Capital Markets - Private Equity and short selling Flashcards
1
Q
What is private equity?
A
- Owners invest their own money in a firm
- Business is privately held
- Owners cannot sell shares to public
2
Q
Financing by VC firms
A
- VC receives money from investors
- Investors cannot withdraw their money
- Purchases stake in private company
- VC funds investments for company
- Examples are Apple and Microsoft
3
Q
How to attract VC
A
- Venture capital conferences
- Allow firms and VC’s to interact
- Business proposal about project and returns
- VC identifies proposal with most potential
4
Q
Terms of VC deal
A
- VC negotiates how much to invest
- Common amounts include $5-10m
- VC requires progress reports
- VC managers advice business
- Can act as directors
5
Q
Exit Strategy of VC
A
- VC exits within 4-7 years
- Sells equity stake to public
- Sell shares to public
- Cash out through M&A
- Acquirer buys VC shares
6
Q
Performance of VC funds
A
- When stock price low, VC invest more wisely
- When stock price high, VC can over invest
- Influenced by amount VC receives from investors
- Influenced by economic conditions
7
Q
Financing by Private Equity
A
- Receive funds from investors
- I.e, insurance firms
- Invest funds in businesses
- Can purchase entire company
- Full control of management
8
Q
Use of Financial Leverage by Private Equity
A
- Rely heavily on borrowing
- Can purchase larger firms
- Obtain higher returns
- More active than VC’s
9
Q
Exit Strategy of Private Equity
A
- Sell stake to the public
- Sell ownership to new investors
- Sell business to another firm
10
Q
Performance of Private Equity
A
- Can sell stake at high prices
- When stock price low, invest wisely
- When stock price high, vulnerable to large losses
- Prone to bad investments
11
Q
Financing by Crowdfunding
A
- Raise funds through internet
- Easy for small investors to invest
- Information about firm or project provided on internet
- Investors choose project of their choice
