This document discusses private equity, which refers to equity in companies that are not publicly traded. It covers common private equity investment strategies like leveraged buyouts and venture capital. Venture capital typically funds high-growth startups in industries like IT and biotech. The stages of venture capital funding and a startup's development are also outlined. The document then contrasts private equity with public equity and describes the IPO process and reasons why companies may decide to go public.

1. Going public/IPO
Equity/
Meeting 2

2. Private equity investment
• Equity of companies that are not publicly traded on a stock exchange
• Provided by:
• a private equity firm,
• a venture capital firm
• or an angel investor
• all provide working capital, e.g. for new-product development

3. Private equity: common investment strategies:
• Leveraged buyouts LBO (combination of equity and debt)
• Venture capital (form of financing that is provided to early-stage
firms, which have demonstrated high growth)
• Growth capital
• Distressed investments
• Mezzanine capital

4. Private equity: Seed funding
• Includes friends and family funding, angel funding, and crowdfunding
• Can be used to pay for preliminary operations such as market
research and product development

5. Private equity: Venture capital (1)
• Venture capitalists take on the risk of financing risky start-ups in the hopes that
some of the firms they support will become successful
• The start-ups are usually based on an innovative technology or business model
and they are usually from the high technology industries, such as: information
technology (IT), social media, biotechnology
• Venture capital investments tend to come from institutional investors, involve
significantly more money than seed funding
• Venture capital is attractive for new companies with limited operating history that
are too small to raise capital in the public markets and have not reached the point
where they are able to secure a bank loan or complete a debt offering
• However, seed funding involves a higher risk than normal venture capital funding
since the investor does not see any existing projects to evaluate for funding

6. Private equity: Venture capital (2)
• The first round of institutional venture capital to fund growth is called
the Series A round.
• Venture capitalists provide this financing in the interest of generating
a return through an eventual "exit" event, such as the company
selling shares to the public for the first time in an Initial public
offering (IPO) or doing a merger and acquisition (also known as a
"trade sale") of the company.

7. Private equity: Venture capital (3)
• There are typically six stages of venture round financing offered in Venture
Capital, that roughly correspond to these stages of a company's
development.
• Seed funding
• Start-up
• Growth (Series A round)
• Second-Round
• Expansion
• Exit of venture capitalist: VCs can exit through secondary sale or an IPO or
an acquisition
• Bridge Financing

8. Private equity: start-up stages
• Idea → Product prototype → $ The three Fs are friends, family and fools
→
• Market research and product development → $ Seed finance (angel
funding, and crowdfunding)
• →
• Series A round (preferred stock sold to investors in exchange for their
investment) and Initial public offering (IPO) → $ Venture funding

10. History of private equity and venture capital
• Early history (Origins of modern private equity)
• The 1980s (Leveraged buyout boom)
• The 1990s (Leveraged buyout and the venture capital bubble)
• The 2000s (Dot-com bubble to the credit crunch)

11. • Start Surabaya
• Plug and Play
• Kibar
• BHinneka - ecommerce
• Kredivo - fintech
• Go-jek
• Lazada
• Reblood

12. Public equity
• Private equity means shares in a private company. Public equity means shares in a
public company.
• Either way, you have shares in the company. The difference is that a public
company has been through a rigorous approval process to enable its shares to be
traded on a public market. Among other things, this means that:
• The shares are easy to buy and sell whenever you want
• The company regularly publishes detailed financial results
• The company has a substantial track record and complies with various regulations
• It is likely that several brokers and other researchers are monitoring the company
and regularly publishing their views on its performance and prospects

13. Public equity: primary/secondary markets
• When a firm goes public, it issues stock in the primary market in
exchange for cash
• The secondary market allows investors to sell the stock they
previously purchased to other investors

14. Why Issue Equity Publicly
14
Advantages Disadvantages
1. Access to capital markets 1. Expensive
2. Improved liquidity for shareholders 2. Costs of dealing with shareholders
3. Allowing original owners to diversify 3. Allowing competitiors gain information
4. Monitoring by external capital markets 4. Public pressure
5. Information provided by capital markets
6. Enhanced credibility with stakeholders

15. The IPO Process
• Time 0: The firm decides to go public.
• Time 1: The firm chooses an underwriter (an investment bank). The
underwriter will advice the firm on the type of security to issue, help
with the pricing, the marketing, and the registration of the shares on
an organized exchange.
• Time 2: The firm starts trading on the exchange.

16. Why do companies go public?
• New capital
• Almost all companies go public primarily because they need money to expand the business
• Future capital
• Once public, firms have greater and easier access to capital in the future
• Mergers and acquisitions
• Its easier for other companies to notice and evaluate a public firm for potential synergies
• IPOs are often used to finance acquisitions

17. Disadvantages of the IPO
• Expensive
• A typical firm may spend about 15-25% of the money raised on direct
expenses
• Reporting responsibilities
• Public companies must continuously file reports with the SEC and the stock
exchange they list on
• Loss of control
• Ownership is transferred to outsiders who can take control and even fire the
entrepreneur

18. IPOs
(Three Primary Methods)
• Placing
• Fixed-price Offer for sale
• Auction-rate Offer for sale

19. Google’s IPO
Google’s IPO
a. On August 18, 2004, Google engaged in an IPO that generated $1.6 billion.
b. Estimating the Stock’s Value - investors multiplied Google’s earnings per share by
Yahoo!’s price-earnings ratio.
c. Google’s Communication to Investors before the IPO - Google provided substantial
financial information about its operations and recent performance.
d. The Auction Process – Google used a Dutch auction process allowing all investors to
submit a bid for its stock by a specific deadline.
e. Results of Google’s Dutch Auction - resulted in a price of $85 per share.
f. Trading after the Auction - took place in the secondary market.

20. Dutch Auction
• A Dutch auction is a type of auction in which the auctioneer begins
with a high asking price which is lowered until some participant is
willing to accept the auctioneer's price
• The winning participant pays the last announced price
• This type of auction is convenient when it is important to auction
goods quickly, since a sale never requires more than one bid
• The Dutch auction guarantees that the best possible price is obtained
• If a company is using a Dutch auction IPO, potential investors enter
their bids for the number of shares they want to purchase as well as
the price they are willing to pay

21. Google’s IPO
• Google stock (GOOG) opens at $100.01, after being priced at $85.00
• lower than original ($108 - $135)
• # shares offered: 19.6 million
• Much less than original (25.7 million)

22. Google’s IPO
• Total revenue:
• 19.6 million shares * $100 = $1.96 B
• Actual revenue raised from IPO:
• $1.67 B
• Why? Some shares sold were already held by employees.

23. Many Google employees became instant millionaires
• Approximately 250 million shares for nearly 2,000 employees.
• Average:
(250,000,000 shares * $100 / 2,000 employees)
$12.5 million / employee

24. Google ideals – changing after IPO?
• Rich employees
• "Once a person has the sense of the wealth, the commitment to the company
and where it's going can fall off"
• Workforce tensions
• Only about 1,000 employees became millionaires
• Loss of control
• Newfound responsibility to shareholders
• Employees are still selling off their shares (class A)