7.0 – Equity Financing

What do most businesses start out as?

Sole proprietorships or partnerships; can’t sell equity

Sources of private equity

1.) Angel investors

2.) VC firms

3.) Institutional investors

4.) Corporate investors

Who raises more money: angel investors or VC firms?

Usually VC

Differences of angel investors and VC fund

• Angel investors are earlier on

• VC firms take a more active approach

  • VC is lower risk

Examples of institutional investors

• Pension funds

• Insurance companies

• Endowments

  • Foundations

How do you guess the value of a private firm?

Amount of funding rounds

What’s the most important consideration private equity investors face?

Exit strategy

Advantages of going public

1.) Access to capital

2.) investors can diversify by selling shares

Disadvantages of going public

1.) Less incentive for large shareholders to monitor management

2.) More regulation

Do investors typically overvalue or undervalue an IPO price?

Undervalue, very little IPOs decline in price right away