Week 8 Long Term Financing - Equity
Week 8 Long Term Financing - Equity
Week 8 Long Term Financing - Equity
5
Stages of Financing
2. Start-Up
3. First-Round Financing
4. Second-Round Financing
5. Third-Round Financing
6. Fourth-Round Financing
The venture capital cycle
Choosing a Venture Capitalist
10
Funding and Ownership
• You founded your own firm two years ago. Initially you
contributed $100,000 of your own money and, in return,
received 1.5 million shares of stock. Since then, you have sold
an additional 500,000 shares to angel investors.
• Now you are considering raising even more capital from a
venture capitalist (VC). This VC would invest $6 million and
would receive 3 million newly issued shares. What is the post-
money valuation?
• Assuming that this is the VC’s first investment in your company,
what percentage of the firm will she end up owning?
• What percentage will you own? What is the value of your
shares?
11
Solution…
12
Continue…
1,500,000 × $2 = $3,000,000.
13
Taking Your Firm Public: IPO
18
Underwriters
• The syndicate bears the risk of not being able to sell the
entire issue for more than the cost.
• The company bears the risk of the issue not being sold.
22
Continue…
23
Solution…
$292.5
= $14.63 per share
20
24
IPO Underpricing
• May be difficult to price an IPO because there isn’t a
current market price available
Solution:
Amount raised x (1 – 0.07) = $15 million
• If let’s say, the stock rose to $15.41 per share in the first
few minutes of trading. Is this a cost to Impinj?
• YES – Indirect cost due to IPO underpricing