XV.  Partnerships, Private Placements, & Venture Capital
A.  PARTNERSHIPS <ul><li>Types of Partnerships </li></ul><ul><ul><li>General Partnership an agreement between individuals ...
A.  PARTNERSHIPS <ul><ul><li>Limited Partnerships – a form of ownership in which investment control is assumed by a genera...
A.  PARTNERSHIPS <ul><li>Partnership Agreement – the legal document specifying partners’ rights and division of gains and ...
B.  PRIVATE PLACEMENTS <ul><li>Can be used for either private (not publicly traded) stock offerings or other ownership sha...
B.  PRIVATE PLACEMENTS <ul><li>Private Placement Defined </li></ul><ul><ul><li>A private placement is an agreement for equ...
C.  VENTURE CAPITAL <ul><li>Generally regarded as “seed money,” used to help start or expand a new business </li></ul><ul>...
C.  VENTURE CAPITAL <ul><li>Forms of Venture Capital investments </li></ul><ul><ul><li>Debt – loan contract between the bu...
C.  VENTURE CAPITAL <ul><li>Sources of Venture Capital Funding </li></ul><ul><ul><li>Partnerships – business owned by indi...
C.  VENTURE CAPITAL <ul><li>Advantages and Disadvantages of Venture Capital </li></ul><ul><ul><li>Advantages </li></ul></u...
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Course Outline Part XVII (Partnerships and Private Placements)

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Course Outline Part XVII (Partnerships and Private Placements)

  1. 1. XV. Partnerships, Private Placements, & Venture Capital
  2. 2. A. PARTNERSHIPS <ul><li>Types of Partnerships </li></ul><ul><ul><li>General Partnership an agreement between individuals to share in running a business, sharing gains and losses </li></ul></ul><ul><ul><ul><li>Personal Liability – each partner has unlimited liability for partnership debts, could lose more than his or her investment </li></ul></ul></ul><ul><ul><ul><li>Unless specified otherwise, all gains and losses are shared equally among the partners </li></ul></ul></ul><ul><ul><ul><li>The partnership agreement provides the legal framework for operations, including division of profits and losses </li></ul></ul></ul><ul><ul><ul><li>Investment Club – a partnership formed to invest pooled funds – generally divides profit and loss by initial investment </li></ul></ul></ul>
  3. 3. A. PARTNERSHIPS <ul><ul><li>Limited Partnerships – a form of ownership in which investment control is assumed by a general partner, while the other partners have limited control </li></ul></ul><ul><ul><ul><li>General Partner – organizes the partnership, writes the partnership agreement, assumes any partnership liabilities in excess of the limited partners’ investment, and obtains a majority of partnership profits in return </li></ul></ul></ul><ul><ul><ul><li>Limited Partner – passive investors, provide money only, can lose no more than the money invested, receive a share of the partnership’s profits </li></ul></ul></ul>
  4. 4. A. PARTNERSHIPS <ul><li>Partnership Agreement – the legal document specifying partners’ rights and division of gains and losses </li></ul><ul><li>Prospectus – for limited partnership investments, includes the partnership agreement and details fees and the division of profits between limited and general partners </li></ul><ul><li>Limitations on Partnership Investment – for a general partnership, there are no restrictions, however, limited partnerships generally require limited partners to be accredited investor </li></ul>
  5. 5. B. PRIVATE PLACEMENTS <ul><li>Can be used for either private (not publicly traded) stock offerings or other ownership shares of a business </li></ul><ul><li>For a formal private placement, the investor must be an accredited investor </li></ul><ul><li>Private placement memorandum – similar to a prospectus, details the risks of an offering, business officers, actual and pro forma financial standards, and related material </li></ul><ul><li>Subscription agreement – a contract between the business and the investors requiring the investor to provide the agreed upon capital </li></ul>
  6. 6. B. PRIVATE PLACEMENTS <ul><li>Private Placement Defined </li></ul><ul><ul><li>A private placement is an agreement for equity investment in a business made directly between the business and the investor </li></ul></ul><ul><ul><li>Offered to a limited number of investors </li></ul></ul><ul><ul><li>Illiquid – ownership interests can not be publicly sold or purchased – generally, the private placement agreement specifies who the investor will be, and the ownership interest is not transferable </li></ul></ul><ul><ul><li>No regulation – because private placements are a direct contract between a business and an investor, they are not regulated </li></ul></ul>
  7. 7. C. VENTURE CAPITAL <ul><li>Generally regarded as “seed money,” used to help start or expand a new business </li></ul><ul><li>A business can receive venture capital as a start up, when expanding before profitability, or after the business becomes profitable (but before a buy-out or an initial public offering) </li></ul><ul><li>The required rate of return or portion of equity required to receive venture capital funding is relatively high, the venture capitalist often provides advice and may take control of a corporation to protect its investment </li></ul>
  8. 8. C. VENTURE CAPITAL <ul><li>Forms of Venture Capital investments </li></ul><ul><ul><li>Debt – loan contract between the business and the venture capital firm, generally with above market interest rates </li></ul></ul><ul><ul><li>Equity – where the venture capital firm purchases an ownership share of the business, generally in the form of private placement stock </li></ul></ul><ul><ul><li>Preferred Stock – the favored type of venture capital investment, provides interest yields and seniority to capital in the event that the firm fails, but with an equity interest if the firm succeeds </li></ul></ul>
  9. 9. C. VENTURE CAPITAL <ul><li>Sources of Venture Capital Funding </li></ul><ul><ul><li>Partnerships – business owned by individuals specifically to provide venture capital for other businesses </li></ul></ul><ul><ul><li>Limited Liability Corporations – a cross between a partnership and a corporation, does not have the restrictions on making investments that publicly traded corporations must adhere to </li></ul></ul><ul><ul><li>Investment Management Firms – pools of money from accredited investors, with an investment manager making decisions concerning which venture capital projects to fund </li></ul></ul>
  10. 10. C. VENTURE CAPITAL <ul><li>Advantages and Disadvantages of Venture Capital </li></ul><ul><ul><li>Advantages </li></ul></ul><ul><ul><ul><li>Venture capitalists generally have expertise in guiding new firms, can help with management </li></ul></ul></ul><ul><ul><ul><li>Venture capitalists can provide substantial funds for business development </li></ul></ul></ul><ul><ul><ul><li>A venture capital firm’s investment in a business can give the business a “stamp of legitimacy” </li></ul></ul></ul><ul><ul><li>Disadvantages </li></ul></ul><ul><ul><ul><li>The venture capital firm often requires some control over the business’ operations </li></ul></ul></ul><ul><ul><ul><li>Venture capital money is expensive – the venture capitalists expect to obtain investment returns commensurate with their risk of loss of capital </li></ul></ul></ul>

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