout. Underinvestment problem: called at par, price can be low when yield is high though does not rise
pLRb + B => Rb ≥ B / Dp. Pledgeable inc PI: Ri = R - Rb. Exp PI: P = pH (R
describes venture for outsiders, overlook opport&challenges. power of personality (comes from credibility&respect), power of in.ment. 3)Early vs late stage in.ing: early you’ve more time resources too high debt levels can prevent managers or owners of distressed above par value when yield is low. Yield and bond price are inverse
– Rb). Participation const: P ≥ I – A, P is highest = B / Dp. In a comp M:
persuasion (from experience & strenght of arguments). NI selection (In (supp), high risk; late is less involvement, less risk, lower returns. firms from In.ing in + NPV projs. Inside info, adverse selection: related. High yield, In anticipate they wont call so price is similar to
1)Fin projetion: nr ab exp perf, reflect on buss model/ plan/ En; P = I – A. Rb = R – (I – A) / pH ≥ B / Dp. In that follows: pHRb – A = pHR – I (En choosing better firms, make it look their invol.ment leads to success) Strategy configurations, 4 strg: local specialist (niche), global sp insiders know the proj will be great though sceptical outsiders only identical non-callable bond. Low yield, In think bond will be called so
IS+BS+CF, 4 sources of info. 2)Fin plan: (vision&goals, how much receives entire NPV) and A ≥ I – pH * (R – B /Dp) (if equa is true, En not vs threatment (In make firms better w/ mentoring& networks). How do (upon success), local generalists (active in multiple sectors), global want to buy equity at low price. Remedies: skin itg (managers invest price is close to price of non-callable bond that matures on the call
fin.ing needed, how fin attractive is firm, better nego position, tools to constrained). 1)Interim act: Raise success prob: p + + > p, +R < ,, -, In add value? Mentoring&coaching, advising, networking, pressuring. gen (only few top firms). Elems defining stragy: interaction w/firms, self) or verify private info. Pecking order: cuz of inside info and agency date. Yield of callable bond is under assump that bond will be called
look forward, change w/ ≠ stages (early vs later); MT/LT (growth) vs ST + B < B. For En: pHRb – A > (pH + +)Rb - , – A. For In: pHRi – I – A < (pH + +)Ri Where do In add value? Look 3rd row VEM: sales challge (In provides deal sorucing. Risk&return in VC, three levels of returns: company- costs, the order can be first debt then equity. Other perfect-M on the earliest call date. Convertibel bond: bond w/ option to convert
(cash&WCM). WC (avail liquidity) = Eq + LT liab – fixed A. WCR (needed – I – A. EICC: (pH + +)Rb – , – A ≥ (pL + +) Rb + B – , – A. PC: (pH + +) (R – strat advice, expertice on M), production challge (In provide support level returns (highly skewed, med<avg, freq failure), gross returns to violations: transact costs prevent optimal adjustm, limit fin.ing each bond owned into a fixed nr of Shs of common stock. Conversion
liq to finance dailty operations) = Invent + CustCred – SupCred. 3)Buss Rb) ≥ I – A. 2)Damage control: success prob incr when En shirks, no for identify suppliers, connections to service providers & regulators), VC fund (better quality fata though excl fees/carry, diG timing CF options, In seem to like divid. Why not best of both worlds and equity ratio: nr of Shs received upon conversion, usually stated per $1000 of
plan. Gr mng: growing req In.ment in fixed A/ Infras. Gr aGects Invent, eGort, -Rb > ,. H = H+DC = pH, L = pL, L+DC = pL+-. En has control: pHRb organization challge (support startup, pressure to craft corp culture, makes diG to compare), net returns to LPs. Challgs: data avail.y.. Early when close to distress otherwise debt? DiG to issue equity or buy back face value. Conversion price: face value of convertibel bond / nr of
CustCred, SupCred. DSales>DWCR. Build FPr. S1)Def time line: ≥ (pL + -)Rb + B – ,. In has control: pHRb – , ≥ (pL + -)Rb + B – ,. Modelling perf benchm). In help w/ exit challge. Replace underperf managers stage in, think ab FUEL. FFF: founders (provide 1st In.ment using pers debt when in trouble, and conflict among interest groups. Shs received if bond is converted. High-yield firms issue callable bond
identify milestones and reflect them in GanttChart (visual timeline w/ contingent control rights: control transferred, w/ damage control. /H (founders are often not good managers, don‘t have skills). debt), family&friends (complement founders’ cornerstone In.ment). and exercise option: traditioncost saving when i declines, eGort to
and L eGort/ interim act: / HH = / HL = pH, / LL = pL, / LH = pL + +. A) In full Found invest cuz no other option, and In demand skin itg. Fam&fre Banks: allocat capital, provide access to payment system. Funcs: reduce rollover risk (exposure to sudden stops). Moneyness measure:
MS), def time horizon, set level of account details, set time intervals
across horizons. S2)Est revenues. Rev = P * Q. Def unit, est P and Q. control. EICC: /HHRb – , ≥ /LHRb + B – ,. PC: (pH + +)R - /HHRb ≥ I – A. B) Staged financing. Fin.ing growth: most startup only do 1 fin round invest for pers&soc reasons. Expertise&netw are limited. Angel Ins: liquidity & paym service, A and maturity transformation (ST debt -> LT diG between strike and spot price.
Top-down rev proj: D-side, 2nd data; steps: size target M, En full control. EICC: /HHRb ≥ /LHRb + B. PC: pHR – /HHRb ≥ I – A. cuz fail to develop. Those survive typ raise add rounds. En: staging red individual who invest own money in startup, savers (middel-high loans), risk mng, reduct info asym. Drivers profitability: real GDP gr
segmentation, determine M Sh; works for well-def targM. Bottom-up C)Control transf: to In when low eGort. EICC: /HHRb - /HL , ≥ /HLRB + B funding&dilution cost. In: creates option to wait incr control (power of income) & former En. Angel networks: indiv who invest indep. Angel (+), non-perf loans (-), cost-to-income ratio, business model, M Guest lecture: rising i and material shortages reshape In.ment
rp: S-side, firm data; works for very large or new M, requires to est a – /LL ,. PC: (pH + /HL +)R – /HHRb ≥ I – A. Exp PI w/ conditional (PC in C) > purse). NI Dynamic games: renego takes place along way, after funds: vehicle whose participants collect capital & invest jointly. concentration, ST rates, yield curve. ROE US > EA, ROE + in EA. dynamic. ESG is incr.gly seen as a lever for value creation and
realistic gr rate. Estimated M Sh (S) = bottom-up cap (C) / top-down In control (PC in A), we found , > +R when you know Rb ≥ B/(/HH-/LH) – interact&infl. Time inconsistent acts: In first only refinance successful In.ment amount vary, typ small amount, equal to early-st VC. Motivat Banking trends EU: # credit instit decr, # empls in cred inst decr, smoother exits. PE is for M-LT In.ment in unlisted firms, aim to create
M size (M). (5 small, 25 normal, 50 aggres, 100 imposs). S3)Est costs: ,.. TS: overview of imp conditions of In.ment deal btw startup&In, firms, end-up rein.ing all + NPV projs. Deal structuring w/ staged to learn ab new opp & pool expert & knowledge. Invest in wide variation households most deposits; Ger, Fra, Ita. Banking BE: 4 big account fo value through active Owship. Has LP and GP. LBO: acq financed w/ eq
COGS (prod&deliv, measured w/ bottom-up or top-down), OPEX (are precontract to put exps of In&En on one line. TS functs: distribute financing: raising capital by issuing Shs leads to dilution. Tranching: of expert&netw, early-stage firms, idiosyncratic if individual and 67% though only 19,8% has BE maj Sholds; act are retail&priv banking, and debt. Cases Bencis’s portfolio: Xeikon and Abriso, ab how PE
indirectly related to prod&deliv, irrespective of # sold), CAPEX (cost of right&obligation&reward, shape incentives, clarify exps, distributes altern of staging, consists of total amount (div into tranches)& Sh structured if group, wide variation in involvement, simple securities corporate fin, payment service. Use of leasing anf fin M has incr. Types create value w/ buy-and-build strategie, operat restructuring, internat
LT As), Devel costs (cost for creating new product), nOPEX (deprec, risk, specify rights& duties. TS content: CF rights, control rights, price, 2nd tranche relased on MS. Staging req nego, tranching is largely and few control rights. Corporate/ strategic In: invest on behalf of of commercial credit: A-based loans (A as collateral), CF loans (trus expension, strategic repositioning. Showed how Bencis helped firms
amort, interest, revalu). S4)Build fin model: A)IS (prof&loss) gross comp&employm, other rights. TS uses contingent contracting (set autom. Insider&outsider: Ins rounds have knowledge but lim contrib, estab incumbents, knows as Corporate venture capital, often tech on CF and cred, collateral lower liq), trade fin (to fin trade flows like grow EBITDA & scale geogr.illy while preparing for high-value exits.
margin = Rev – COGS, EBITDA = grossmargin – OPEX, NetInc = EBITDA conds as contract is never complete) & MS (fin, oper, managerial, Out have expertise. Determs of Ins vs Outs round: depth of In pockets, firms w/ many Ins who can invest large sums. NI Coase: low transact exp&imp), leases (A collateral, Owship & use is separated). Most used
– ITDA. B)BS: As&liabilities. C)CF: operating, investing, financing act. technical). TS eco functions: def perf targets, align exps of En&In, exp&netw, signaling eG. Retention rate: how much have Ins left of Sh costs use M and when high use organiz authority. NI Hayek: w/out is CF, least is leasing. Types of credit on bank’s balance: transact Public equity Ms: private In get ability to diversify, and better access
FM can help to assess a venture’s pot fin up- and downside, by provide focal point for renego (contracts are dynamic), facilitates nego after new round, est RoR and future dilution, post-deal Owship / pre- price info we make poor dec, M make use of this. NI Williamson: if 2 loans (for spec purpose, collateral is purchaised A, paid from A use), to capital. Though eq holders become more spread which makes it
benchmark to competitors and interpreting NWC. NWC = cash, ab V. NI: contracts are incomp as future events are diG to predict, this deal Owship. TS. Seniority incr by round, or pari passu (eq prior). Anti- A are complem you should integrate them into firm to combate hold- working capital loans (day-to-day transact, ST, secured by inventory or more diG to monitor mng, and firm must satisfy many req.
invent, accounts receivables (CA) – accounts payables (CL). Startups highlights imp of renego. CF rights: who gets what amount of CF at dilution clauses: protect to pay too high Sh price, a rule to adj past up prob. Corporate In: motivated by strategic rather than fin gains. acc receivables), term loans (3-10 yr, to buy capital-intense fix A, repay Underwriter: In.ment banking firm that manages security issuance.
first need to focus on + cash balances, then on becoming profitable exit, In.ments must be protected at failure and motivated at success. round price. Full ratchet protection: re price first round or weighted- w/ CF the A generates), combi of above. Oa-balance sheet Primary oaering: new Shs available in public oGering that raises new
(NInc). CF = NetInc – DNWC – CAPEX + Deprec, > 0 and ≠ NI. CF is the Therefore, In get convertible instead of com stocks, give option to avg prot: P1WA=P1$(Sbase+I2/P1)/(Sbase+I2/P2). Prot Owship of In: pre- Early stage In (cont). FinTech: tech innovs that replace/ challg role of commitment: agreed i, maturity, use of fund; banks get fee for capital. Secondary oaering: Shs sold by existing Sholders. Best-
real cahs moving in&out. Testing FPr: test realism assum: scenario choose fixed payback at failure & option to convert to com stock at emption rights (buy new Shs up to pro rate) & Right of first refusal (buy fin interm, operate at border of regul. Crowdfunding: form of FinTech, commitm, contract is A when cust actually records it. Loan agreem: eaort basis: for small IPOs, the Unwr doesn’t guarantee stock will be
(alt set of assum) & sensitivity analysis (which assum are crucial). success. Preferred terms (fixed payb), PT = I + DIV = I + I * D * T. Shs on terms oGered by 3rd party. Fin diaic situs. Struct.ing down online platform where En look for people to invest small amounts, principal, maturity, pricing formula, conditions precedent (condition sold, often all-or-none clause (all Shs sold or deal called oG). Firm
Simplify model to make FPl more manageable. S5)Formulate FPl: 1)Convertible preferred (tab1): You should convert when FINV * X > PT. round is diGic: keep founders motivated, find Out In despite – signal. matching platf for In&En to connect, therefore thickness is needed. for borrower before banks pay out the loan), warranties, covenants commitm: agreem btw Unwr & issuing firm, Unwr gurantees to sell all
how fin attractive is venture and what fin resources needed? Pitch FPl Conversion threshold (min X): CT = PT / FINV. 2)Multiple liquidation Can lead to turnaround / washout: firm has no gr though valuable A, Dia types of platf: 1)Rewards& donations: En do this to test M (borrower agreems). Credit analysis, 5C: legal&eco CAPACITY to stock at oGer price. Auction IPO: selling new issues directly to public
can take ≠ forms, covers: underlying assump, rev, costs, profitability, preference: In demand In.ment payed back multiple times. PT = M * I restart the proj will drop value and have dilution. 4 decs of In during interest & create hype; no contract/ payback/funding, not to gain fin borrow, reputation and desire to pay CHARACTER, own CAPITAL to rather than setting a price and then allocating Shs to buyer, Unwr takes
funding needs&CF analysis. NI: behav bias in fast thinking. In fall in + DIV, CTM = (M * I + DIV) / FINV > CT. In holds preferred payb for longer staged fin proc. 1)Timing 1st in.ment: dep on fin resources, expertise, reward. 2)Lending platf: open to public to give out loans, diG for resolve priv info, COLLATERAL resolves priv info and moralh and bids from In and set price. The mechanisc of IPO. Lead Unwr:
trap when choosing ventures, framing info may det ventures chosen, period, En need to wait longer for money. 3)Participating preaered ability value firm, risk att. 2)Whether to re-invest: dep on portfolio startup to access cuz of lack of verifiable info so more used by SMEs. reduces bank risk, eco COND aGect ability to repay. ST fin types: primary In.ment bank responsible for managing a security issuance.
sunk cost fallacy, En over-optimism.. Owship&returns: det Owship (tab2): combine liqui pref (payback) & add part of eq. CFINV = PT + (X – strategy, confidence in venture pot, interest in sharing Owship; never Size of loan is lim, although low interest rate, transac fee can incr total 1)Promissory note: statement indicating amount, date paym, i. Syndicate: Unwrs jointly underwrite & distribute a security issuance.
stake & V firm are crucial. V is imp cuz it det % firm’s eq the In receives PT) * FINV. 4)Part pref w/ Cap: after XCAP Sh of In stops incr, keep r-i, typically r-i, opp-driven-r-i. 3)Who to co-invest w/. 4)How to cost. 3)Equity platf: this has slow developm cuz of regulatory 2)End-of-period paym loan: pay back i (fix or var) and prinipla at end In US SEC filings: registration statement (provide fin info ab firm to In
for the In.ment, allows to est the RoI. Valuation = In.ment / Owship. motivation En w/ high exits. Use: maint incens for founds to get reward structure staging to achieve good exit. 4 decs of En. 1)Which In to problems (=experimenting & changes continu), though big amount of all at once. 3)Line of credit: can lend any amount upt to a stated max, prior to security issuance), preliminary prospectus (prior to IPO,
Post-money V = Pre-money V + In.ment. VPOST = I / FINV = VPRE + I, SPOST = for succes, screenout weak proj, align In&En exp choose. 2) How much money to raise&when. 3) What V profile to build: options for In, eas of closign transac, En can reach In in cost-eG way. 2 types. A)Uncomm credit line: bank not legally bind to provide fund. circulated to Ins before stock is oGered), final prospectus (prior IPO,
SPRE + SINV, I = P * SINV, VPOST = P * SPOST, VPRE = P * SPRE, FPRE = SPRE / SPOST, FINV ExitV Cond CFINV CFEN ExitV Cond CFINV CFEN high V but needs to rise over time to give + sight. 4)What kind of exit.. For En trade oa: the more info you share to more appealing, how B)Comm credit line: oblig to provide as long as firm satisfies pre-spec contains all details of oGering, incl nr of Shs oGered & oGer price. V:
= SINV / SPOST. Stock options pool: form of stock compens to attract& High X>CT FINV*X (1-FINV)*X L X>PT PT+FINV* (1-FINV)* Debt fin.ing. Debt is altern to equity. D = I * (1+r)T. default when X < D. much te learn via feedback. Types of fees: listing, success (% of funds restrictions (comp balance req, comm fee on unused credit and i on using PV of est future CF or est value by examining comparables. Road
Med PT<X<CT PT X-PT (X-PT) (X-PT) 3 imp distinctions. 1)Instalment (fixed term&payb) vs revolving credit raised), equity stake or carried interest (transac fee), ancillary borrowed amount, zero-balance stipulation). Loan origination fee: show: when firm’s senior mng and Unwrs travel around promoting firm
retain talent, though they incr total # of Shs which lowers the value.
SPOST = SPRE + SINV + SSOP, VPOST = P * SPOST, VPRE = P * (SPRE + SSOP), FPRE = SPRE Low X<CT X 0 S X<PT X 0 (draw money till ceiling). 2)Secured (collateral) vs unsecured credit services. Participants want less competiton on their side and more on borrower pays to initiate the loan. Compensating balance req: keep and expl their rationale for an oGer price to Unwrs’ largest customers,
/ SPOST, FINV = SINV / SPOST, FSOP = SSOP / SPOST. W/ SOP, nr of Shs are on fully Compensation &employm: after fin.ing founders become Em, (trust). 3)Person (pers borrow capacity when firm isn’t bankable yet) other side. ‘Winner takes all’: 1 platf will attract all activity. CF prop of principal in non-i-bearing account. Syndicated loan haf fees to mainly insititutional In (e.g. mutual / pension funds). Book building:
diluted base: all Shs are assumed to be converted into common stock. conseq: can be fired, non-compete laws, transfer IP to firm. Founder vs corporate credit (firm. Itself is given credit). Structure of debt campaign: selling process, choose what to oGer for funding, specificy embed options (drawdown or cancellation option). In.ment (-) process (by Unwrs) for coming up w/ oGer prices based on customers’
Capitalization table: overview of Owship, keeps track of: nr of Shs employm agreem to clarify rights&obligs. As Em they receive salary, contracts: maturity (bullet loan: pay at maturity, roll-over: credit is fundraising goal, choose target amount, def contractual terms; aGected by (-) credit supply shock, though indep of cause, eGect on expressions of interest. Pricing and managing risk. Spread: fee firms
owned, amount invested, F. Dilution = reduc of F when issuing new bonus, stock options. 2 princ for compens: pay as late as possible, renewed) , cost (interest&fees), collateral (liquid&tang, recourse loan: choose start, promote, influence In behaviour. P2P lending yields employ, export, sales, prof, eGects same across firm size and age.. pays to Unwrs, % issue price. When Unwrs provides firm commitm, it
Shs. VPOST(r) = I(r) / Fr(r), VPRE(r) = VPOST(r) – I(r), SPOST(r) = SPOST (R-1) + Sr(r), provide incentives for LT value creation. In reality, founders’ stock are lender can claim other A when value of collateral is insuG), covenants promised interest (if repaid). Equity CF has challgs: Owship dilution, Private eq: sim organized like VC, invest in eq of existi firms rather than is exposed to risk that it might have to sell Shs at less than oGer price,
I(r) = P(r) * S(r), VPOST(r) = P(r) * SPOST(r), VPRE(r) = P(r) * SPOST (r–1), Fi(r) = vested (earning compens gradually over time) via time vesting (earn (legal clauses to protect from misbehav & lowers risk). Debt weak control rights, exit problem. CF is used at early stages (firm not startups, buy eq and take it private (leveraged buyout).. Leveraged around 75% of IPO experience an incr in Sh price on first day, 9% a
Si(r) / SPOST(r), Fi(r) = Fi(r-1) * (1-Fr(r)). In returns: realized&exp returns. Shs after some time), perfor vesting (earn Shs after reaching a goal). covenants: - cov/ prohibitions (can ban some nego which incr risk of many track records), for small amounts. Three other early-stage In buyout. PE announces tender oGer for half of the Shs of target firm, it decr. Over-allotment alloc (green shoe provision): option allows
In typically risk averse (pay more for lower risk) though in En.ial fin: Em also receive stock options, come from option pool, as a form of In), aGirmative cov (encourage good behav and min risk), seniority is types (next to CF). 1)Accelerators and Incubators. Incub: linked to borrows the money and pledges Shs as collateral, when tender oGer Unwr to issue more stock, at IPO price. Unwrs initially market initial
risk is often extreme (most proj fail) and there is liq risk (selling Shs compens. 4 types of control rights: Sholds’ voting rights, board of key cov. NI debt vs equity. Modigliani &Miller: eq&debt cost the same policy instrum or uni, goal to support stups not make profit, provide succeeds the PE will control the firm, it only needs the loan if the bid allotment and allotm in green shoe provision. In Success, Unwr
takes time & maybe @ low price). In are not risk lovers but more risk direction, contractual rights, informal control. In liquidity (need to sell in abs of taxes, asym info, bankruptcy costs. Stiglitz: there exist space and services to get incubate new ideas to get ready for M, cost succeeds. PE attached the loan directly to target firm as the firm exercises green shoe option, thereby covering short position. When
tolerant (work towards reducing risk of firm). 3 measures of return. Shs at some point): redemption rights (after some time it can be moralh & adv sel for V. The cost dep on proj’s risk profile. Transact cost is low. Acc: more commercial, further evolved into training progs, borrows the money, so PE own Shs and target firm needs to repay the not success, Unwr covers short position by repurch green shoe allotm
Time value of money, FV(I) = I * (1+d)T. 1)NPV: main tool, though d bought back), tag-along right (if F sell, In can also), drag-along rights (if for debt cheaper, lenders (bank) don’t profit from high exit, their provide mentoring, small funding in exchange for eq (7%), corporate loan and PE receives Shs w/out paying for them. V1 = V0 + DV, E1 = V1 – in aftermarket, thereby support price. Lockup: restriction prevents
diGicult to find. NPV = (XINV / (1+d)T ) – I. 2)CCM: doesn’t account TvoM In sell, Sholds forced to as well), registr & piggy-back rights (rights to incentive is X > D, for Sholds X >>D. Banks lend money to safe firms, acc (e.g. Google), are Shallow-pocket (help you to grow but have no D, D = 50% or 100% * V0. Trends in cor borrowing: bank fin more for exisitng Sholds from selling their S for some periode (usually 180 days)
and In.ment risk. CCM = XINV/I. 3)IRR: most common though doesn’t be included in IPO). TS also includes: info rights, key man insurance predictable CF, stable earngs, liq A. Ens lend in early stage for informal recources for LT). 2)Tech Transfer Funds: manage IP protection, mature firms & in US, bond fin most imp, in US debt fin incr faster than after IPO.. Underpricing: generally Unwrs set issue price so that avg
takes into account the level of risk, d set for NPV=0. I * (1 + IRR)T = XINV. against losses, legal resolution, representations& warranties, nego. V: loans. Altern debt: personal debt, trade debt (soft supp& fast-paying provide small funding at seed. 3)Social impact venture In: target non- GDP & bank A, more oG balance sheet, loan/bond ratio incr. firms first-day return is (+), though 75% of first-day returns are (+) on avg
Compare measures: CCM = (1 + IRR)T. CCM does not vary w/ time, can be pointless when bad CF rights, nego is no 0-sum game (one wins buyers), discounts, leasing, venture debt (give loan w/ Sh option). prof ventures or vent w/ socially valuable dimensions, challg trade-oG borrow on bond M: large, transp, high credit qual. Bank credit: supply/ 18.3%. Unwrs benefit cuz it allows to manage risk. Pre-IPO Sholds
IRR does. IRR diG to compare w/ ≠ horizons, IRR of 41% on 6yr more what the other loses). Convertible notes: TSs are diG in seed stage btw profitability & social goals.. Fin mature firms. F = S1/S = nr of Shs bank driven. Borrowing cost, decr long time along w/ Rf LT i. bear cost of underpricing, sell stock for less than in afterM. IPO returns
worth than 2yr. NPV can compare projs w/ ≠ time to exit. Company- (low funding amount, beginning In, most likely outcome: firm fades Exit: repaying returns and not raising money, timing det by M conds one In / total nr of Shs outstanding. If you want to remain Owship in are attractive, but cannot be earned by all In. When IPO goes well,
level exit: CCM = X / VPOST, XENT = X * (1 – I/VPOST), VPOST = Xe / CCMe. Eco away). CN combat these, today you give money to start-up and will and planning. Types: IPO, acq, sale to fin buyer. >50% endup closing next round: F1 = (S1 + F2 * DS) / (S + DS) and F1 = F2. Mature firms: revenu Guest lecture: fin sources evolve over time. For banks: mitigates demand for stock > supply, the alloc of Shs for each In is rationed.
det.ants of V: opport, M context, deal competition, In qual. Founder later be converted in Shs. Conversion rate: 1%3 = (1 − 567) ∗ :45/ , down. Most exit are acq though IPO has higher value. To make exit dec, gr similar to gr rate of economy, margins are estab, maintain comp adv, credit risks, reduces adv sel & moralh; though V and monitoring is When not go well, D at issue price is weak, all initial order are filled
agreement: founder Sh Owship w/ external In and internally w/ team. Owship: ;%3 = 6(5 / :(5 = 6(5 /((1 − 567) ∗ :45/ ). Valuation cap to look at opp cost (alt use of funds&time), options: stay, quit, sell. Exit debt capacity, cash build up, primarily inorganic growth (acqui). Less costly. For demand: gives conf signal for future repayment and completely. The typical In will have their In.ment in “good” IPOs
They must nego internal split w/team: who cameup w/ idea & who do avoid paying for success: 1%3 = =>?{A (: , (1 − 567) ∗ :45/ }. downside (conti or close) upside (conti or sell). Timing dep on: pref of need for external funding, more debt. Some firms keep on gr.ing, improves loan terms (lower i, longer maturity, loan amounts), though rationed whil fully In.ing in “bad” IPO. Winner’s curse: situ in comp
we need now? FA has 5 issues: who r founders, salary& compens, New In considers notes: 1;3< = A8=: / (78=: + 7(5 ).. Structuring In&En, exp ab firm, ability to time M.. VCM: limited partner (put money others reach gr ceiling and remain small. SMEs in EU: acc for 99% pledged A are unavailable for other uses of future borrowing, risk of bidding when high bidder has very likely overest value of item being bid
obligations&rights, Owship alloc, contingencies of some founders deals: deals rely on hard elems (V, legal const, quan relationship) and in VC fund), general partner (manage VC fund), company (one of firms, employ 60%, gen 50% of value added; even more for BE. How losing A, costs A registration and transaction costs … Coll features. on. You win e.g. get all Shs you requested, when D for Shs by others is
obtaining (+) or (–) rights. Ways to split Owship: Egalitarian approach soft elems (relations, reputation, trust, future provision). They form startups in fund). Two phases (cycle): 1)In.ment phase: money from they create value: operational by creating more CF w/ current A, incr Legal req: A eligibility (not all A can be coll), Owship over A, low and IPO is more likely to perform poorly. Cyclicality: nr of issues
(req perception: all see Owship equally split), rewarding diGerntial imp buGer which go into eGect when contracts are insuG for eGecitve In to firm (Lp gives to fund, fund pays mng fee to VC firm (GP), fund gr of CF, incr length of high gr period; manage non-oper A; fin.ial w/ priority&seniority, enforceability (coll must legally be enforceable in is highly cyclical. In good times, M is flooded w/ new issues, otherwise
contrib (more realistic). Principles to adopt: backward & forward soluts. En get process started, In designs TS and V. Structuring in 5 invest in company). 2)Return phase: money from company to fund, reducing cost of fin by manage max of debt&eq. M&M proposition I: if case of default). Eco features: Coll value (measurable), A liqu, A nr of issues dries up. Cost of IPO: typical spread is 7% of issue price,
looking. NI: teams work better when their relative contribution will be steps. 1) Fundraising: req good prep (use VEM to make strong buss fund pays i to VC firm and rest goes to LP. LP: commit money directly you split a pizza, you have more pieces but no more pizza. M&M prop durability, A redeployability (reused). Coll type: real estate, phys though fee is large. There is lack of sensitivity of fees to issue size, by
rewarded, Sh alloc should motivate, not demotivate others. FAST tool case, build FPl, nego Sh split, prep to nego ab V), req appro pot In. or on behalf of others. 2 dec: A alloc (4types: stock, bond, comm, alt II: if you take money from you left pocket and put it in your right pocket, movable A, fin A (depo, securities, loans, equtiy). Fin A mostly used, charging lower fees they may signal the quality ≠ higher priced
(founder allocation of Shs tool).. V En.ial firms: important to decide Disclusure dilemma: you need to reveil your idea but are scared In As = VC, real estate), choice of building a portfolio of specific GPs. DiG you are no better oG. In perfect M, fin policies do not aGect firm value! then real estate. Coll value: most recent V, or max amount a creditor competitiors. Long-run underperf: shown by newly listed firms that
whether to invest, how much, and for En to know nego position. Is time will run away w/ your idea, arrow’s info paradox (you only pay when you to invest in GP as they collect money occas and VC m are illiquid, diG M&M’s theory. PV(projs) = PV (fin claims). Firm value = NPV (projs) + might seize against a loan at default. 'DEF>G>,@,A,0 = perform poorly over 3-5 yrs after IPO. Seasoned equity oaering
consuming and diG cuz of high degree of uncertain, lack of historical see the qual of idea, but that req it is discosed w/out you. Solution: to step out the fund. LP agreements (LPAs): contract against LPs not NPV (fin activities) = NPV (projs). Limits of M&M: if you can delay tax H'IJJ(GED(J KE(GLDEA + M:5@,>,0 + KN + O>,@,A,0 . Going forward. Coll (SEO): public firms oGer new Shs to raise equity. M price already
info, asymm info for In, incorrect accounting for intang A. 4 models of patents and Non-disclusure agreem (NDAs) to Sh info but forbid to Sh. knowing what GPs (asym info). Main det of size is past perf, GP comp payment, you can use the cash for in.ment purposes and suppliers plays sign role in all forms of debt fin though decl trend in secured exists. Primary Shs: new Shs, secondary Shs: sold by existing
V. 1)Venture capital model: popular and simple. VPOST = Xe / (1+!)T, An idea only has value when it contributes to prof, no value on its own. incentivizes larger fund size. Money is transferred to fund gradually by sometimes give trade credit of 0%, which are free loans. Goes against debt, firm’s debt cap is largely det.ed by going-concern value rather Sholders. Cash oGer: oGer new Shs to In at large, rights oGer: oGer to
VPRE=VPOST – I, FINV = I/VPOST, VPOST(r) = VPRE(r+1)/CCMre, CCMre =(1+ !)Tr(r+1) , (2)Screening: decide if In.ment is suitable for them. MATCH tool to LP (need to remain liquid), via capital calls. LPA Fund rules: M&M as they say the firm value dep on CFs and not on the way of than liq value of A. There is rise in IP/patents as coll. The use of data in existing Sholders, protect existing Shholders from underpricing. On
VPRE(r) = VPOST(r) – I(r), FINV(r) = I(r) / VPOST(r) w/ ! req rate of return, consist access fit btw In&En. 3)Syndication: when multiple In work together, boundaries to GP actions. Three areas: 1)In.ment restr: promise to fin.ing, and in these cases th fin.ing is valuable.. Capital structure in FinTech reduces need for coll to solve asym info probs, is a substitute. avg, M greets the news of an SEO w/ a price decline. Seasoned
of: Rf, risk/liq/failurerate/service prem. NI: idiosyncratic risk. Prob of is in 50-80% of the deals. Do this cuz will obtain 2nd opinions, spread invest in a specific strategy. 2)Mng rules: how returns are distr to LPs, imperfect M: capital structure can change future CF, fin.ing adds, Digital collateral relies on lockout tech, lender will temporarily disable oGerings are expensive, underwriting fees are 5% of proceeds of issue,
survivin until exit = (1-z)T, exp exit value = Xe(1-z)T, discounted risk, compl skills&networks, mutual service. More likely for later-stage include lim to recycling of fund profits. 3)Partner activity restr: restr reduces or changed cost&benefits. Gr firms usually pay less corporate the flow value of coll to the borrower w/out physically repossessing it. rights have lower costs than cash oGers.
incor) , adverse sel, moral h. Credit rationing: Adverse sel – model: less popular cuz of assum, uncert of En.ial ventures follower provide capital & on-demand expertise &networks. These firms). LPA GP comp. 2/20: mng fee is 2% of capital and carried equity fin more attractive for high-tax In (angels, eq CF In). Mature bondissuer and trust firm (intermediary, represent bondholders / Ins).
Stiglitz&Weiss (unknown risk type, risky vs safe proj, interest, max own (turnover&costs) makes it less appllicable, though being able to ignor deals tend to perform better. 4)Negotiation. NI bargaining theory, to interest is 20% of profits, to cover operating costs and still provide firms cannot easily avoid paying taxes, therefore prefer debt which is Corporate bond: pay coupon semi-annually (zero-coupon bonds also
profit), moralH –Holmstrom&Tirole (eGort vs collat, skin itg, leisure). 01. '('! ./!
understand what deal 2 parties would become. We need: each party’s incentives to max final fund value. Mng fee: for GP, cover operating cheaper and attr for low-tax In. Bankruptcy costs: when having to exist), principal amount is denominated in standard increments, face
debt makes it easier. "$%& !"# = ∑012 (*+,)" + (*+,)" + '()ℎ0 , TVT =
Eco conseq of fin const: Exp, inv, A/sales/empment gr, startup outside option (build over time by talking to other Ins), joint value, rule costs, create incentive to raise large funds, like fixed amount, paid much debt in bad times. Distress costs: money spend to avoid formal value not always = actual money raised cuz of underwritten fees or
FCFT*(1+g) / (d-g), d < !. 3)Comparable method: est V by comparing
formation. Studies: neg shock, cred prob, fin const, dep on banks, for splitting surplus. “Zone of Possible Arrangements” (ZOPA), set of quarterly. Carried interest: to align LP& GP incen, profits=exit bankruptcy, fear liq, supp&cust asking for better terms. These favour bonds issued at a discount. Bearer bonds: who physically holds the
to similar firms. Two appr: In.ment and exit comparable. 2 crucial
govern.. En.ial fin: young ≠small, inno, growth-orie, death is rule, avail deals which is better for both compared to outside option. In proceed-contr capital&mng fee. Hurdle rate is LP first get at least 8% eq over debt as cheaper fin tool. The tradeoa theory: too little debt certificate is owner, get coupon giving proof of Owship. Registered
choices: set comparable firms & comparison metrics. MjComp = XjComp /
gazelles, only few but big impact. 3 princ of En.ship: gather&recomb prefer downside protection (to min risk) and En low V (bar for succes of return before carry, of the rest GPs will get 20%. European waterfall: and firm pays too much corporate income tax and impose too high bonds: list of holders, almost all bonds this type. Unsecured debt:
PMjComp, MComp = Avg(MiComp), Xe = PMe * MComp. 4)Probabilistic
existing resources, uncertain envir, experimentation/ explor. NI: TFP is lower). Place in ZOPA depend on deal-specific conds. SV=JV–OOE– carry paid to GP when liquidated, American waterfall: at each exit personal taxes, too much debt and firms suGers in case of trouble. gives bondhols claim to only A of firm that are not pledged as coll in
approachs w/ model uncertainty: this incorporates the prob of ≠
(techn process to grow eco when labour&capital are fully employed) OOI , BEE=OOE+BSE*SV, BVI=OOI+BSI*SV; Surplus, Joint value, Outside event though then they need to pay back carry when fund is perf bad. Capital structure not only aGects tax benefits and bankruptcy costs, event of bankruptcy. Secured debt: mortgage bond (real property as
events. 3 approachs: scenario analysis (bad, middle and good scen &
drives eco growth. FIRE: fit (find&select each other), invest (needs of option, Bargaining value. 5)Deal closing: need to coord various activs: For large funds, mng fee > carry. Venture investing is not always but also incentives of owners and managers. Agency conflicts: debt coll) and A-backed bonds (secured w/ any A). Tranches: all classes of
their prob), simulation (very parameters random), PROFEX (computes
En&In, exp, M cond), ride (jointly grow, learn ab M&firm, governance, En takes initiative (though founders need to be on same line)& In scalable. GPs want to keep raising funds to get fees though the aGects CF and behav of managers. The probs often favour debt over securities are paid from same CF source. Covenants: clauses that
V for all rounds for diG exit outcomes: success, continuing, failure).
staged fin, milestones, option value of waiting), exit (when&how). contrib experience & balancing hand. Living w/ the deal: need to trust in.ment horizon is limited.. Venture capital firms: small and very equity: reduces free CF and thus urge of managers to build empires, limit issuer from undercutting ability to repay (e;g. dividends, maintain
FUEL ab In, fundamental stru (who), underlying motiv (wants), the other.. Corporate govern: set of acts w/ which In try to ensure to hierarchical, though lack in diversity btw partners, use unanimity reduces theft and improves verification, and reduces stakeholder min WC). Repayment: typically w/ coupon and principal, but also
LRD: brings ideas to M.Gemma Frisuis fund: fund for spinoGs. KUL is
expertise&networks, logic&style.. VEM: structured appr to evaluate receive return from their In.ment, to guide En and protect In’s In.ment. model, succession&pay are sources of internal tension. First round is holdup power for demanding all the surplus. Thoug debt can also repurchase fractions of outstanding bonds in M, tender oGer for the
innovation &technology transfer. KICK: prepares for changing labor M
the strengths of En.ial idea, how it will generate money, set up LT buss Three levels of control. 1)Voting rights: simple vs super maj, equal most diG: no track record, no cornerstone LP, no past perf. VC impost costs cuz of expropriate bondholders: managers can incr risk entire issue, exercise a call provision. Callable bonds: allows issuer
(awareness, learnbydoing, startup support).
plan to convince In. (cus, company, En)(value prop, indus, voting power, Sh class voting, dual-class Shs. 2)Board of directors: networks matter for relations, fundraising, supporting. VC In.ment in name of Sholds at expense of existing bondholders. Exproporation (firm) to buy back bonds at predetermined (call) price. Do this when i
strategy)(need, solution, team, M, competition, network, sales, make stratgic decisions (M, products, hire), members are nominated, strategy: defs how the VC should operate in every phase of In.ment remedies: allowing creditors to block projs or include conversion have fallen, then they can ref.ing the issue at lower rate. In has to
Agency conflict: En&In need to nego ab CF and who makes decisions.
production, organization) (value, scale, growth)(access, entry barrier, BoD is boss, monitor, coach and promotor. Have fiduciary duty: must cycle. Vc can raise funds w/ diG strategies, who have 3 dims. 1)Only features to all creditors to share the upside. Another form of reinvest the proceeds at a M rates < coupon rate they currently had,
In En.ial firms there is more uncertainty, so you maybe need to give
competencies). Used to identify strength and weakn of venture, put interests of Sholds first. Some In have observer role. Dual board certaint industries are venturable: you need dynamic progress (tech), exprioriation is when creditors lose if a firm takeson new debts of makes them less attractive therefore they trade at lower price (and
away control. NPVH > 0 > NPVL, NPVH = pHRb – A + pHRi – I – A, NPVL =
identify uncert, expose assump, def buss opport, what can be structure is a supervisory and mngm board. 3)Informal control, 3 intermediate level of capital, scalability. 2)Proximity is a hallmark of equal priority or earlier maturities, remedies are covenanted to have a higher yield). Yield < coupon: bond will be called. They can be
pLRb + B – A + pLRi – I – A. En’s incentive compability const: pHRb ≥
improved. Use VEM to structure BP: strat framework for guidance, types powers: power of the purse (staged fin gives subst power to In), VC in.ing: VC want contact w/ firm, though gr.ing trend of distand prevent higher senior debt equity payout. Underinvestment problem: called at par, price can be low when yield is high though does not rise
pLRb + B => Rb ≥ B / Dp. Pledgeable inc PI: Ri = R - Rb. Exp PI: P = pH (R
describes venture for outsiders, overlook opport&challenges. power of personality (comes from credibility&respect), power of in.ment. 3)Early vs late stage in.ing: early you’ve more time resources too high debt levels can prevent managers or owners of distressed above par value when yield is low. Yield and bond price are inverse
– Rb). Participation const: P ≥ I – A, P is highest = B / Dp. In a comp M:
persuasion (from experience & strenght of arguments). NI selection (In (supp), high risk; late is less involvement, less risk, lower returns. firms from In.ing in + NPV projs. Inside info, adverse selection: related. High yield, In anticipate they wont call so price is similar to
1)Fin projetion: nr ab exp perf, reflect on buss model/ plan/ En; P = I – A. Rb = R – (I – A) / pH ≥ B / Dp. In that follows: pHRb – A = pHR – I (En choosing better firms, make it look their invol.ment leads to success) Strategy configurations, 4 strg: local specialist (niche), global sp insiders know the proj will be great though sceptical outsiders only identical non-callable bond. Low yield, In think bond will be called so
IS+BS+CF, 4 sources of info. 2)Fin plan: (vision&goals, how much receives entire NPV) and A ≥ I – pH * (R – B /Dp) (if equa is true, En not vs threatment (In make firms better w/ mentoring& networks). How do (upon success), local generalists (active in multiple sectors), global want to buy equity at low price. Remedies: skin itg (managers invest price is close to price of non-callable bond that matures on the call
fin.ing needed, how fin attractive is firm, better nego position, tools to constrained). 1)Interim act: Raise success prob: p + + > p, +R < ,, -, In add value? Mentoring&coaching, advising, networking, pressuring. gen (only few top firms). Elems defining stragy: interaction w/firms, self) or verify private info. Pecking order: cuz of inside info and agency date. Yield of callable bond is under assump that bond will be called
look forward, change w/ ≠ stages (early vs later); MT/LT (growth) vs ST + B < B. For En: pHRb – A > (pH + +)Rb - , – A. For In: pHRi – I – A < (pH + +)Ri Where do In add value? Look 3rd row VEM: sales challge (In provides deal sorucing. Risk&return in VC, three levels of returns: company- costs, the order can be first debt then equity. Other perfect-M on the earliest call date. Convertibel bond: bond w/ option to convert
(cash&WCM). WC (avail liquidity) = Eq + LT liab – fixed A. WCR (needed – I – A. EICC: (pH + +)Rb – , – A ≥ (pL + +) Rb + B – , – A. PC: (pH + +) (R – strat advice, expertice on M), production challge (In provide support level returns (highly skewed, med<avg, freq failure), gross returns to violations: transact costs prevent optimal adjustm, limit fin.ing each bond owned into a fixed nr of Shs of common stock. Conversion
liq to finance dailty operations) = Invent + CustCred – SupCred. 3)Buss Rb) ≥ I – A. 2)Damage control: success prob incr when En shirks, no for identify suppliers, connections to service providers & regulators), VC fund (better quality fata though excl fees/carry, diG timing CF options, In seem to like divid. Why not best of both worlds and equity ratio: nr of Shs received upon conversion, usually stated per $1000 of
plan. Gr mng: growing req In.ment in fixed A/ Infras. Gr aGects Invent, eGort, -Rb > ,. H = H+DC = pH, L = pL, L+DC = pL+-. En has control: pHRb organization challge (support startup, pressure to craft corp culture, makes diG to compare), net returns to LPs. Challgs: data avail.y.. Early when close to distress otherwise debt? DiG to issue equity or buy back face value. Conversion price: face value of convertibel bond / nr of
CustCred, SupCred. DSales>DWCR. Build FPr. S1)Def time line: ≥ (pL + -)Rb + B – ,. In has control: pHRb – , ≥ (pL + -)Rb + B – ,. Modelling perf benchm). In help w/ exit challge. Replace underperf managers stage in, think ab FUEL. FFF: founders (provide 1st In.ment using pers debt when in trouble, and conflict among interest groups. Shs received if bond is converted. High-yield firms issue callable bond
identify milestones and reflect them in GanttChart (visual timeline w/ contingent control rights: control transferred, w/ damage control. /H (founders are often not good managers, don‘t have skills). debt), family&friends (complement founders’ cornerstone In.ment). and exercise option: traditioncost saving when i declines, eGort to
and L eGort/ interim act: / HH = / HL = pH, / LL = pL, / LH = pL + +. A) In full Found invest cuz no other option, and In demand skin itg. Fam&fre Banks: allocat capital, provide access to payment system. Funcs: reduce rollover risk (exposure to sudden stops). Moneyness measure:
MS), def time horizon, set level of account details, set time intervals
across horizons. S2)Est revenues. Rev = P * Q. Def unit, est P and Q. control. EICC: /HHRb – , ≥ /LHRb + B – ,. PC: (pH + +)R - /HHRb ≥ I – A. B) Staged financing. Fin.ing growth: most startup only do 1 fin round invest for pers&soc reasons. Expertise&netw are limited. Angel Ins: liquidity & paym service, A and maturity transformation (ST debt -> LT diG between strike and spot price.
Top-down rev proj: D-side, 2nd data; steps: size target M, En full control. EICC: /HHRb ≥ /LHRb + B. PC: pHR – /HHRb ≥ I – A. cuz fail to develop. Those survive typ raise add rounds. En: staging red individual who invest own money in startup, savers (middel-high loans), risk mng, reduct info asym. Drivers profitability: real GDP gr
segmentation, determine M Sh; works for well-def targM. Bottom-up C)Control transf: to In when low eGort. EICC: /HHRb - /HL , ≥ /HLRB + B funding&dilution cost. In: creates option to wait incr control (power of income) & former En. Angel networks: indiv who invest indep. Angel (+), non-perf loans (-), cost-to-income ratio, business model, M Guest lecture: rising i and material shortages reshape In.ment
rp: S-side, firm data; works for very large or new M, requires to est a – /LL ,. PC: (pH + /HL +)R – /HHRb ≥ I – A. Exp PI w/ conditional (PC in C) > purse). NI Dynamic games: renego takes place along way, after funds: vehicle whose participants collect capital & invest jointly. concentration, ST rates, yield curve. ROE US > EA, ROE + in EA. dynamic. ESG is incr.gly seen as a lever for value creation and
realistic gr rate. Estimated M Sh (S) = bottom-up cap (C) / top-down In control (PC in A), we found , > +R when you know Rb ≥ B/(/HH-/LH) – interact&infl. Time inconsistent acts: In first only refinance successful In.ment amount vary, typ small amount, equal to early-st VC. Motivat Banking trends EU: # credit instit decr, # empls in cred inst decr, smoother exits. PE is for M-LT In.ment in unlisted firms, aim to create
M size (M). (5 small, 25 normal, 50 aggres, 100 imposs). S3)Est costs: ,.. TS: overview of imp conditions of In.ment deal btw startup&In, firms, end-up rein.ing all + NPV projs. Deal structuring w/ staged to learn ab new opp & pool expert & knowledge. Invest in wide variation households most deposits; Ger, Fra, Ita. Banking BE: 4 big account fo value through active Owship. Has LP and GP. LBO: acq financed w/ eq
COGS (prod&deliv, measured w/ bottom-up or top-down), OPEX (are precontract to put exps of In&En on one line. TS functs: distribute financing: raising capital by issuing Shs leads to dilution. Tranching: of expert&netw, early-stage firms, idiosyncratic if individual and 67% though only 19,8% has BE maj Sholds; act are retail&priv banking, and debt. Cases Bencis’s portfolio: Xeikon and Abriso, ab how PE
indirectly related to prod&deliv, irrespective of # sold), CAPEX (cost of right&obligation&reward, shape incentives, clarify exps, distributes altern of staging, consists of total amount (div into tranches)& Sh structured if group, wide variation in involvement, simple securities corporate fin, payment service. Use of leasing anf fin M has incr. Types create value w/ buy-and-build strategie, operat restructuring, internat
LT As), Devel costs (cost for creating new product), nOPEX (deprec, risk, specify rights& duties. TS content: CF rights, control rights, price, 2nd tranche relased on MS. Staging req nego, tranching is largely and few control rights. Corporate/ strategic In: invest on behalf of of commercial credit: A-based loans (A as collateral), CF loans (trus expension, strategic repositioning. Showed how Bencis helped firms
amort, interest, revalu). S4)Build fin model: A)IS (prof&loss) gross comp&employm, other rights. TS uses contingent contracting (set autom. Insider&outsider: Ins rounds have knowledge but lim contrib, estab incumbents, knows as Corporate venture capital, often tech on CF and cred, collateral lower liq), trade fin (to fin trade flows like grow EBITDA & scale geogr.illy while preparing for high-value exits.
margin = Rev – COGS, EBITDA = grossmargin – OPEX, NetInc = EBITDA conds as contract is never complete) & MS (fin, oper, managerial, Out have expertise. Determs of Ins vs Outs round: depth of In pockets, firms w/ many Ins who can invest large sums. NI Coase: low transact exp&imp), leases (A collateral, Owship & use is separated). Most used
– ITDA. B)BS: As&liabilities. C)CF: operating, investing, financing act. technical). TS eco functions: def perf targets, align exps of En&In, exp&netw, signaling eG. Retention rate: how much have Ins left of Sh costs use M and when high use organiz authority. NI Hayek: w/out is CF, least is leasing. Types of credit on bank’s balance: transact Public equity Ms: private In get ability to diversify, and better access
FM can help to assess a venture’s pot fin up- and downside, by provide focal point for renego (contracts are dynamic), facilitates nego after new round, est RoR and future dilution, post-deal Owship / pre- price info we make poor dec, M make use of this. NI Williamson: if 2 loans (for spec purpose, collateral is purchaised A, paid from A use), to capital. Though eq holders become more spread which makes it
benchmark to competitors and interpreting NWC. NWC = cash, ab V. NI: contracts are incomp as future events are diG to predict, this deal Owship. TS. Seniority incr by round, or pari passu (eq prior). Anti- A are complem you should integrate them into firm to combate hold- working capital loans (day-to-day transact, ST, secured by inventory or more diG to monitor mng, and firm must satisfy many req.
invent, accounts receivables (CA) – accounts payables (CL). Startups highlights imp of renego. CF rights: who gets what amount of CF at dilution clauses: protect to pay too high Sh price, a rule to adj past up prob. Corporate In: motivated by strategic rather than fin gains. acc receivables), term loans (3-10 yr, to buy capital-intense fix A, repay Underwriter: In.ment banking firm that manages security issuance.
first need to focus on + cash balances, then on becoming profitable exit, In.ments must be protected at failure and motivated at success. round price. Full ratchet protection: re price first round or weighted- w/ CF the A generates), combi of above. Oa-balance sheet Primary oaering: new Shs available in public oGering that raises new
(NInc). CF = NetInc – DNWC – CAPEX + Deprec, > 0 and ≠ NI. CF is the Therefore, In get convertible instead of com stocks, give option to avg prot: P1WA=P1$(Sbase+I2/P1)/(Sbase+I2/P2). Prot Owship of In: pre- Early stage In (cont). FinTech: tech innovs that replace/ challg role of commitment: agreed i, maturity, use of fund; banks get fee for capital. Secondary oaering: Shs sold by existing Sholders. Best-
real cahs moving in&out. Testing FPr: test realism assum: scenario choose fixed payback at failure & option to convert to com stock at emption rights (buy new Shs up to pro rate) & Right of first refusal (buy fin interm, operate at border of regul. Crowdfunding: form of FinTech, commitm, contract is A when cust actually records it. Loan agreem: eaort basis: for small IPOs, the Unwr doesn’t guarantee stock will be
(alt set of assum) & sensitivity analysis (which assum are crucial). success. Preferred terms (fixed payb), PT = I + DIV = I + I * D * T. Shs on terms oGered by 3rd party. Fin diaic situs. Struct.ing down online platform where En look for people to invest small amounts, principal, maturity, pricing formula, conditions precedent (condition sold, often all-or-none clause (all Shs sold or deal called oG). Firm
Simplify model to make FPl more manageable. S5)Formulate FPl: 1)Convertible preferred (tab1): You should convert when FINV * X > PT. round is diGic: keep founders motivated, find Out In despite – signal. matching platf for In&En to connect, therefore thickness is needed. for borrower before banks pay out the loan), warranties, covenants commitm: agreem btw Unwr & issuing firm, Unwr gurantees to sell all
how fin attractive is venture and what fin resources needed? Pitch FPl Conversion threshold (min X): CT = PT / FINV. 2)Multiple liquidation Can lead to turnaround / washout: firm has no gr though valuable A, Dia types of platf: 1)Rewards& donations: En do this to test M (borrower agreems). Credit analysis, 5C: legal&eco CAPACITY to stock at oGer price. Auction IPO: selling new issues directly to public
can take ≠ forms, covers: underlying assump, rev, costs, profitability, preference: In demand In.ment payed back multiple times. PT = M * I restart the proj will drop value and have dilution. 4 decs of In during interest & create hype; no contract/ payback/funding, not to gain fin borrow, reputation and desire to pay CHARACTER, own CAPITAL to rather than setting a price and then allocating Shs to buyer, Unwr takes
funding needs&CF analysis. NI: behav bias in fast thinking. In fall in + DIV, CTM = (M * I + DIV) / FINV > CT. In holds preferred payb for longer staged fin proc. 1)Timing 1st in.ment: dep on fin resources, expertise, reward. 2)Lending platf: open to public to give out loans, diG for resolve priv info, COLLATERAL resolves priv info and moralh and bids from In and set price. The mechanisc of IPO. Lead Unwr:
trap when choosing ventures, framing info may det ventures chosen, period, En need to wait longer for money. 3)Participating preaered ability value firm, risk att. 2)Whether to re-invest: dep on portfolio startup to access cuz of lack of verifiable info so more used by SMEs. reduces bank risk, eco COND aGect ability to repay. ST fin types: primary In.ment bank responsible for managing a security issuance.
sunk cost fallacy, En over-optimism.. Owship&returns: det Owship (tab2): combine liqui pref (payback) & add part of eq. CFINV = PT + (X – strategy, confidence in venture pot, interest in sharing Owship; never Size of loan is lim, although low interest rate, transac fee can incr total 1)Promissory note: statement indicating amount, date paym, i. Syndicate: Unwrs jointly underwrite & distribute a security issuance.
stake & V firm are crucial. V is imp cuz it det % firm’s eq the In receives PT) * FINV. 4)Part pref w/ Cap: after XCAP Sh of In stops incr, keep r-i, typically r-i, opp-driven-r-i. 3)Who to co-invest w/. 4)How to cost. 3)Equity platf: this has slow developm cuz of regulatory 2)End-of-period paym loan: pay back i (fix or var) and prinipla at end In US SEC filings: registration statement (provide fin info ab firm to In
for the In.ment, allows to est the RoI. Valuation = In.ment / Owship. motivation En w/ high exits. Use: maint incens for founds to get reward structure staging to achieve good exit. 4 decs of En. 1)Which In to problems (=experimenting & changes continu), though big amount of all at once. 3)Line of credit: can lend any amount upt to a stated max, prior to security issuance), preliminary prospectus (prior to IPO,
Post-money V = Pre-money V + In.ment. VPOST = I / FINV = VPRE + I, SPOST = for succes, screenout weak proj, align In&En exp choose. 2) How much money to raise&when. 3) What V profile to build: options for In, eas of closign transac, En can reach In in cost-eG way. 2 types. A)Uncomm credit line: bank not legally bind to provide fund. circulated to Ins before stock is oGered), final prospectus (prior IPO,
SPRE + SINV, I = P * SINV, VPOST = P * SPOST, VPRE = P * SPRE, FPRE = SPRE / SPOST, FINV ExitV Cond CFINV CFEN ExitV Cond CFINV CFEN high V but needs to rise over time to give + sight. 4)What kind of exit.. For En trade oa: the more info you share to more appealing, how B)Comm credit line: oblig to provide as long as firm satisfies pre-spec contains all details of oGering, incl nr of Shs oGered & oGer price. V:
= SINV / SPOST. Stock options pool: form of stock compens to attract& High X>CT FINV*X (1-FINV)*X L X>PT PT+FINV* (1-FINV)* Debt fin.ing. Debt is altern to equity. D = I * (1+r)T. default when X < D. much te learn via feedback. Types of fees: listing, success (% of funds restrictions (comp balance req, comm fee on unused credit and i on using PV of est future CF or est value by examining comparables. Road
Med PT<X<CT PT X-PT (X-PT) (X-PT) 3 imp distinctions. 1)Instalment (fixed term&payb) vs revolving credit raised), equity stake or carried interest (transac fee), ancillary borrowed amount, zero-balance stipulation). Loan origination fee: show: when firm’s senior mng and Unwrs travel around promoting firm
retain talent, though they incr total # of Shs which lowers the value.
SPOST = SPRE + SINV + SSOP, VPOST = P * SPOST, VPRE = P * (SPRE + SSOP), FPRE = SPRE Low X<CT X 0 S X<PT X 0 (draw money till ceiling). 2)Secured (collateral) vs unsecured credit services. Participants want less competiton on their side and more on borrower pays to initiate the loan. Compensating balance req: keep and expl their rationale for an oGer price to Unwrs’ largest customers,
/ SPOST, FINV = SINV / SPOST, FSOP = SSOP / SPOST. W/ SOP, nr of Shs are on fully Compensation &employm: after fin.ing founders become Em, (trust). 3)Person (pers borrow capacity when firm isn’t bankable yet) other side. ‘Winner takes all’: 1 platf will attract all activity. CF prop of principal in non-i-bearing account. Syndicated loan haf fees to mainly insititutional In (e.g. mutual / pension funds). Book building:
diluted base: all Shs are assumed to be converted into common stock. conseq: can be fired, non-compete laws, transfer IP to firm. Founder vs corporate credit (firm. Itself is given credit). Structure of debt campaign: selling process, choose what to oGer for funding, specificy embed options (drawdown or cancellation option). In.ment (-) process (by Unwrs) for coming up w/ oGer prices based on customers’
Capitalization table: overview of Owship, keeps track of: nr of Shs employm agreem to clarify rights&obligs. As Em they receive salary, contracts: maturity (bullet loan: pay at maturity, roll-over: credit is fundraising goal, choose target amount, def contractual terms; aGected by (-) credit supply shock, though indep of cause, eGect on expressions of interest. Pricing and managing risk. Spread: fee firms
owned, amount invested, F. Dilution = reduc of F when issuing new bonus, stock options. 2 princ for compens: pay as late as possible, renewed) , cost (interest&fees), collateral (liquid&tang, recourse loan: choose start, promote, influence In behaviour. P2P lending yields employ, export, sales, prof, eGects same across firm size and age.. pays to Unwrs, % issue price. When Unwrs provides firm commitm, it
Shs. VPOST(r) = I(r) / Fr(r), VPRE(r) = VPOST(r) – I(r), SPOST(r) = SPOST (R-1) + Sr(r), provide incentives for LT value creation. In reality, founders’ stock are lender can claim other A when value of collateral is insuG), covenants promised interest (if repaid). Equity CF has challgs: Owship dilution, Private eq: sim organized like VC, invest in eq of existi firms rather than is exposed to risk that it might have to sell Shs at less than oGer price,
I(r) = P(r) * S(r), VPOST(r) = P(r) * SPOST(r), VPRE(r) = P(r) * SPOST (r–1), Fi(r) = vested (earning compens gradually over time) via time vesting (earn (legal clauses to protect from misbehav & lowers risk). Debt weak control rights, exit problem. CF is used at early stages (firm not startups, buy eq and take it private (leveraged buyout).. Leveraged around 75% of IPO experience an incr in Sh price on first day, 9% a
Si(r) / SPOST(r), Fi(r) = Fi(r-1) * (1-Fr(r)). In returns: realized&exp returns. Shs after some time), perfor vesting (earn Shs after reaching a goal). covenants: - cov/ prohibitions (can ban some nego which incr risk of many track records), for small amounts. Three other early-stage In buyout. PE announces tender oGer for half of the Shs of target firm, it decr. Over-allotment alloc (green shoe provision): option allows
In typically risk averse (pay more for lower risk) though in En.ial fin: Em also receive stock options, come from option pool, as a form of In), aGirmative cov (encourage good behav and min risk), seniority is types (next to CF). 1)Accelerators and Incubators. Incub: linked to borrows the money and pledges Shs as collateral, when tender oGer Unwr to issue more stock, at IPO price. Unwrs initially market initial
risk is often extreme (most proj fail) and there is liq risk (selling Shs compens. 4 types of control rights: Sholds’ voting rights, board of key cov. NI debt vs equity. Modigliani &Miller: eq&debt cost the same policy instrum or uni, goal to support stups not make profit, provide succeeds the PE will control the firm, it only needs the loan if the bid allotment and allotm in green shoe provision. In Success, Unwr
takes time & maybe @ low price). In are not risk lovers but more risk direction, contractual rights, informal control. In liquidity (need to sell in abs of taxes, asym info, bankruptcy costs. Stiglitz: there exist space and services to get incubate new ideas to get ready for M, cost succeeds. PE attached the loan directly to target firm as the firm exercises green shoe option, thereby covering short position. When
tolerant (work towards reducing risk of firm). 3 measures of return. Shs at some point): redemption rights (after some time it can be moralh & adv sel for V. The cost dep on proj’s risk profile. Transact cost is low. Acc: more commercial, further evolved into training progs, borrows the money, so PE own Shs and target firm needs to repay the not success, Unwr covers short position by repurch green shoe allotm
Time value of money, FV(I) = I * (1+d)T. 1)NPV: main tool, though d bought back), tag-along right (if F sell, In can also), drag-along rights (if for debt cheaper, lenders (bank) don’t profit from high exit, their provide mentoring, small funding in exchange for eq (7%), corporate loan and PE receives Shs w/out paying for them. V1 = V0 + DV, E1 = V1 – in aftermarket, thereby support price. Lockup: restriction prevents
diGicult to find. NPV = (XINV / (1+d)T ) – I. 2)CCM: doesn’t account TvoM In sell, Sholds forced to as well), registr & piggy-back rights (rights to incentive is X > D, for Sholds X >>D. Banks lend money to safe firms, acc (e.g. Google), are Shallow-pocket (help you to grow but have no D, D = 50% or 100% * V0. Trends in cor borrowing: bank fin more for exisitng Sholds from selling their S for some periode (usually 180 days)
and In.ment risk. CCM = XINV/I. 3)IRR: most common though doesn’t be included in IPO). TS also includes: info rights, key man insurance predictable CF, stable earngs, liq A. Ens lend in early stage for informal recources for LT). 2)Tech Transfer Funds: manage IP protection, mature firms & in US, bond fin most imp, in US debt fin incr faster than after IPO.. Underpricing: generally Unwrs set issue price so that avg
takes into account the level of risk, d set for NPV=0. I * (1 + IRR)T = XINV. against losses, legal resolution, representations& warranties, nego. V: loans. Altern debt: personal debt, trade debt (soft supp& fast-paying provide small funding at seed. 3)Social impact venture In: target non- GDP & bank A, more oG balance sheet, loan/bond ratio incr. firms first-day return is (+), though 75% of first-day returns are (+) on avg
Compare measures: CCM = (1 + IRR)T. CCM does not vary w/ time, can be pointless when bad CF rights, nego is no 0-sum game (one wins buyers), discounts, leasing, venture debt (give loan w/ Sh option). prof ventures or vent w/ socially valuable dimensions, challg trade-oG borrow on bond M: large, transp, high credit qual. Bank credit: supply/ 18.3%. Unwrs benefit cuz it allows to manage risk. Pre-IPO Sholds
IRR does. IRR diG to compare w/ ≠ horizons, IRR of 41% on 6yr more what the other loses). Convertible notes: TSs are diG in seed stage btw profitability & social goals.. Fin mature firms. F = S1/S = nr of Shs bank driven. Borrowing cost, decr long time along w/ Rf LT i. bear cost of underpricing, sell stock for less than in afterM. IPO returns
worth than 2yr. NPV can compare projs w/ ≠ time to exit. Company- (low funding amount, beginning In, most likely outcome: firm fades Exit: repaying returns and not raising money, timing det by M conds one In / total nr of Shs outstanding. If you want to remain Owship in are attractive, but cannot be earned by all In. When IPO goes well,
level exit: CCM = X / VPOST, XENT = X * (1 – I/VPOST), VPOST = Xe / CCMe. Eco away). CN combat these, today you give money to start-up and will and planning. Types: IPO, acq, sale to fin buyer. >50% endup closing next round: F1 = (S1 + F2 * DS) / (S + DS) and F1 = F2. Mature firms: revenu Guest lecture: fin sources evolve over time. For banks: mitigates demand for stock > supply, the alloc of Shs for each In is rationed.
det.ants of V: opport, M context, deal competition, In qual. Founder later be converted in Shs. Conversion rate: 1%3 = (1 − 567) ∗ :45/ , down. Most exit are acq though IPO has higher value. To make exit dec, gr similar to gr rate of economy, margins are estab, maintain comp adv, credit risks, reduces adv sel & moralh; though V and monitoring is When not go well, D at issue price is weak, all initial order are filled
agreement: founder Sh Owship w/ external In and internally w/ team. Owship: ;%3 = 6(5 / :(5 = 6(5 /((1 − 567) ∗ :45/ ). Valuation cap to look at opp cost (alt use of funds&time), options: stay, quit, sell. Exit debt capacity, cash build up, primarily inorganic growth (acqui). Less costly. For demand: gives conf signal for future repayment and completely. The typical In will have their In.ment in “good” IPOs
They must nego internal split w/team: who cameup w/ idea & who do avoid paying for success: 1%3 = =>?{A (: , (1 − 567) ∗ :45/ }. downside (conti or close) upside (conti or sell). Timing dep on: pref of need for external funding, more debt. Some firms keep on gr.ing, improves loan terms (lower i, longer maturity, loan amounts), though rationed whil fully In.ing in “bad” IPO. Winner’s curse: situ in comp
we need now? FA has 5 issues: who r founders, salary& compens, New In considers notes: 1;3< = A8=: / (78=: + 7(5 ).. Structuring In&En, exp ab firm, ability to time M.. VCM: limited partner (put money others reach gr ceiling and remain small. SMEs in EU: acc for 99% pledged A are unavailable for other uses of future borrowing, risk of bidding when high bidder has very likely overest value of item being bid
obligations&rights, Owship alloc, contingencies of some founders deals: deals rely on hard elems (V, legal const, quan relationship) and in VC fund), general partner (manage VC fund), company (one of firms, employ 60%, gen 50% of value added; even more for BE. How losing A, costs A registration and transaction costs … Coll features. on. You win e.g. get all Shs you requested, when D for Shs by others is
obtaining (+) or (–) rights. Ways to split Owship: Egalitarian approach soft elems (relations, reputation, trust, future provision). They form startups in fund). Two phases (cycle): 1)In.ment phase: money from they create value: operational by creating more CF w/ current A, incr Legal req: A eligibility (not all A can be coll), Owship over A, low and IPO is more likely to perform poorly. Cyclicality: nr of issues
(req perception: all see Owship equally split), rewarding diGerntial imp buGer which go into eGect when contracts are insuG for eGecitve In to firm (Lp gives to fund, fund pays mng fee to VC firm (GP), fund gr of CF, incr length of high gr period; manage non-oper A; fin.ial w/ priority&seniority, enforceability (coll must legally be enforceable in is highly cyclical. In good times, M is flooded w/ new issues, otherwise
contrib (more realistic). Principles to adopt: backward & forward soluts. En get process started, In designs TS and V. Structuring in 5 invest in company). 2)Return phase: money from company to fund, reducing cost of fin by manage max of debt&eq. M&M proposition I: if case of default). Eco features: Coll value (measurable), A liqu, A nr of issues dries up. Cost of IPO: typical spread is 7% of issue price,
looking. NI: teams work better when their relative contribution will be steps. 1) Fundraising: req good prep (use VEM to make strong buss fund pays i to VC firm and rest goes to LP. LP: commit money directly you split a pizza, you have more pieces but no more pizza. M&M prop durability, A redeployability (reused). Coll type: real estate, phys though fee is large. There is lack of sensitivity of fees to issue size, by
rewarded, Sh alloc should motivate, not demotivate others. FAST tool case, build FPl, nego Sh split, prep to nego ab V), req appro pot In. or on behalf of others. 2 dec: A alloc (4types: stock, bond, comm, alt II: if you take money from you left pocket and put it in your right pocket, movable A, fin A (depo, securities, loans, equtiy). Fin A mostly used, charging lower fees they may signal the quality ≠ higher priced
(founder allocation of Shs tool).. V En.ial firms: important to decide Disclusure dilemma: you need to reveil your idea but are scared In As = VC, real estate), choice of building a portfolio of specific GPs. DiG you are no better oG. In perfect M, fin policies do not aGect firm value! then real estate. Coll value: most recent V, or max amount a creditor competitiors. Long-run underperf: shown by newly listed firms that
whether to invest, how much, and for En to know nego position. Is time will run away w/ your idea, arrow’s info paradox (you only pay when you to invest in GP as they collect money occas and VC m are illiquid, diG M&M’s theory. PV(projs) = PV (fin claims). Firm value = NPV (projs) + might seize against a loan at default. 'DEF>G>,@,A,0 = perform poorly over 3-5 yrs after IPO. Seasoned equity oaering
consuming and diG cuz of high degree of uncertain, lack of historical see the qual of idea, but that req it is discosed w/out you. Solution: to step out the fund. LP agreements (LPAs): contract against LPs not NPV (fin activities) = NPV (projs). Limits of M&M: if you can delay tax H'IJJ(GED(J KE(GLDEA + M:5@,>,0 + KN + O>,@,A,0 . Going forward. Coll (SEO): public firms oGer new Shs to raise equity. M price already
info, asymm info for In, incorrect accounting for intang A. 4 models of patents and Non-disclusure agreem (NDAs) to Sh info but forbid to Sh. knowing what GPs (asym info). Main det of size is past perf, GP comp payment, you can use the cash for in.ment purposes and suppliers plays sign role in all forms of debt fin though decl trend in secured exists. Primary Shs: new Shs, secondary Shs: sold by existing
V. 1)Venture capital model: popular and simple. VPOST = Xe / (1+!)T, An idea only has value when it contributes to prof, no value on its own. incentivizes larger fund size. Money is transferred to fund gradually by sometimes give trade credit of 0%, which are free loans. Goes against debt, firm’s debt cap is largely det.ed by going-concern value rather Sholders. Cash oGer: oGer new Shs to In at large, rights oGer: oGer to
VPRE=VPOST – I, FINV = I/VPOST, VPOST(r) = VPRE(r+1)/CCMre, CCMre =(1+ !)Tr(r+1) , (2)Screening: decide if In.ment is suitable for them. MATCH tool to LP (need to remain liquid), via capital calls. LPA Fund rules: M&M as they say the firm value dep on CFs and not on the way of than liq value of A. There is rise in IP/patents as coll. The use of data in existing Sholders, protect existing Shholders from underpricing. On
VPRE(r) = VPOST(r) – I(r), FINV(r) = I(r) / VPOST(r) w/ ! req rate of return, consist access fit btw In&En. 3)Syndication: when multiple In work together, boundaries to GP actions. Three areas: 1)In.ment restr: promise to fin.ing, and in these cases th fin.ing is valuable.. Capital structure in FinTech reduces need for coll to solve asym info probs, is a substitute. avg, M greets the news of an SEO w/ a price decline. Seasoned
of: Rf, risk/liq/failurerate/service prem. NI: idiosyncratic risk. Prob of is in 50-80% of the deals. Do this cuz will obtain 2nd opinions, spread invest in a specific strategy. 2)Mng rules: how returns are distr to LPs, imperfect M: capital structure can change future CF, fin.ing adds, Digital collateral relies on lockout tech, lender will temporarily disable oGerings are expensive, underwriting fees are 5% of proceeds of issue,
survivin until exit = (1-z)T, exp exit value = Xe(1-z)T, discounted risk, compl skills&networks, mutual service. More likely for later-stage include lim to recycling of fund profits. 3)Partner activity restr: restr reduces or changed cost&benefits. Gr firms usually pay less corporate the flow value of coll to the borrower w/out physically repossessing it. rights have lower costs than cash oGers.
