entrep. finance test 3

When did the securities acts first come into being and what was the original reason for them?
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When did the securities acts first come into being and what was the original reason for them?
Following the Great Depressions securities acts were put in place to regulate, eliminate fraud, and add structure for buying and selling securities
What is a security?
piece of paper that gives you the right to something. Means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, investment contract, put, call
What general areas do the securities acts cover?
**investment funds like VCs, financial advisers, crowdfunding, crowdsourcing, small business ventures, federal laws
What is meant by the "blue sky" laws
State Securities Regulations, state specific laws, laws designed to prevent individuals from investing in fraudulent security offerings, prevent fraud in buying and selling securities
What do we know about registering a security?
**it takes a long time and is a costly process , Do not try and do it on your own
What is important about the Jobs Act of 2012?
raises venture capital at earlier stages, highlights 2 transaction exemptions security and transaction. class of firms designated Emerging growth company face different registration requirements (less transparency)
General advertising and solicitation allowed for reg d 506 offerings (more info to come on 506 offerings)
Internet crowdfunding for securities up to 1 mill
Regulation a plus as competitor to regulation A
Forced registration limit raised from 500 to 2000 shareholder s
What are the 2 transaction exemptions and what came out of the SEC vs. Murphy Case?
Private Offering Exemption (transactions by an issuer not involving any public offering are exempted)

Accredited Investor Exemption (investors who have sufficient financial expertise and wherewithal to make intelligent informed investment decisions are exempted)

SEC VERSUS MURPHY CASE (1980)

CONSIDERATIONS IDENTIFIED IN DETERMINING AN OFFERING IS A PRIVATE PLACEMENT:
Number of offerees must be limited
Offerees must be sophisticated
Size and manner of offering must not indicate widespread solicitation
Some relationship between offerees and issuer must be present
How is forecasting Sales different for seasoned ventures vs. early-stage ventures?
Seasoned ventures have a better, more accurate pro forma because they have more data, more years.
After forecasting sales for an early-stage venture, what should you do?
Cut them, knock back those growth rates
What funds are used to support a sustainable growth rate?
Internally generated funds- net income or profits after taxes earned over and accounting period . these are used to sustain sales growth rate - rate at which a firm can grow sales based on teh retention of profits in the business
When would additional funds be needed AFN?to support the growth rate. Required increase in assets - spontaneously generated funds - increase in REDescribe the % of Sales Method to project financial statementsForecasting Method makes projections on the assumption that certain costs and selected BS items are best expressed as a % of salesWhat is the Financial Forecasting Process?1. Forecast Sales 2. Project IS 3. Project BS 4. Project Statement of CFsWhy is projecting financial statements (Pro Forma) important to valuing an early stage venture?**so investors see the growth and the money they could be makingWhat is an "explicit forecast period" and the terminal value?** How long, what amount of time -- test is 3 year explicit period , value at end of explicit periodHow is the terminal value typically estimated for an early stage venture?**by some multiplier of comprables.What are some sample "multiples"?**Multiple of revenue, multiple of earnings, EBT, EBITDAWhat are "pre-money" and "post-money"?Pre Money - value before investment Post Money - value after then investmentWhat is dilution and what are some of the possible causes?**it is having the same number of shares but your percent of the company is going down. happens because multiple rounds of funding, employee stock options. incentive shares are put in place, warrants and conditions in place, additional shares addedWhat are some sources of venture funding?Angels, Angel groups, Pitch/Business Plan Competitions, Incubators/Accelators, Non-dilute Grants, SBA/Government Programs, VCs, Private Equity -- go to notesDescribe the various sources and the likelihood of their ability for early stage ventures?Sources: Pitch/Business plan competition, Venture Capitalists, Angels, Angel Groups, Private Equity, Incubators/Accelerators, non-dilutive grants, SBA/government programs Private Equity and VC not likely through early stage , early stage likely pitch/business competitions maybe SBA , then angels --notesWhat is the SBA and how can it help entrepreneurs?Small Business Administration is a government department that helps small businesses get started. Among the many favorable aspects is the ability to take loans in great amounts and help banks agree to give the business other loansWhat is the difference between commercial and venture banks?Commerical - use traditional conservative measures of borrowers ability to repat and value assets recovered in case of default, like PNC, northwestern mutual, you wont get money from them charge collateral. Venture Banks- interset adn principal represent only part of return to venture lender, warrants (rights to buy equity at a specific price) could get money from them charge high interest rates, that will come into effect and lots of conditions like % of equity in next round will guantentee them against recievablesWhat are the 2 kinds of crowdfunding?:) Reward Based - seeks funds from presales, recognition, charity, etc. not an investment! give away product and pay for it early Equity Crowdfunding - seeks equity capital from a large group of small investors (from the JOBS Act's creation of crowdfunding exemptions from SEC registration)! limits how much you can raise per personWhat is an angel and what kind of returns do they expect?accredited investor who expects Significant retruns 10x by year 5What is meant by carried interest and two and twenty shops?:) Carried Interest - portion of profits paid to the professional venture capitalist as incentive compensation 2 and 20 shops- investment management firms having a contract that gives them a 2% of asset's annual management fee, and 20% carried interest, profits/gains when sell business Get 2% of assets, everything they collected invested,