What happens in the post-investment phase?
When should the next round of financing begin?
After a milestone has been reached
What will the VC investor do to build an equity story?
Get involved
On strategic-decision making level
On operating level
Depending on the VC’s focus and expertise
Add value
Through networking and contacts to potential partners, suppliers …
Through industry and market experience
Through financial expertise
Esure further financing
Contracts to other VC or strategic investors
Financial expertise and deal know-how
With the aspiration of realizing an exit at some point
What are the three cruitial questions when thinking about an exit?
When is the right time for an exit?
What is the right exit route?
Who is the right buyer for the company?
What are the three possible exit routes?
Trade sale
IPO
Buyout
The M&A process (Trade sale process)
Advantages and Disadvantages of a trade sale
Advantages:
Potential to realize a value in excess of stand-alone-value
Opportunity to “cash-out” at closing
Relativetly short execution time frame
Maintenance of confidentiality until key terms have been agreed on
Subject to level of buyer interest, can lead to competitive binding and enhanced negotiating power
Disadvantages:
Shareholder and management objectives may conflict
Potentially destabilizing for employees, clients or suppliers
Binds management resources and distracts from daily operations
Internal and external factors that determine if your ready to start the IPO process
Internal factors:
Stock market maturity of company
Economic situation and perspectives
Availability of financials
Capital requirements of the company and its stakeholders
Succession arrangements
External factors:
General economic situation
Stock market situation
Receptiveness of the market
Exchange rate level
External players and their necessity for going public?
Advantages and Disadvantages of IPO
Liquidity coming in
Easier debt financing
Standing with customers and suppliers
Reputation
Attraction of employees
Disadvantages
Higher reporting standards and obligation
Lower influence of management team
High costs
Stress, shorter cycles
Stock law
Different types of buy outs
Entrepreneurail buyout: The founder buys back the company rom the VC investor and/or other former shareholders
Management buyout: The management team buys back the company from the VC investor and/or other former shareholders
Leveraged buyout: The buyout is financed to a large extent by debt capital. This buyout is often performed by other institutional financial investors with the goal to restructure the company and realize an IPO later on
Definition of buyout
Buying all or part of a company from stockholders
After the transactions, the previous stockholders exit the company or keep a minority share
Definition of Leverage
Significant use of borrowed capital for financing
Goal is to increase the rate of return on equity (as long as the cost of borrowed capital is lower than the total cost of capital)
Advantages and Disadvantages of Buyout
Advantages
Founder/Manager can use his or her experience with the company to govern it
Stability of the business
Low to medium compensation/ with investor involvement fair compensation
Limited outside knowledge
The founder may choose a successor with many similarities to him/herself, thus leading to limited change in business
Limited long-term influence of founder on company
Last changed9 months ago