Bildunsroman#2_Vipul_62
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Transcript of Bildunsroman#2_Vipul_62
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1. List various methods of raising equity capital (400 words)Equity Capital-This is the invested money that is not repaid to the investors in the
normal course of business. It represents the risk capital staked by the owners through
purchase of a company's common stock (ordinary shares).
The value of equity capital is computed by estimating the current market value of
everything owned by the company from which the total of all liabilities is subtracted.
On the balance sheet of the company, equity capital is listed asstockholders' equity
or owners' equity. Also called equity financing or share capital.
Methods to raise equity capital
Equity financing- This is a type of financing is essentially an exchange of money for a piece
of ownership in a new business. This type of financing can usually be provided by venture
capitalists and angel investors.
One possible disadvantage of utilizing equity financing to raise capital is that the new
business owner may lose partial or complete autonomy over their new business. Often
times, angel investors or venture capitalists may want to have a large share in their invested
company as well as have a say in every business decision made, including routine ones
Venture Capitalists- A venture capitalist (VC) is a person who provides equity financing to
companies with high growth potential. It is financial capital provided to early-stage, high-
potential, high risk, growth start-up companies. The venture capital fund makes money by
owning equity in the companies it invests in.
Angel investor- An affluent individual who provides capital for a business start-up, usually in
exchange for some convertible debt or ownership equity. A small but increasing number of
angel investors organize themselves into angel groups or angel networks to share research
and pool their investment capital.
As far as funding is concerned, Angel Investors invest their own funds but a ventur e
capitalist uses the pooled-in money of others professional. Although typically reflecting the
investment judgment of an individual, the actual entity that provides the funding may be
a trust, business, limited liability company , investment fund, etc.
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Private Equity rates - Private equity investors are fund managers that focus on investing
equity in privately owned businesses. Private equity institutions typically raise their money
from third party investors or invest the funds of their parent company
2. Describe the following (meaning, process, advantages, disadvantages)
a. IPO (200 words)b. QIP (200 words)
a. IPOIPO transforms a business from a privately owned and operated into one that is owned by
public stockholders. It is a significant stage in the growth of many businesses, as it provides
access to the public capital market and also increases their credibilit y and exposure.
Advantages
1. Access to capital2. No repayment of capital and no interest charge.3. Investment appreciation and dividends for IPO investors.4. Increased public awareness, leading to new opportunities and new customers.5. Public valuation makes it easier to enter into mergers and acquisitions, because it
can offer stock rather than cash.
Disadvantages
1. High costs and time involved also quite high.2. Public companys loss of confidentiality, flexibility, and control.3. SEC regulations release all operating details to the public, including sensitive
information about their markets, profit margins, and future plans.
Process
1. Select an underwriter to act as an intermediary between the company and the capital
markets
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2 . Assemble an underwriting team consisting of attorneys, independent accountants,
and a financial printer. The attorneys for the underwriter draft all the agreements, while the
attorneys for the company advise management about meeting all SEC regulations.
3. Prepare an initial registration statement according to SEC regulations.
b. QIPA designation of a securities issue given by the Securities and Exchange Board of India (SEBI)
that allows an Indian-listed company to raise capital from its domestic markets without the
need to submit any pre-issue filings to market regulators is QIP or Qualified Institutional
Placement.
Process
1. The company who needs to raise the capital through the QIP issue a minimum of 10% of
the securities issued under the scheme to Mutual Fund.
2. It is mandatory for the company to ensure that there are at least two allottees, if the size
of the issue is up to Rs 250 crore and at least five allottees if the company is issuing
securities above Rs 250 crore.
3. The aggregate of proposed placement under the QIPScheme and all previous placements
made in the same financial year by the company shall not be more than five times the net
worth of the issuer as per the audited balance sheet of the previous financial year.
4. An exit mechanism on the stock exchange without having to wait for a minimum period of
one year, which would have been the lockin period if they had subscribed through a
preferential allotment.
Advantages
Time Saving
Qualified Institutional Buyers can be raised within short span of time rather than in FPO,
Right Issue which take long processes.
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Cost
QIP is a cost effective.
Ease of exit
If institutional investors invest through an IPO there is a minimum lock in period involved.
They cannot sell their shares during this period even they find price extremely attractive.
QIP gives the institutional investors an opportunity to invest in non locking shares.
3. Recent trends in equity fund Raising in Indian markets (400 words)
Emerging trends in private equity
yThe equity market for Indian companies has seen a rapid growth from 2004 just as
Indias economic growth rate started to accelerate.
y Capital raising efforts in large part were relocated to Indian exchanges as theintroduction by the Securities and Exchange Board of India (SEBI).
y This coincided with the gradual easing of the foreign institutional investor ( FII)scheme in India and subsequent growth in foreign institutional investors buying and
trading shares in the domestic market, thereby enabling Indian firms to tap into a
larger pool of institutional capital domestically.
y Global private equity investors showed continued interest in India in 2010.y By the end of 2010 there were 275 private equity deals in India, valued at about
US$7.2b.
y After raising record sums of money through the debt and equity routes in thedomestic market last year, India Inc found capital flows drying up in the first six
months of 2011.
y Though raising equity became more challenging, companies seemed to turnconservative on their borrowings as well. The total sum collected by companies by
way of domestic and international debt stood at $59.1 billion in the first six months
of 2011, against $70.4 billion last year
y The companies tapped the international bond mar kets quite aggressively this yearwhere the amount garnered more than trebled.
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y By the end of 2010 there were 275 private equity deals in India, valued at aboutUS$7.2b. This growth in private equity activity is expected to continue stimulated
by global private equity firms intentions to increase allocations toward India and by
the expansion of the domestic private equity market, a sustained exit market and an
increase in private investment in public equity (PIPE) deals.
y With so many funds out there seeking investors, the capital available is graduallygetting thinner and thinner.
y The fund raising trend in India is inline with the Global fund raising activity as theglobal fund raising also witnessed a dip in the past couple of years, however the
Asian fund raising activity witnessed a 20% rise in 2010 after a dip in 2009, it was
mainly due to RMB denominated funds in China.