Equity finance Flashcards
Definition of equity finance
the process of selling equity (shares) in exchange for financial capital
What are formal venture capitalists?
Financing of a business through specially allocated venture capital funds
What are informal venture capitalists?
Individuals of high net worth (business angels)
How do they make a return?
Buy shares in a small potential business, wait for it to grow and then sell those shares to make a return
Name the 4 stages of funding
Seed funding, series A, B, C
When do formal VC invest?
series A, B and C
When do informal VC/ business angels invest?
Seed/ series A
Advantages of VC
Provide non-financial support, access to additional finance/ networks, no interest, investors commitment
Disadvantages of VC
Loss of control of business, demanding/ interfering, needs lots of information before investing
What are two main problems that occur for venture capitalists?
Moral hazard (entrepreneur receiving money but spending it on pointless things), adverse selection (making bad investments that they thought were good)
Do VC seek collateral like banks?
No
Are VC investments high or low risk?
High risk
Who do VCs focus on?
Smaller, younger businesses with potential for growth
