Chapter 1 - Introduction to PE and VC Flashcards
Which players are willing to provide financing to a company in the Development Phase?
The founder, family and friends, business angels and venture capital investors
Which players are willing to provide financing to a company in the Startup Phase?
Family and friends, business angels and venture capital investors
Which players are willing to provide financing to a company in the Early Growth Phase?
Venture capital investors and banks
Which players are willing to provide financing to a company in the Expansion Phase?
Private equity investors, banks and trade credit
Which players are willing to provide financing to a company in the Mature Age?
IPO, banks and private equity investors
Which players are willing to provide financing to a company in the Decline Phase?
Family and friends, founder and private equity investors
What are the different types of financing that a PE investor can give to a company?
Seed financing, startup financing, early growth financing, expansion financing, replacement financing and vulture financing
Why is the risk so high for seed financing?
The VC investor is solely financing an idea. Hence, he takes a double bet on that (1) the idea can be transformed into a product and (2) that there will be demand for this product
Which measures can a VCI put in place to protect himself against the hig risk in startup financing?
(1) Put option, (2) Collateral, (3) Stock options and (4) Balance between money and shares
What are the three characteristics of Venture Capital Financing?
High level of risk, hands on approach and a deep knowledge of the field by the VCI
What is the role of the PEI when providing expansion financing for external growth?
(1) Screen the market and identify potential target companies, (2) support the negotiation, (3) provide acquisition financing, (4) legal and taxation support and (5) integration process
How does the PEI provide acquisition financing?
Either by direct equity issuance or through the creation of an SPV that is financed (and leveraged) together with the venture-backed company
Why may an SPV be created when the PEI provides expansion financing for external growth?
(1) Company does not want to increase leverage, (2) Company wants to reap all the benefits from the synergies
What are the stages of an LBO?
(1) Creation of an SPV (100 % ownership), (2) Leverage the SPV, (3) SPV buys target, (4) SPV is merged with the target company, (5) PEI holds the target in its portfolio some years before selling it
What are the three types of deals in Replacement Financing?
Leveraged Buyouts (LBO’s), PIPEs and Corporate Governance Deals
