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crypto > Lecture 6 > Flashcards

Lecture 6 Flashcards

1
Q

What are some methods of equity financing for unlisted companies?

A
  • Angel investors
  • venture capital
  • institutional investors
  • corporate investors
  • IPO (listing shares for the first time)
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2
Q

What are some methods of equity financing for listed companies?

A
  • Private placement - to small group of investors
  • Dividend reinvestment plan - instead of div, get shares
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3
Q

What is the difference between a listed and unlisted firm?

A

Listed means they have debt securities listed on stock exchange, unlisted companies do not

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4
Q

What are the 2 major ways private companies can raise equity?

A

venture capital and IPO’s

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5
Q

What is a venture capital firm?

A

Limited partnership, specialized in raising capital to invest in young firms

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6
Q

What are the benefits of VC? (2)

A
  • more diversification
  • expertise
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7
Q

What are the costs of VC?

A
  • 2% management fee on committed capital
  • 20% of positive returns
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8
Q

How is offer price determined for an IPO?

A

Fixed price offer or book building

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9
Q

What is a fixed price offer?

A

Price is set, prospectus sent out and offers received

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10
Q

What are the potential risks of a fixed price offer?

A
  • price to high = uncertainty for issuer
  • price too low = money “left on the table”
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11
Q

What are the 2 types of book building?

A

Open pricing and constrained open pricing

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12
Q

What is open pricing?

A

Bids taken from the market, final price is a clearing price that issues all shares

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13
Q

What is constrained open pricing?

A

Investors invited to bid on shares in a pre determined price range. Final price determined by investor demand

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14
Q

What is the main role of an underwriter?

A

Buy all shares from a company and sell themselves, bear the risk

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15
Q

What are the other roles of an underwriter?

A
  • recommend issuing method
  • Value securities
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16
Q

What were the first examples of crowdfunding?

A
  • 1997 Marillion
  • 2000 Brian Camelio “artistshare”
  • 2009 kickstarter and others
  • 2011 patent law suit, artistshare vs kickstarter
17
Q

What is crowdfunding?

A

Form of raising capital whereby groups of people pool money to support others complete a specific goal

18
Q

How does crowdfunding act as a form of financial intermediation?

A
  • access to entrepreneurs
  • Community participation
  • access to products
  • Low- cost format contract
  • Returns (equity, debt)
19
Q

How do platform intermediaries act as financial intermediaries?

A
  • standardize contact at standardized fee
  • mitigate information problems
  • match investors and entrepreneurs
  • analysis of companies (Due dilligence)
20
Q

How do entrepreneurs act as financial intermediaries?

A
  • access to investors
  • low cost of capital compared to others
  • Advice from platforms
  • info about demand of product
  • loss of secrecy/ publicity
21
Q

What are the characteristics (Contribution, return and motivation) of debt-based/ P2P lending?

A
  • contribution - Loan
  • return - repayment of loan
  • Motivation - financially driven
22
Q

What are the characteristics (Contribution, return and motivation) of equity based crowdfunding?

A
  • contribution - investment
  • return - financial/ material rewards
  • Motivation - financially driven
23
Q

What are the characteristics (Contribution, return and motivation) of reward based crowdfunding?

A
  • Contribution - Donation/ presell
  • return - material/ non financial rewards
  • Motivation - intrinsic (satisfaction), social and rewards
24
Q

What are the characteristics (Contribution, return and motivation) of donation based?

A
  • Contribution - donation
  • Return - non-financial and intangible benefits
  • Motivation - intrinsic, social and affinity based
25
Q

What are the 2 rewards based crowdfunding models and what are they?

A
  1. pre purchase - receive product or right to buy at reduced price#
  2. Rewards - eg thank you card, invitation to event
26
Q

What are the 2 types of reward funding recived?

A
  1. All or nothing (AON) - don’t receive money until target goal is reached
  2. Keep it all (KIA) - Keep whatever you receive
27
Q

What are the advantages of crowdfunding for entrepreneurs?

A
  • No dilution (no ownership given up)
  • No financial obligations or penalties
  • standardized contractual terms
  • Feedback from investors/ future customers
28
Q

Disadvantages of crowdfunding for entrepreneurs?

A
  • plagiarism/ theft
  • early publicity and failure could make future crowdfunding harder
  • reporting and communication costs could be high
29
Q

What do you receive in equity based crowdfunding?

A

Shares

30
Q

What is the direct method in equity based crowdfunding?

A

Receive shares directly (become shareholder)

31
Q

What is the nominee method in equity based crowdfunding?

A

Gives shares to a trust (organised by platform)

32
Q

What is the co-investment method in equity based crowdfunding?

A

receive shares but VC invests with you

33
Q

Is equity based crowdfunding usually AON or KIA?

A

AON

34
Q

What are the governance issues with equity crowdfunding?

A
  • adverse selection (are ventures high or low quality)
  • Quality of platform screening
  • Who is monitoring entrepreneurs post- funding?
35
Q

How is equity crowdfunding legislation done in the UK?

A

Financial services and markets act - must be regulated by FCA to adhere to regulation

36
Q

What are the 2 types of debt-based crowdfunding?

A
  1. marketplace - matches lenders and borrowers through online platforms
  2. P2P lending - direct relationship between borrowers and lenders
37
Q

What does evidence suggest crowdfunding fraud is related to?

A
  • entrepreneurs characteristics
  • social media affinity
  • Campaign funding and reward structure
  • campaign description
38
Q

what does crowdfunding increase the probability for for firms?

A
  • receiving VC funding
  • Positive revenue
  • survival or successful exit

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