Equity Financing
Two sources of Finance companies use when issuing new capital are Equity & Debt.
Sources of Funding for Equity - (For private firms)
• Angel Investors - Individual investors (Dad), mostly in early stage
• Private Equity Firms - Limited partnership. Not in early stage. Investors put money
into your firm and then you divide this money into different startups.
• Institutional Firms - They invest directly or indirectly through VC, later stages.
These are the investors mentioned above.
• Corporate Investors - Facebook investing in a startup.
A Leveraged Buyout (LBO) is a financial transaction in which a company is purchased
primarily with borrowed money. The assets of the company being acquired and those of
the acquiring company are often used as collateral for the loans. The goal is typically to take
a public company private, radically restructure a company, or acquire a significant stake in
the company, while keeping the upfront capital investment low.
To exit an investment in a private firm as an investor (because you have earned your
expected returns and can no longer see future potential benefits - mostly VC, they make
money & leave) you could go for Corporate acquisition - you sell shares to other large
institutions or Public Offering - you sell the shares to general public through IPO
Public Offering -
Pros Cons
Greater Liquidity Dilution of Control & Ownership
Better Access to Capital Costly & time consuming, information
disclosure
Primary Offering - New shares are created
Secondary Offering - Insiders may decide to sell there shares after IPO, they may decide to
liquidate their ownership %.
Best Efforts - Underwriters agree to sell as much as the IPO stock as possible, but they do
not guarantee the sale of all issued shares. Underwriters do not purchase the shares
themselves, they act as agents.
Firm Commitment - Underwriters purchase all the shares from issuer & later sell them to
the public. They guarantee issuer will receive a predetermined amount of money.
An Auction IPO is a method of going public in which the company's shares are sold through
a bidding process. Potential investors state how many shares they want to buy and at what
price, and then shares are allocated based on these bids, typically aiming to determine the fair
market value of the company more efficiently than traditional IPO methods. Not everyone
gets shares at different prices, final share price is set based on the bids. Everyone who
receives shares pays the same final price, even if they bid higher.
Two sources of Finance companies use when issuing new capital are Equity & Debt.
Sources of Funding for Equity - (For private firms)
• Angel Investors - Individual investors (Dad), mostly in early stage
• Private Equity Firms - Limited partnership. Not in early stage. Investors put money
into your firm and then you divide this money into different startups.
• Institutional Firms - They invest directly or indirectly through VC, later stages.
These are the investors mentioned above.
• Corporate Investors - Facebook investing in a startup.
A Leveraged Buyout (LBO) is a financial transaction in which a company is purchased
primarily with borrowed money. The assets of the company being acquired and those of
the acquiring company are often used as collateral for the loans. The goal is typically to take
a public company private, radically restructure a company, or acquire a significant stake in
the company, while keeping the upfront capital investment low.
To exit an investment in a private firm as an investor (because you have earned your
expected returns and can no longer see future potential benefits - mostly VC, they make
money & leave) you could go for Corporate acquisition - you sell shares to other large
institutions or Public Offering - you sell the shares to general public through IPO
Public Offering -
Pros Cons
Greater Liquidity Dilution of Control & Ownership
Better Access to Capital Costly & time consuming, information
disclosure
Primary Offering - New shares are created
Secondary Offering - Insiders may decide to sell there shares after IPO, they may decide to
liquidate their ownership %.
Best Efforts - Underwriters agree to sell as much as the IPO stock as possible, but they do
not guarantee the sale of all issued shares. Underwriters do not purchase the shares
themselves, they act as agents.
Firm Commitment - Underwriters purchase all the shares from issuer & later sell them to
the public. They guarantee issuer will receive a predetermined amount of money.
An Auction IPO is a method of going public in which the company's shares are sold through
a bidding process. Potential investors state how many shares they want to buy and at what
price, and then shares are allocated based on these bids, typically aiming to determine the fair
market value of the company more efficiently than traditional IPO methods. Not everyone
gets shares at different prices, final share price is set based on the bids. Everyone who
receives shares pays the same final price, even if they bid higher.
