The Modern Private Equity Industry

Hart Venture Capital (HVC) specializes in providing venture capital for software development and Internet applications. Currently HVC has two investment opportunities: (1) Security Systems, a firm that needs additional capital to develop an Internet security software package, and (2) Market Analysis, a market research company that needs additional capital to develop a software package for conducting customer satisfaction surveys. In exchange for the Security Systems stock, the firm has asked HVC to provide $600,000 in year 1, $600,000 in year 2, and $350,000 in year 3. In exchange of their stock, Market Analysis has asked HVC to provide $500,000 in year 1, $350,000 in year 2,

It is well known that firms are more likely to issue equity when their market values are high, relative to book and past market values, and to repurchase equity when their market values are low. We document that the resulting effects on capital structure are very persistent. As a consequence, current capital structure is strongly related to historical market values. The results suggest the theory that capital structure is the cumulative outcome of past attempts to time the equity market.

The financial crisis wreaked much havoc on so many new businesses that were planning on selling stocks to the public for future growth and development (Ante, 2008). Ground-breaking companies are taking on much risk since they can no longer seek help from investors in the populace, and they are finding it even harder to be snapped up in procurement (Ante, 2008). The number of “venture-backed” companies

“Winning” all of the “B” and “C” shares is not so great. In fact, it is a curse- hence, the name.

lu the l9SOs. the average first-day rcliirn on inilial public offerings (IPOs) was 7%, The average firsl-day return doubled to almost I5 ' ' 'i during 1990-1998. before jumping to 65% during Ihe internet bubble years of 1999-2000 and then reverting la / i % during 2001-2003. We attribute much of the higher underpricing during the bubble period to a changing issuer objective function. We argue that in the later periods there wav less focus on maximizing IPO proceeds due to an increased emphasis on research coverage. Furthermore, allocations of hot IPOs to the personal brokerage accounts oj issuing firm executives created an incentive to seek rather than avoid

In return for financing one to two years of a company’s start-up, venture capitalists expect a ten times return of capital over five years. Combined with the preferred position, this is very high-cost capital: a loan with a 58% annual compound interest rate that cannot be prepaid. But that rate is necessary to deliver average fund returns above 20%. Funds are structured to guarantee partners a comfortable income while they work to generate those returns. The venture capital partners agree to return all of the investors’ capital before sharing in the upside. However, the fund typically pays for the investors’ annual operating budget—2% to 3% of the pool’s total capital—which they take as a management fee regardless of the fund’s results. If there is a $100 million pool and four or five partners, for example, the partners are essentially assured salaries of $200,000 to $400,000 plus operating expenses for seven to ten years. (If the fund fails, of course, the group will be unable to raise funds in the future.) Compare those figures with Tommy Davis and Arthur Rock’s first fund, which was $5 million but had a total management fee of only $75,000 a year.

Envelope Products is a leading manufacturer and distributor of quality paper products especially envelopes with its position further strengthened with its recent acquisition of Envelope Makers. This company has good stable growth with no gearing and potential cost synergies between Envelope Products and Envelope Makers operations. It is recommended to purchase the entire shares of this company as a going concern rather than net assets at a value of $48m with 35% equity stake and geared at 60%. Management will receive 5% equity stake with 10% ratchet on exit. The investment horizon is expected to be 5 years with IRR target of 35%. The exit strategy is to increase the earnings capacity of the company through cost

Our data includes public companies that have passed the IPO stage because KLD MSCI data is only available for public companies. In order to control for a potential bias in our analyses due to the choice of receiving venture backing among IPO companies, we gather a comprehensive data on an initial sample of 12,010 IPOs from the period 1991-2015 from the Securities Data Company (SDC) database. Following previous researchers, we eliminate offerings (i) identified as unit offerings (ii) not involving common stock, (iii) of very small issues with offer size below 5 million dollars in order to eliminate penny stocks from our sample (Bradley, Cooney, Dolvin, and Jordan, 2005), and (v) for which SDC did not provide information required for our tests.

* The Yell Group has a well-established position in a growing market generating stable revenue streams that are reasonably recession proof.

This paper describes about a firm called Lehman Brothers and how their high-risk culture and questionable deals contributed to their declaration of Chapter 11 bankruptcy on September 15, 2008. Some of Lehman’s main reasons to declare bankruptcy was their highly risky business model that required it to raise billions of dollars per day to keep their operations going (Wiggins, Piontek, Metrick, 2014, p.1). Another reason was their leadership who encouraged the risky culture of the firm and operating an accounting device name Repo 105 to keep assets off its balance sheet so it may appear that the firm was not borrowing that much money (Robbins, 2016, pg. 178). The firm was able to do this because around the 2000s, there was a deregulation of the financial industry that made it easier to do more financial projects such as proprietary trading, subprime mortgages, and real estate market (Wiggins, et al, 2014, p.4-5). Which made the firm very successful until the financial crises happened and Lehman was not able to secure any more funding to keep its operations running causing it to declare bankruptcy. The rest of this paper will go into detail about Lehman Brothers tactics on how it got rich quick from the financial market and how their actions contributed to their downfall.

The most recent PwC Money Tree analysis of venture capital investment for all sectors in the US indicated that only “$6.9 billion was invested in companies during the first half of 2009 indicating a return to the lowest VC investment Figure 1. Venture capital investments in the Noughties (2000-2009)

Historically venture capital represented a small portion of alternative assets, which in turn represented a small, but sizeable, portion of the global financial asset base. (INSERT CITATION). Prior to the semiconductor boom in the 1960s, venture capital was closer to what today is described as angel investing. During this period, the majority of new venture financing originated from individual investors, and often financed by the entrepreneur or his or her family and acquaintances. (INSERT CITATION).

I recently left a private equity backed company due to a change in the company’s overall strategy. As a result of the change, my position was eliminated.

The high IPOs don’t benefit the owners or the employees of the company, but play in the hands of the initial investors. Employees and owners typically have lock-in periods for reselling the stock. But in a bubble situation, the stock

Venture capital (VC) refers to financial intermediary between institutional investors and private companies, often to finance new ventures or growth of private companies. Venture capital is a subset of the larger private equity industry, which refers to equity investments in privately-held enterprises. VCs are different from angel investors, who are often erroneously considered the same as VC, in that VCs rely on raising a pool of capital from limited partners (LP), and invest on their behalf as general partners (GP), via a limited partnership that is the actual fund (VC firms often manage several funds). The limited partnership model define certain characteristics of VC