Flashcards in Session 7 Deck (29):
What is the characteristic of a private equity (broad sense)?
equity financing for non-quoted companies
- limited in time
- no dividends, but capital gains
- value added
What is the definition of a venture capital?
financing of newly formed companies --> early stage
What is the definition of a private equity (narrow sense)?
financing of established companies --> later stage
What are the phases of entrepreneurial financing?
- early stage (seed, start-up)
- expansion stage
- later stage (bridge, MBO/MBI)
What is the characteristic of the seed phase?
- product conception
- market analysis
- basic research
What is the characteristic of the start-up phase?
- company formation
- product development
- marketing concept
What is the characteristic of the expansion phase?
- product manufactoring
- market entry or growth financing
What is the characteristic of the bridge phase?
- preparation for
a) an IPO
b) a sale to an industrial investor
What is the characteristic of the MBO/MBI phase?
a) current management (MBO)
b) external management (MBI)
How does the Asset Management Cycle expire?
1.) Asset Allocation
2.) Fund Selection
How does a Private Equity Cycle expire?
2.) Investor Relations
4.) Distribution of returns
How does the "Investment" of the Private Equity Cycle expire?
1.) investment origination
2.) investment due dilligence
3.) investment structuring
4.) investment development
5.) investment exit
Which organizational forms of VC/PE Funds exist?
- closed-end funds
- open-end funds
What is the characteristic of closed-end funds?
- upper limit to the fundraising volume with a specified subscription period
- pre-defined lifetime
- returns from its investments are distributed to the investors at the latest at the end of the fund
What is the characteristic of open-end funds?
- investors can continually make subsrciptions to the fund (no upper limit)
- no pre-defined liquidation date
- returns from its investments are usually reinvested in the fund
What is an equity sindicate?
involves two or more VC & PE firms taking an equity stake in an investment, either in the same investment round or more broadly defined, at different points in time, for a joint payoff
What are the motives for syndicating deals?
- beneficial effect on the portfolio level
- beneficial effect on the investment level
How does the beneficial effect on the portfolio level compound?
- spreading risk (portfolio diversification)
- improving reputation (transfer of reputation, window dressing (only for co-investor))
How does the beneficial effect on the investment level compound?
- pre-contractual (financing the investment, access to deal flow, due diligence assistance (particularly for co-investor)
- post-contractual (advanced exit opportunities)
What is the task of a investor in a principal agent relationship between investor and portfolio company?
What is the task of a portfolio company in a principal agent relationship between investor and portfolio company?
- dividend/interest payments
- ownership share/repayment of loan
What are the problems in a principal agent relationship between investor and portfolio company?
- asymmetric information
- differing goals
What are the solutions in a principal agent relationship between investor and portfolio company?
What is the definition of a buyout?
purchase of a controlling interest in a company from its owners
What is the main definition of a buyout?
acquisition of a business by a management team or group of employees with private equity/bank support
What is a leveraged buyout (LBO)?
kind of a superordinated concept and refers to a transaction in which the capital structure of the acquired company incorporates a particularly high level of debt following the purchase
What makes an attractive buyout opportunity more attractive?
- stable industry sector
- secure market position
- reputable in its markets
- mature products
- good spread of customers and suppliers
- committed management
- realistic price
- identifiable/saleable assets
What makes an attractive buyout opportunity less attractive?
- highly cyclical
- rapid technological change
- poor labour relations
- significant R&D and/or capital investment
- high/volatile working capital
- high business risk