raising equity capital

Question 1

The different Investors

Answer 1

• Private Equity: leveraged buyout and venture capital
• Institutional Investors: Pension Funds, Mutual Funds and Hedge Funds
• Corporate Investors
• Angel Investors

Question 2

venture capital firms

Answer 2

• limited partnership, typically institutional investors

- venture capitalists run the company (require 1/3 of the seats of the board of directors)

Question 3

Post-money valuation

Answer 3

pre-money valuation + about invested

Question 4

percentage of ownership

Answer 4

amount invested / post-money valuation

Question 5

convertible preferred stock

Answer 5

if investment goes well, the preferred stock can be converted into common stock
if company runs into financial difficulties, preferred shareholders have a senior claim on assets

Question 6

liquidation preference

Answer 6

minimum amount which must be paid to preferred stock holders, 1-3 times initial investment

Question 7

seniority and pari passu

Answer 7

later round investors are repaid first

when they have equal priority it is “pari passu”

Question 8

participation rights

Answer 8

allows to receive liquidation preferences and any payments to common share holders as they converted their shares

Question 9

Anit-Dilution protection

Answer 9

new funding round at lower price called down road, earlier investors can convert for a lower price with protection

Question 10

private equity firms

Answer 10

do not invest in start-ups, buy outstanding equity with leveraged buyout (LBO)
key difference to venture capitalists is the magnitude invested