Ch. 10 - Raising Capital Flashcards
What are the sources of equity funds for startups?
- Angel investors
- Venture capital firms
What are the sources of equity funds for growing companies?
- Institutional investors
- Corporate investors
- Private equity
Angel investors
Individuals who buy equity in small private companies. They do not expect their money back. Includes family and friends
Venture capital firms
Firms that specialize in raising money to invest in private equity of potentially high-growth young firms. In return, they will often demand a lot of influence or control over the company
Institutional investors
Pension funds, insurance companies, endowment funds, mutual funds, foundations, sovereign funds, …
Corporate investors
Investors who invest to pursue strategic objectives or for investment returns
Private equity
Large private groups that pool their money together. They may be looking for unlisted investments in areas where they have expertise
What are the advantages of keeping a firm private?
- Maintain control of firm
- Keep profits
- Lower compliance costs
What are the advantages of making a firm public?
- Can raise more capital with less effort
- Provides an easier exit for shareholders
- Visibility of company valuation in the market (share prices)
- Forthcoming IPO is an incentive for employees
Pre-money valuation
The theoretical valuation of a company before new funds are received
Post-money valuation
The valuation of a company after new funds are received
