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The most important advantage...

Автор: olegj от 31-03-2013, 08:12

The most important advantage...

The most important advantage of the third approach towards capital structure, unlike the second approach is to combine interests of investors and management. In this case, all parties involved are holders of ordinary shares. Non-convertible preference shares are the main part of the protection of investments (90%), but property rights are in the possession of the ordinary shares. Thus, investors and management companies are interested in maximizing the value of ordi nary shares of the company, ie, to maximize the value of the company.

The most important advantage...

The effect of combining the interests of investors and the management of the company increased by the fact that investors paid for common shares in the amount of ten times less than if they had paid, for example, under the terms of the first approach (the only common shares tion). As a result, they begin to make a profit from the investment in the common shares tion much earlier than with alternative approaches to financing. The fact that investors are both owned and non-convertible preferred shares, also has an impact on investors at the time of a conflict of interest between the common and preferred shares (which occurs during difficult financial times for the company), investors are less likely to oppose their interests to the company's management.

For example, in times of financial difficulties the company may be the only way - to agree on a new round of funding with a "down" stock price. Consider the example above.

Using the second approach to funding, investors would buy 32 million convertible preferred shares at a price of $ 62.50 per share (a total of $ 2 million). The third approach to the financing of investors bought 32 thousand common shares (40% of the share capital) for $ 200 million at a price of $ 6.25 per share, plus 32 million non-convertible preference shares at a price of $ 56.20 per share.

The most important advantage...

Total investors invested in the company $ 2 million Assume that the company is in need of an additional round of funding, and another group of investors willing to invest based on the cost of $ 4 million (ie, with a decrease of $ 1 million), but only in convertible preferred shares at a price of $ 50 per share. In the first case, the price of the convertible preference shares of $ 62.50 earlier investors will have to fix the losses and write off investment in the financial statements. In the balance sheet value of the venture fund investments should be reduced from $ 62.50 to $ 50 per share. The total amount of investment in the convertible preferred shares WIDE should be reduced from $ 2 million to $ 1.6 million However, during the first round with the third approach, investors do not suffer from getting another layer of investments in the form of convertible preferred shares at $ 50 per share.

On the balance sheet value of investments of investors will only increase by 34% according to the following calculations: pre-investment value of the company (CE on the front of the second round), in agreement with new investors is $ 4 million (ie, reduced by $ 1 million); $ 4 million from $ 1.8 million will be used to pay non-convertible preference shares; $ 2,2 million is for the purchase governmental ordinary shares, of which 40% ($ 880 million) owned by investors; $ 1,8 million + $ 880 million = $ 2.68 million; $ 2,68 million / $ 2 million = 1.34 or 34% return on the initial investment of $ 2 million Thus, after the second round (using the third approach, ie, preferred convertible shares) with a decrease in prices of up to $ 4 million first round of investors will be able to fix the balance of 34% return on investment. You can talk about the fact that in recent years in venture financing is gaining popularity new approach to the capital structure. This approach is increasingly protects the initial investment in the worst-case scenarios, and contributes to the reconciliation of the interests of different groups of shareholders of the company and the prevention of conflicts of interest between the founders of the (management) companies and venture capital investors.

Monetary System and its components Currency - the currency used for the value of the use value of the commodity.

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