Week 7 (chapter 10) Flashcards
Angel Investors vs Venture Capitalists
Angel investors: an accredited investors who uses their own money to invest in small early-stage businesses, net worth of at least $1 Mil, annual income of $200,000, and accredited by SEC.
Categories: Entrepreneurial Angels (1. Enthusiasts, 2. Micromanagement), Corporate Angels, Professional Angels.
Venture Capitalists: a person or firm that invests in small business, generally using money pooled from investment companies, large corporations and pension funds, rarest source of capital one a few are financed by V.C, generally invest in business in (growth stage).
Stages of getting VC money: 1) informal discussions, 2) discussions amongst partners, 3) formal presentation, 4) due diligence.
Four Fs and Outside capital
Four Fs:
Founders
Family
Friends
Fools
Outside capital:
Venture capital
IPO
Acquisition
Putting together a round of angel investment
Preferred stock convertible: set valuation in the first round, may cause problem in the next round of funding with V.C
Convertible debt: loan converts to equity in the next round, valuation at the next round, provides discount to equity (10%-30%) on the new valuation
IPO, pros and cons
IPO (Initial Public Offerings)
Pros:
- Financing
- Follow-on financing
- Realise prior investment
- Prestige & visibility
- Compensation for employees
- Acquiring other companies
Cons:
- High expenses
- Public fishbowl
- Short-term time horizon
- Post IPO compliance costs
- Management time
- Takeover target
- Employee disenchantment
Why do people chose M&A
M&A (Merger & Acquisition)
- Management
- Investors
- Entrepreneurs & employee stock
- Expenses & Commission
- Founder & CEO
- Company
- Employment Agreement
- Culture
