Chapter 15: Raising Capital

Question 1

venture capitalist concept

Answer 1

• individuals or firms that invest by purchasing equity in new businesses and often provide entrepreneurs with business advice

Question 2

venture capitalist importance ?

Answer 2

• venture capital firms typically pool money from various sources to invest in new businesses.
  The primary sources of funds for venture capital firms include financial and insurance firms, private and public pension funds, wealthy individuals and families, corporate investments not associated with employee pensions, and endowments and foundations.

Question 3

venture capital funding cycle

Answer 3

• The typical venture capital funding cycle begins when the entrepreneur runs low on bootstrap financing.
• Venture capitalists then provide equity financing.
• They will later exit through a private or public sale of their equity.
• The duration of the cycle is typically three to seven years, and only a small percentage of new ventures make it all the way to the end.

Question 4

IPO concept

Answer 4

IPO is a company’s first sale of common stock in the public market

Question 5

IPO process

Answer 5

Stock price at end of the first day = $61.00
 First-day underpricing = ($61.00 - $50.00) = $11.00 per share.
 Total underpricing = ($11.00 per share × 500,000 shares of stock) = $5,500,000
 Underwriter’s gross spread ($50.00 ×.12) =$6.00 per share
 Underwriting cost = ($6.00 per share × 500,000 shares) = $3 million

Question 6

angel investor concept

Answer 6

wealthy individuals who invest their own money in new ventures

Question 7

firm commitment vs. best efforts

Question 8

role of investment banking firm

Question 9

IPO ?

Answer 9

• underwriting spread-the difference between IPO and what was sold to consumers ?
• out-of-pocket expenses- aka fees
• underpricing- difference between open number and closing number ?