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Price increase (step...

Автор: olegj от 2-04-2013, 15:35

Price increase (step...

Price increase (step up) - this is the process of increasing the share price between rounds of financing and, therefore, increase the company's value. 1. Growth rates = stock price of a new round / share price the previous round. 2. Growth rates = pre-investment costs of a new round / post-investment value of the previous round.

Phased investment, the erosion of shares in subsequent rounds of financing and protection from erosion in venture financing In a phased financing venture capitalist invests gradually. The business plan of the company introduced a plan to achieve the main schedule milestones.

Venture capitalists provide a well-defined amounts that are sufficient only to reach the next interim destination fixed in the business plan. Piecemeal funding limits the losses that investors could potentially incur in the event that due to some reasons the company did not meet expectations. The possibility of the withdrawal of funding and the threat of erosion of the share capital in each successive round of funding motivate the entrepreneur as soon as possible to realize the potential of the enterprise. Subsequent phases of funding are made at relatively short intervals - always less than one year.

Price increase (step...

Staged financing is usually combined with a gradual tightening control over the enterprise. After a first round of funding, investors do not get the majority of the board of directors.

But in each successive stage, the number of seats held by investors on the board of directors is increased, and gradually get the majority of venture capitalists on the board of directors. The reverse side of a phased financing - potential dilution that occurs when, in the course of subsequent rounds of financing of the initial share in the equity of the company is reduced. Special attention is paid VCs protect their investment in the so-called funding "down (down rounds) value. There are two basic mechanisms of protection against dilution in rounds down: the method of "full ratchet (full ratchet) and the method of weighted average (weighted average ratchet).

Price increase (step...

According to the method of "full ratchet" when the company holds an additional issue of preferred shares at a price lower than the price of preferred shares in the previous round, the conversion price (in ordinary shares) is changed, since the need to achieve compliance with the new lower price. Thus, the conversion of an increasing number of ordinary shares received, and the investor's share in the company is not affected.

As a result of this procedure, most owners are losing share classes are not protected by such privileges founding, managers and employees. The weighted average method is considered less rigid with respect to the holders of ordinary shares. If the size of the new issue is insignificant, the common shareholders' equity is reduced dramatically, as in the application of the method of "full ratchet". There are several formulas weighted average of the most common of which is the following: NTSK STsKh = (A + C) / A + D, where NTSK - the new conversion price; LZC - old conversion price, and A - the number of authorized shares to erosion; D - the number of shares issued by erosion; C - the number of shares that would be issued by the erosion, if the stock price is equal to LZC. Determining the value of the company's "method of venture capital" Venture capitalists use a variety of methods to assess the value of companies.

Methodology for determining the value depends on the stage of development of the company and the nature of the data available about her. The cost firms in the early stages of development, most often determined by using the "method of venture capital." This method is based on the computation of a hypothetical "final value" of the company at the end of "investment horizon" (it is usually five years). This value is then the "final value" of the company is discounted in the current period using the target internal rate of return (internal rate of return - IRR). The target internal rate of return determined by the stage of development of the company and ranges from 80% a year for the companies in the initial stages of development ("seed") of up to 20% in the later stages. Such a methodology allows you to bypass the issue of negative cash flow at the initial stage of development of the company.

Another distinctive feature of the method is the definition of venture capital cost by the expected erosion of the share capital in subsequent rounds of financing. Valuation of the company by the method of venture capital is held in seven stages.

Price increase (step...

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