MGT 187 Final UCSD: Dunn

Basic Accounting Equation

Assets = Liabilities + Stockholders' Equity

Operating Leverage

the relative amount of fixed and variable costs that make up a firm's total costs, used to calculate break even point

Sales Leverage

advantage over another sale or person

current ratio

current assets divided by current liabilities

measures a firm's ability to pay off its short-term liabilities with its current assets

Debt to Equity Ratio

total liabilities/stockholders equity

corporate leverage

using borrowed money to increase the potential return of an investment

Return on Equity (ROE)

Net Income / Average Stockholders' Equity

a measure of how effectively management is using a company's assets to create profits

Internal Rate of Return (IRR)

The discount rate that forces a project's NPV to equal zero.

Net Present Value (NPV)

the sum of the present values of expected future cash flows from an investment, minus the cost of that investment

Payback

a capital investment analysis method that measures the length of time it takes to recover, in net cash inflows, the cost of the initial investment. to break even

Cash Flow Breakeven

cash flow at zero for a specific period (EBDAT = 0)

Who are angel investors?

a. Individuals, accredited investors, 200k income, net-worth 1m w/o house

how do angel investors value a company?

geographic. management. production. growth

Cash flow projections are for how many months?

12 months

What is the discount rate?

a rate of return used in a discounted cash flow analysis to determine the present value of future cash flows

what is the termination multiple?

Determines value of cash flows after forecast period. Multiplier of some income or cash flow measure, such as net income, net operating profit, EBITDA (earnings before interest, taxes, depreciation, and amortization), operating cash flow or free cash flow. The multiple is generally determined by looking at how comparable companies are valued by the market.

what are risks that angel investors are focused on?

a team risk, market adoption risk, technology risk, intellectual property risk, financing risk, regulatory risk

what attributes are investors looking for in a company?

a. Confidence in management team

b. Market size

c. Competitive landscape

d. Status of product

e. Business model

what are conversion rights?

a. refers to the shareholder's ability to convert the preferred shares into common shares.

what are information rights?

that an investor has to demand to receive regular updates from the private company about its financials and operations.

what is liquidation preferences?

In the case of a liquidity event the VC receives the

first cash flows equal to a multiple of their funds invested

Makes a large economic impact if proceeds are small, less

so if the proceeds are significant

what are registration rights?

investor has right to invest their shares with SEC

what is participation?

the percentage of cash flows the VC receives after the liquidation event. This makes a large impact is the proceeds are significant. The VC will push hard for this if they are confident in your company.

what is anti-dilution?

Adjusts the stock price of the VC's investment down to take into account that the valuation has fallen.

what is pay-to-play?

Requires a VC to participate in a future round of financing in order to receive anti-dilution protection.

What is vesting?

being fully vested means a person has rights to the full amount of some benefit, most commonly employee benefits such as stock options, profit sharing, or retirement benefits

what is full ratchet?

all share prices reduced to new level

What is a weighted average?

shares are adjusted taking into account all share values

what is anti dilution?

Adjusts the stock price of the VC's investment down to take into account that the valuation has fallen.

structure of Venture capital partnership?

venture capital firm-limited partners >>capital fund >> investment -investment -etc.

who are investors in a venture capital partnership?

High net worth, family offices, endowments, public pension funds

what are the management fees?

1.5% to 2.5% of the total amount invested in the fund.) Paid quarterly, semi-annually or annually. Finance the operations of the VC firm. The smaller the fund the larger the fee.

what is the carried interest?

a. 20% of profits are carried interest

what is the commitment period?

5 years

what is the investment period?

a. may be extended for two more 1 yr periods

After 12 years the lps decide to extend or not

what are the priorities of the general partner?

A general partner has responsibility for the actions of the business, can legally bind the business and is personally liable for all the business's debts and obligations.

do venture capitalist sign NDA's?

NOOO !

how long should a presentation to a venture capitalist roughly be?

less than 20, they will know wether to go forward with you or not in 10 minutes though . be precise

why is the fear of missing out important?

Customer acceptance and growth,,Team Impression - Impression of the CEO ,,Social Proof - What others think,, Product

what do you include in your presentation?

title page, competition, market size, distribution, business model, customers problem

what are employee stock options?

a. These options come in the form of regular call options and give the employee the right to buy the company's stock at a specified price for a finite period of time

what are warrants?

a security that entitles the holder to buy the underlying stock of the issuing company at a fixed price called exercise price until the expiry date

what is strike price?

The strike price is defined as the price at which the holder of an options can buy or sell the underlying security when the option is exercised

what are some business models?

a. Advertising

b. Manufacture and sale

c. Subscription

d. Intermediary

e. Razor

f. Retail

g. Freemium/subscription

h. Renting/leasing

For a venture capitalist with 10 investments how many return 10x their investment, 1x to 10x their investment, nothing?

1 company returns 10x

5 companies return 1-10x

4 companies return nothing