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Mature companies debt

Автор: olegj от 9-06-2013, 09:32

Mature companies debt

If in the near future are expected infusion of new equity; if in the near future to achieve positive cash flow. Mature companies debt financing is attractive because it does not blur the share capital. However, at the stage of development of venture debt financing is able to modify the rights and privileges of shareholders (especially holders of preferred shares), so to receive it typically requires their consent. It should be noted that the existing forms of borrowing could either do not conflict with the interests of shareholders, as well as not to affect their position, or vice versa. For young companies in the early stages of development are available four forms of borrowing: trade credit (financing from suppliers); financing receivables sion (factoring); Bank lending by the staff WIDE guarantee of a third party; bridge financing (Bridge Financing).

Mature companies debt

Trade credit from suppliers is the cheapest form of financing, as in this case, the key appears purchased equipment, which significantly reduces the credit risk and, therefore, the cost of the loan. Accounts receivable financing (factoring) can also be called a relatively cheap form of borrowing. Factoring - a financial service that the banks or specialized financial institutions provide firms with a stable customer base and predictable mi (albeit spread over time) of cash flows mi payment.

The cost of this form of lending depends on the expected bank (factor) percent of default on receivables. In addition, the young company can get a bank loan or line of credit with the personal guarantee of a third party (person or entity). However, in this case, the third party requires the provision of certain guarantees in the form of shares in the share capital and compensation for risk (options and warrants). As long as practice shows, debt financing guaranteed by a third party is a more expensive form than the traditional bank lending kov. Finally, the most expensive form of borrowing for young companies is a bridge financing - the main form of debt financing for companies in the venture capital stage.

Bridge financing is used in the case where the company has spent all the money received in the previous round of financing, and expects in the near future for the next round. Typically, the com pany receive bridge loans (bridge loans) from the already existing syndicate of investors who financed the company in the previous stages. Also there is a special venture capital funds that specialize only on a loan in the form of bridge financing. These help the company may apply in cases where existing investors for some reason are not able to provide additional capital.

Mature companies debt

Bridge financing is usually done in the form of promissory notes (bridge notes), by which a company can reach the next round. After completing his notes must be paid and settled.

Mature companies debt

It is also often used convertible notes (convertible promissory notes), provide the holders to convert notes into shares during the next round of funding. As a rule, the annual credit rate on bridge notes is 8%, and the conversion of their shares to holders receive a discount of 5-15% of the value of the shares. For successful companies bridge financing is an important step on the way to the next round of funding and serves as a guarantee that it, along with the new will be taking part and existing shareholders.

However, if the company is experiencing difficulties in raising additional equity capital, and the bridge notes are the only source of funding, the interests of the shareholders and the holders of the Notes may not be the same, and the advantage is given to the holders of debt notes. With funding from the company by means of bridge-notes compiled a preliminary agreement on funding (Term Sheet), which records the main provisions of the agreement between the company and the creditors. In the later stages of development, along with the stock, usually have and debt financing.

Alternative approaches to the formation of the company's equity In venture capital, there are three approaches have been successfully applied to a structure of capital and the creation of different classes of securities. 1. According to the first the simplest approach, the formation of capital structure used only ordinary shares to all categories of investors.

2. According to the second most popular nowadays among professional venture investors approach, the formation of the capital structure of the company are used convertible preference shares to institutional and venture capital investors, and for the company's founders and dovenchurnyh investors (the so-called "angels") are used ordinary shares. 3. According to the third new approach, venture investors use the "bundle" of common shares and non-convertible preferred shares.

The first two approaches have traditionally been the most common. The third approach has recently gained popularity and has been used successfully by several large venture capital funds. Each approach has the features and advantages in use.

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