Financing Decisions (working post)

The financing options have been growing in the last years, with institutions using different methods for financing their business. Let's try to summarize them and see theirs pros and cons.

VENTURE CAPITAL:
On finding financing, the entrepreneurs should show compromise and optimism,, that can be tangibilized in their remuneration model. It must be clear that the entrepreneurs are taking the risk.

I think we can say that, as Mutual Funds believe in market efficiency and base their investment decisions in a Markovitz approach, companies these other investment companies, that invest in bigger stakes of equity, although they diversify their investments and try to manage their risk, they believe in arbitrage opportunities and that market is not efficient.

Investment Angels
Private investors which high investing capacity.

Venture Capitalists
Normally buy equity stakes in growing firms. Dillute their risk trough diversification, industry and business cycle picking and specific terms on the investment agreement.

Private Equity
Normally buy equity stakes in more mature firms.

Risk Companies
Companies that finance start-ups related to their coe-business.

STOCK MARKET:

Initial Public Offering (IPO)
A discount is offered to make the offering more attractive. New shares are issued.

Secondary Public Offering
The former shareholders sell their own shares. If the former sareholders are essential to the business, it can't be done, as it increase the perception of risk to the investor.

Stock Subscription
The prior shareholders receive a call option, for buying a certain rate of shares (ex.: 3 shares for each 15 hold) for a certain price in a future date.
Avoid the fact that in public offerings the new investors get advantage over the prior shareholders, as the shares are offered with a lower price.

Private Offerings
Sell shares to specific investors. Lower cost, as it has less regulation requirements.

International Offers
The country and stock market choosen can give brand awareness and lower debt cost for new loans.

DEBT:

Commercial Paper

Corporate Bonds

Convertible Bond
Lower interest rates.

Project Finance

Levered Buy-Out (LBO)