What are some methods of equity financing for unlisted companies?
- Angel investors
- venture capital
- institutional investors
- corporate investors
- IPO (listing shares for the first time)
What are some methods of equity financing for listed companies?
- Private placement - to small group of investors
- Dividend reinvestment plan - instead of div, get shares
What is the difference between a listed and unlisted firm?
Listed means they have debt securities listed on stock exchange, unlisted companies do not
What are the 2 major ways private companies can raise equity?
venture capital and IPO’s
What is a venture capital firm?
Limited partnership, specialized in raising capital to invest in young firms
What are the benefits of VC? (2)
- more diversification
- expertise
What are the costs of VC?
- 2% management fee on committed capital
- 20% of positive returns
How is offer price determined for an IPO?
Fixed price offer or book building
What is a fixed price offer?
Price is set, prospectus sent out and offers received
What are the potential risks of a fixed price offer?
- price to high = uncertainty for issuer
- price too low = money “left on the table”
What are the 2 types of book building?
Open pricing and constrained open pricing
What is open pricing?
Bids taken from the market, final price is a clearing price that issues all shares
What is constrained open pricing?
Investors invited to bid on shares in a pre determined price range. Final price determined by investor demand
What is the main role of an underwriter?
Buy all shares from a company and sell themselves, bear the risk
What are the other roles of an underwriter?
- recommend issuing method
- Value securities
What were the first examples of crowdfunding?
- 1997 Marillion
- 2000 Brian Camelio “artistshare”
- 2009 kickstarter and others
- 2011 patent law suit, artistshare vs kickstarter
What is crowdfunding?
Form of raising capital whereby groups of people pool money to support others complete a specific goal
How does crowdfunding act as a form of financial intermediation?
- access to entrepreneurs
- Community participation
- access to products
- Low- cost format contract
- Returns (equity, debt)
How do platform intermediaries act as financial intermediaries?
- standardize contact at standardized fee
- mitigate information problems
- match investors and entrepreneurs
- analysis of companies (Due dilligence)
How do entrepreneurs act as financial intermediaries?
- access to investors
- low cost of capital compared to others
- Advice from platforms
- info about demand of product
- loss of secrecy/ publicity
What are the characteristics (Contribution, return and motivation) of debt-based/ P2P lending?
- contribution - Loan
- return - repayment of loan
- Motivation - financially driven
What are the characteristics (Contribution, return and motivation) of equity based crowdfunding?
- contribution - investment
- return - financial/ material rewards
- Motivation - financially driven
What are the characteristics (Contribution, return and motivation) of reward based crowdfunding?
- Contribution - Donation/ presell
- return - material/ non financial rewards
- Motivation - intrinsic (satisfaction), social and rewards
What are the characteristics (Contribution, return and motivation) of donation based?
- Contribution - donation
- Return - non-financial and intangible benefits
- Motivation - intrinsic, social and affinity based
