book

From Concept to Wall Street: A Complete Guide to Entrepreneurship and Venture Capital

Name: From Concept to Wall Street: A Complete Guide to Entrepreneurship and Venture Capital
ISBN: 0130348031

by Oren Fuerst, Uri Geiger, Chemi Peres, Davidi Gilo, Ron Lubash

August 2002

Beginner

328 pages

10h 53m

English

Pearson

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Copyright
Dedication
Financial Times Prentice Hall
Financial Times Prentice Hall Books
Foreword
Preface
Acknowledgments
About the Authors
1. Introduction
Book StructurePart I—Establishment and Development of VenturesPart II—Financing the VenturePart III—Venture Capital InvestorsPart IV—Raising Capital from the PublicPart V—Sale of Companies, Restructuring, and DissolutionGlossary
I. Establishment and Development of Ventures
2. Beginnings—Establishing a Venture
The Price of Success and FailureThe IdeaThe Management TeamExternal AdvisorsFinancial Advisors and Management ConsultantsLegal AdvisorsIncubatorsAcceleratorsIncorporationThe Objectives of IncorporationTypes of CorporationsIncorporation DocumentsThe Corporate OrgansCorporate CapitalIncorporation in DelawareBackgroundOrganizing and Managing a Delaware CorporationShare Capital and the ShareholdersThe Board of DirectorsMergers and ConsolidationsTaxation of Partnerships, S Corporations, and Limited Liability Companies (LLCs)

3. Financial and Business Planning
The Company's Business CycleFinancial StatementsBalance SheetAssetsLiabilitiesIncome StatementCash Flow StatementThe Relationship between the Balance Sheet, the Income Statement, and the Cash Flow StatementThe Difference between Accounting Revenue and Actual Cash FlowsEBITDA and Cash EarningsReporting Holdings in Other Companies and Consolidation of StatementsFinancial ProjectionsThe Purpose and Importance of Financial ForecastingGeneral Forecasting IssuesIssues in Forecasting the Business Results of a New CompanySales Growth and Required CapitalUtilization of Working CapitalPricing and Credit PolicyDividend PolicyCost Structure Analysis and ForecastingAnalyzing the Break-even PointForecasting Fixed and Variable CostsOutsourcingThe Costs of Market Entry and the Network EffectCash Flow ForecastingCash Break-even PointThe Scale of Investment Required to Reach ProfitabilityMarket Analysis and Strategic PlanningIntroductionThe Essence of Strategic PlanningAnalyzing Target MarketsReal OptionsUsing Decision Trees for Strategic DecisionsStrategic AlliancesThe Advantages of Strategic AlliancesThe Disadvantages of Strategic AlliancesTypes of Strategic AlliancesFinancial ReportingAntitrust ConsiderationsThe Business PlanIntroductionThe Structure of a Business PlanExecutive SummaryBusiness Plan Headers
4. Employee Recruitment and Compensation
Employee RecruitingJob Descriptions and RequirementsFinding and Screening EmployeesEmployee Compensation in the Technology SegmentsIntroductionMethods of Employee CompensationConsiderations in Planning Compensation PackagesGranting Options to EmployeesIntroductionStock Options DefinedAdvantages and Disadvantages in the Granting of OptionsStock Option PlansValuation of OptionsResponses to a Fall in Stock ValuesAccounting Aspects of the Distribution of OptionsIssuance of Options Shortly before an IPOThe Amount of Capital Held by Employees and Other OfficersOptions and Shares in Spin-offsTaxation of Stock OptionsTaxation of Incentive Stock Options (ISOs)Taxation of Non-qualified Stock Options (NSOs)Taxation of Employee Stock Purchase PlansPerformance-based CompensationIntroductionThe Financial Leverage of Compensation PackagesPerformance EvaluationTypes of Performance-based CompensationWeighing the Relative Performance of the Business UnitIncentives to Tie Employees to the CompanyConsiderations in Employment Termination
5. Intangible Capital and Intellectual Property
PatentsIntroductionBasic PrinciplesPrerequisites for Obtaining a PatentPatent RegistrationPatents Outside the United StatesPatents for Business ProcessesCompulsory LicensingCopyright LawPrinciplesIssues in Digital MediaTrademark LawTrade SecretsWhat Is Protected?Main ElementsThe Protection of Trade SecretsIssues with EmployeesNDA—Non-Disclosure AgreementsConsiderations in the Granting of LicensesLicenses DefinedPricing a License to Utilize a Patent
II. Financing the Venture
6. Milestones and Sources of Financing the Venture
Financing in StagesMilestones in Venture DevelopmentThe Research and Development DimensionThe Managerial Team DimensionThe Business and Market Penetration DimensionThe Revenue DimensionScope of Financing and the Company's ValueDemand—The Company's Capital NeedsSupply—The Company's Ability to Raise CapitalStages in Raising Venture CapitalDistinguishing among Preliminary Rounds of InvestmentPre-seed FinancingSeed FinancingFirst-stage FinancingSecond- and Third-stage FinancingPre-IPO FinancingSources of CapitalIntroductionFamily and FriendsPrivate Investors (Angels)Venture Capital FundsCorporate InvestorsOther Venture CapitalistsFinancing by Debt
7. Practical Aspects of Raising Venture Capital
Basic TermsSale of Shares by Shareholders Versus InvestmentsTerms for Describing the Value of a CompanyDeciding How Much Capital to RaiseValuing the Company for the Purpose of Raising Capital/Determining According to Which Value Capital Will be RaisedThe Process of Raising Venture CapitalWhat Interests InvestorsPreparing to Raise CapitalChoosing the InvestorsContacting and Meeting with InvestorsDeciding upon an InvestmentDue Diligence
8. Legal and Contractual Aspects of Raising Venture Capital
Legal Restrictions on Raising Private CapitalLegal Restrictions According to U.S. LawHow to Meet the Legal RequirementsThe Term SheetInvestment AgreementsMain Issues in Investment AgreementsFinancial MattersThe Rights Attached to the Securities Allotted to the Investor—Protecting the Value of the InvestmentRight to Control and Rights to InformationThe Founders and the ManagersRegistration Rights AgreementsThe Need for a Registration Rights AgreementTypes of Registration RightsRestrictions on Registration RightsOther Matters Regulated in Registration Rights AgreementsOther ArrangementsOther Matters Regulated in Investment AgreementsEmployment AgreementsShareholders AgreementsEmployee Stock Option Plans
9. Valuation of Companies
Methods Based on MultiplesPrinciplesCustomary Types of MultiplesMethods for Discounting Cash Flows and Residual IncomePrinciplesEstimating the Value Component during the Projected PeriodEstimating the Value Component after the Projected PeriodExampleValuation According to Discounted Residual IncomeThe Real Options MethodIntroductionTypes of Real OptionsPricing Real OptionsValue to Investors or Strategic Investors and BuyersIntroductionComponents in the Value to Strategic Investors and BuyersThe Importance of Potential Strategic Buyers to Financial InvestorsThe Discount Rate Used by Venture Capital FundsIntroductionWhy VCs Use a Higher Discount RateChanges in the Discount Rate over TimeIssuing Stock to InvestorsThe Number and Price of the Shares Allotted to the InvestorInvestment Rounds with a Pool of Employee Stock OptionsThe Effect of Preemptive RightsThe Venture Capital MethodIntroductionStage 1: Analyze and Identify the Type and Time of the ExitMini-Case Study: Medica—Stage 1Stage 2: Estimate Terminal Value (TV)Mini-Case Study: Medica—Stage 2Stage 3: Determine the Discount Rate (r)Mini-Case Study: Medica—Stage 3Stage 4: Estimate Additional Required InvestmentMini-Case Study: Medica—Stage 4Stage 5: Calculate the Range of Values for InvestmentMini-Case Study: Medica—Stage 5Appendix—Basic Terms in MeasurementBasic Terms in Returns Measurement
III. Venture Capital Investors
10. Venture Capital Funds
Private Equity Funds and Venture Capital FundsIntroductionThe Main Types of Private Equity InvestmentsVenture Capital Investment CharacteristicsVenture Capital Funds and Their InvestorsVenture Capital Funds and Their PortfoliosThe Added Value of Venture Capital FundsThe Means by Which Venture Capital Funds Oversee Their InvestmentsThe Development of the Venture Capital Industry in the United StatesBeginningsThe 1980sThe 1990s until the 2000 CrisisThe Venture Capital Industry at the Dawn of the Third MillenniumIntroductionThe Impact of the Crisis in the Capital Markets on the IndustryAn Analysis of the Phenomenon and an Outlook to the FutureThe Structure and Activities of Venture Capital FundsThe Organization of Venture Capital FundsRaising Capital for Venture Capital FundsHow Venture Capital Funds WorkDistribution of Profits and Compensation of Fund ManagersExit Strategies of Investments by Venture Capital FundsThe Return on Venture Capital Funds
11. Other Venture Capital Investors
Private Investors (Angels)Corporate and Other InvestorsIntroductionDirect Investments by Companies in the FieldCorporate In-house Entrepreneurship and IncubatorsFinancial Institutions Which Invest Directly in FundsInvestment BanksHolding Companies of Commercial BanksPension FundsInsurance CompaniesNot-for-profit OrganizationsMutual FundsOther Sources of CapitalCredit CompaniesLeasing
IV. Raising Capital from the Public
12. Raising Capital from the Public—Introduction
Deciding to Go PublicIs the Company Ready to Go Public?The Advantages of Going PublicThe Disadvantages of Going PublicPreparing the Company for an IPOThe Managers' ResponsibilityBusiness PlanLegal IssuesAccounting IssuesManaging Investor Relations
13. The Public Offering Process
Stock Markets in the United StatesStock Exchanges Versus Over-the-Counter Trading SystemsThe New York Stock Exchange (NYSE)NASDAQForming the IPO TeamThe UnderwritersChoosing the UnderwritersThe Underwriting SyndicateUnderwriter CompensationThe Legal CounselThe CPAThe Cost of an IPOThe ProcessSigning the Letter of IntentQuiet PeriodOrganizational MeetingPreparing the Preliminary Registration StatementDue DiligenceFiling the Preliminary Registration Statement with the SECThe Amended Registration StatementThe Preliminary Prospectus (Red Herring)Road ShowDue Diligence MeetingPricing, Signing the Underwriting Agreement, and Registration Statement EffectivenessSelling the Shares to the Public and ClosingTrading, Stabilization, and Exercise of the Underwriters' Option (Green Shoe)The Underwriting AgreementThe Standard MethodsOther AlternativesThe Registration StatementDisclosure DutiesThe Disclosure ParticularsLiability under U.S. Securities LawsChanges in the Registration ProcessFollowing the IPOPeriodic Reporting DutiesReporting Material Events and Stock Exchange RulesProxy RulesThe Prohibition on Insider TradingSelling Shares That Are Exempt from RegistrationRule 144Regulation SRegulation AForeign Companies Raising CapitalDisclosure under International Disclosure RulesRelief in the IPO ProcessRelief in Periodic Reporting RequirementsOther ExemptionsUsing ADR
V. Mergers and Acquisitions, Bankruptcies, and Dissolution
14. Mergers and Acquisitions (M&A)—Introduction
The Scope of the PhenomenonTypes of Corporate RestructuringStrategic ClassificationHorizontal AcquisitionsVertical AcquisitionsConglomerate AcquisitionsWhy Do Mergers and Acquisitions Occur?Reducing Development Times and Acquisition of Rapid Growth OptionsOperational SynergyChange in Market PowerImproved Managerial CapabilitiesDiversification and Capital Market SynergyTax AdvantagesDo Mergers and Acquisitions Create Value?Sales and Mergers Versus IPOsIPOsSalesCase Study—The Sale of Chromatis to LucentBeginningsBuilding the CompanyThe TransactionAnalysis and Prologue
15. Conducting the M&A Transaction
MergersClassic MergersTriangular MergersSale and Acquisition of AssetsM&A StrategyAcquirer's M&A StrategyTarget's M&A StrategyThe Consideration in Mergers and AcquisitionsTypical Forms of PaymentDetermining the PriceThe Advantages of Stock-based TransactionsThe Risks in Stock-based TransactionsThe ProcessTender Offers
16. Additional Legal Aspects
Legal Rules Governing Mergers and AcquisitionsApplicable Corporate LawsApplicable Securities RulesMerger or Acquisition AgreementsA Description of the TransactionPrice and Terms of PaymentRepresentations and WarrantiesCovenants and Conditions to ClosingAntitrust IssuesFairness Opinions
17. Other Restructuring
Other Types of Restructuring: Spin-offs, Split-offs, Carve-outs, and Letter StocksEquity Carve-outs (Spin-out IPOs)Letter Stocks/Targeted StocksThe Rationale of Separate Listing of Units
18. Bankruptcy and Dissolution of Companies
Legal Rules Governing Bankruptcy and Dissolution in the United StatesBankruptcyDissolutionAdditional Issues Concerning Bankruptcy of Startup Companies
Glossary
Further Readings

Content preview from From Concept to Wall Street: A Complete Guide to Entrepreneurship and Venture Capital

Part IV. Raising Capital from the Public

Part IV discusses the topic of raising capital from the public, which is an important event in the lifecycle of a venture's development. As a result, it turns from a private company with limited public visibility and financial resources into a traded company which is much more visible and has a variety of financing resources available to it.

The discussion focuses on the considerations involved in the decision to go public and in the method of executing such a decision, as well as on the general principles governing public offerings.

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From Concept to Wall Street: A Complete Guide to Entrepreneurship and Venture Capital

by Oren Fuerst, Uri Geiger, Chemi Peres, Davidi Gilo, Ron Lubash

Part IV. Raising Capital from the Public

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