Scribd
Upload
24 views7 pages

Importance of New Venture Financing, Types of Ownership Securities, Determining Ideal Debt-Equity Mix

This document discusses new venture financing and ownership securities. It describes types of equity like common stock and preferred stock, as well as debt securities. It then focuses on venture capital, explaining that it fills funding gaps for innovative startups until they are large enough for public markets. Venture capitalists invest in industries with potential and help startups grow before exiting via acquisition or IPO. The document also discusses types of debt securities and how to determine an optimal debt-equity mix by minimizing the weighted average cost of capital.

Uploaded by

BCom Hons
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
24 views7 pages

Importance of New Venture Financing, Types of Ownership Securities, Determining Ideal Debt-Equity Mix

This document discusses new venture financing and ownership securities. It describes types of equity like common stock and preferred stock, as well as debt securities. It then focuses on venture capital, explaining that it fills funding gaps for innovative startups until they are large enough for public markets. Venture capitalists invest in industries with potential and help startups grow before exiting via acquisition or IPO. The document also discusses types of debt securities and how to determine an optimal debt-equity mix by minimizing the weighted average cost of capital.

Uploaded by

BCom Hons
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 7

Importance of new venture

financing, types of
ownership securities,
determining ideal debt-
equity mix
es
Types of ownership securities
• Equity shares
• Preference shares
• Debt securities
• Hybrid securities
Venture capital
• Venture capital fills the void between sources of funds for innovation (chiefly
corporations, government bodies, and the entrepreneur’s friends and family) and
traditional, lower-cost sources of capital available to ongoing concerns.
• The idea is to invest in a company’s balance sheet and infrastructure until it
reaches a sufficient size and credibility so that it can be sold to a corporation or so
that the institutional public-equity markets can step in and provide liquidity.
• In essence, the venture capitalist buys a stake in an entrepreneur’s idea, nurtures
it for a short period of time, and then exits with the help of an investment banker.
Venture capital
• Venture capital’s niche exists because of the structure and rules of
capital markets. Someone with an idea or a new technology often has
no other institution to turn to.
• Thus bankers will only finance a new business to the extent that there
are hard assets against which to secure the debt. And in today’s
information-based economy, many start-ups have few hard assets.
• The myth is that venture capitalists invest in good people and good
ideas. The reality is that they invest in good industries.
Types of debt securities
• Bonds, notes and medium-term notes
• Commercial paper (CP)
• Interest-bearing securities
• Zero coupon securities
• High yield securities (non-government)
Determining ideal debt-equity mix
• The optimal capital structure is estimated by calculating the mix of
debt and equity that minimizes the weighted average cost of capital
(WACC) of a company while maximizing its market value.

• WACC = ke (E/(D+E)) + kd (i-t)(D/(D+E))

You might also like