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6. Jayne and Jaime own a company that makes lighting products. They have been in business for several years and would like to raise capital to develop more products, expand their business, and adapt to market changes perhaps by merging with another company. Should they seek venture capital or private equity? _ ______________________________________________________________________________ 7. Is venture capital a loan? If not, what is it? ________________________________________________ 8. Venture capital is big time money – often millions $$$. In exchange for the capital investment, a venture capitalist takes an equity interest in the company. What is that? _ ______________________________ 9. What is an exit strategy ? List three possible ways an investor may recoup their investment in a startup. _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ 10. How does the Small Business Administration , a U.S. government agency, work with commercial banks to enable them to make business loans? _ ______________________________________________________________________________ _ ______________________________________________________________________________ 11. What is the process by which a privately held company converts to a publicly traded company , and how is it abbreviated? _ ___________________________________________________________________ 12. When a company “goes public” where does it list its shares for sale to the public ? _ _______________ 13. Why is an IPO the ultimate goal of venture capitalists? _ ______________________________________________________________________________ 14. What does ROI stand for? Explain it in your own words._______________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ 15. What is underwriting ? How does an investment bank underwrite an IPO? _________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ An exit strategy is a plan for recouping investment in a startup. This can be recouped if the startup is acquired by another company. The investment is repaid at a previously determined formula containing a profit; the venture capitalist's shares can be acquired by another company in a merger; if the company goes public through an IPO, the venture capitalist ’s shares can be sold in the public market, often at a huge profit. They can make a large profit ROI on their original investment. Return on investment. It is a measure of profit made on an investment, it can also be used as a reference to the level of success of a company. Assuming the risk of financial loss; an investment bank manages, finances, and supervises an IPO assuming the risk of loss if the shares do not sell when the company goes public. No. It is a direct investment in a company. The SBA guarantees repayment of the borrower ’s loan thereby reducing the risk to the bank and avoiding the restrictions on investment. Initial Public Offering – IPO Stock market Shares/ownership private equity PRODUCT PREVIEW
Lesson 13 | The Quest for Capital! 250
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