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Cases in Entrepreneurship Midterm

Terms in this set (17)

best efforts offering
The underwriter acts as an agent between an issuing company and investors, whereby the underwriter purchases only the amount required to fulfill its client's demand or the entire issue. If the underwriter is unable to sell all securities, it is not responsible for any unsold inventory.
Bootstrapping
Doing more with less in terms of resources invested in a business, and, where possible, controlling the resources without owning them. Build cash flow to delay or eliminate the need for external capital funding
Chinese Wall
Ethical barrier between divisions of financial institutions to avoid conflict of interest and maintain confidentiality. Example: Buy and sell sides can't use each other to get and trade on inside info
due dilligence
meeting between the issuer and underwriters with the purpose of verifying information contained in a registration statement/prospectus.
Dutch Offering
A Dutch auction is a public offering auctionstructure in which the price of the offering is set after taking in all bids to determine the highest price at which the total offering can be sold. In this type of auction, investors place a bid for the amount they are willing to buy in terms of quantity and price. Once all the bids are submitted, the allotted placement is assigned to the bidders from the highest bids down, until all of the allotted shares are assigned at the last successful bid
flipping
act of purchasing shares in an IPO and then immediately selling for a profit. Strongly discouraged by underwriters since it does not create a stable investor base and issuers prefer to have long-term stockholders.
Greenshoe Provision
an over-allotment provision contained in an underwriting agreement that gives the underwriter the right to sell investors more shares than originally planned by the issuer, normally done if the demand for an offering is higher than expected.
institutional investors "Buy side"
organizations whose primary purpose is to invest their own assets or those entrusted to them by others, the most common of which are employee pension funds, insurance companies, mutual funds, university endowments and banks
JOBS Act of 2012
an act which was signed into law on April 5, '12, which loosens restrictions on capital raising for small businesses, such as allowing them to go public with less than $1 bn in annual revenue, but comes with new provisions protecting potential investors. Gives more legitimacy to the practice of crowd-funding (where firms can solicit publicly for investments)
lock-up agreement
a legally binding contract between the underwriters and insiders of a company prohibiting these individuals from selling any shares of stock for a specified period of time, typically lasting 180 days
private placement
primary offerings in which shares are sold directly to a small group of institutional or wealthy investors
Private Investment in Public Equity (PIPE)
A sale of stock by a company at a discount to the current market value per share for the purpose of raising capital. There are two main types - traditional (using common/preferred stock) and structured (using convertible debt)
Red Herring
a preliminary registration statement that must be filed with the SEC describing a new issue of stock and the prospects of the issuing company. There is no price or issue size stated, and it sometimes updates several times before being called the final prospectus.
roadshow
marketing processing during an IPO or other public offering in which management of an issuer, together with the underwriters meet with and make presentations to potential investors to stimulate interest in the issuer and the offering.
sell-side
organizations whose primary role is selling securities and making recommendations for firms' clients, broadly applies to all functional areas including investment banking, sales, research, and trading
Stabalization
practice used by underwriters to stabilize the secondary price of shares after an IPO. Bid is made on behalf of the underwriters to repurchase shares at the offer price, typically supporting a stock that has high selling pressure from investors looking to "flip" their shares for a quick profit. Any use of a stab. bid must be made known to the market's regulatory body.
underwriter
an investment banking firm that manages a security issuance and designs its structure
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