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Private Equity

Transcript: Merchant bankers in London and Paris financed industrial concerns in the 1850s; most notably Crédit Mobilier, founded in 1854 by Jacob and Isaac Pereire, who together with New York based Jay Cooke financed the United States Transcontinental Railroad. J. Pierpont Morgan's 1901 acquisition of Carnegie Steel Company from Andrew Carnegie and Henry Phipps for $480 million represents the first true major buyout. In 1938, Laurance S. Rockefeller helped finance the creation of both Eastern Air Lines and Douglas Aircraft and the Rockefeller family had vast holdings in a variety of companies. Eric M. Warburg founded E.M. Warburg & Co. in 1938, which would ultimately become Warburg Pincus, with investments in both leveraged buyouts and venture capital. India gets major of its start ups funded from Singapore. Singapore acts as Hub for start up VC's in ASIA. First two venture capital firms in 1946: American Research and Development Corporation (ARDC, By Georges Doriot, the "father of venture capitalism ) and J.H. Whitney & Company. ARDC is credited with the first major venture capital success story when its 1957 investment of $70,000 in Digital Equipment Corporation (DEC) would be valued at over $355 million after the company's initial public offering in 1968 (representing a return of over 500 times on its investment and an annualized rate of return of 101%) ARDC total investment in 150 firms. First two Ventured Start ups :- a) Fairchild Semiconductor (1957) b) Venrock Associates (1969) Different Stages of a start up has different roles of funding. A hypothetical Start up goes from a IDEA to IPO. It goes from the owner getting 100% of nothing to some amount of shares in a big company and getting the returns on investments to all the fund providers along with the owner himself. 1946-81 SMALL FUNDING 1982-93- The first boom and bust cycle, was characterized by the dramatic surge in leveraged buyout activity financed by junk bonds and culminating in the massive buyout of RJR Nabisco before the near collapse of the leveraged buyout industry in the late 1980s and early 1990s 1992-2002- The second boom and bust cycle emerged from the ashes of the savings and loan crisis, the insider trading scandals, the real estate market collapse and the recession of the early 1990s. This period saw the emergence of more institutionalized private equity firms, ultimately culminating in the massive Dot-com bubble in 1999 and 2000. 2003-07- The third boom and bust cycle came in the wake of the collapse of the Dot-com bubble—leveraged buyouts reach unparalleled size and the institutionalization of private equity firms is exemplified by the Blackstone Group's 2007 initial public offering. Analyzing the potential in the plan of the start up, the ROI and the exit strategies. Getting availability of the funds with other investors( particularly in case of VC's ). Setting terms of the Equity Funding. Final Documentation. Takes active part in the functioning and working of the firm. Exits whenever they want to with good ROI ( generally by selling the investment or selling out an IPO ) How This Funding Works Venture Capitalist :- Invests in either a firm which is running and needs cash for growth. Angle Investors :- Invests in a plan that is still on paper and needs funds for execution. Leveraged buyout funds :- Typically acquire controlling stakes, either alone or in partnership with other PE firms, of mature, cash-flow-stable companies. Growth equity funds invest in more mature businesses that are looking to scale operations (organically or through M&A) and enter new markets Private Equity Segmentation The First's in Private Equity AngelList: It has been used by more than 1,000 companies to find accredited investors -- often a mix of "angels" and venture capitalists, but smaller investors can play, too. CircleUp: San Francisco startup specializes in helping inventors of consumer products such as pet food and organic snacks find investors. Crowdtilt: "Groupfunding" site backed by Y Combinator lets groups of friends launch funding campaigns for projects or purchases; money is collected via credit card, and the site takes a cut. FundAnything: The site launched by Donald Trump to offer artists, entrepreneurs and philanthropists "money for their dreams." FundersClub: It was launched in July 2012 as an "online venture capital firm" whose money comes from individual accredited investors. Kickstarter: Best known as a place to find backers for an artistic endeavor or invention, but small tech companies and other businesses can also launch funding campaigns. Liquidnet: It offers a platform to let private companies sell shares directly to institutional investors. SecondMarket: The firm also allows for the buying of private-company shares, but by individuals. Wefunder: It offers "crowdfunding for startups," lets investors put in as little as $1,000 and is making plans to welcome non-accredited investors once federal rules permit. Different platforms available

Private Equity

Transcript: Private Equity By Max Horton The goal of today's meeting is to create a new private equity firm for the Derryfield School Creating a Long Term Plan Derryfield's Future She saw what Google did when it created Google Venture (GV) Unorthodox idea to better the school Create an independent firm profits will be funneled to the improvement of the school Dr. Carter's Vision Vision Private Equity Venture Capital Private Placement 3 Main Types of Firms What is PE? Private Equity Invest in companies with techniques like leveraged buyouts Buying mature companies to give a makeover so that they become profitable Most popular form First leveraged buyout by JP Morgan in 1901 of Carnegie Steel Corporation Private Equity Pros Allows companies to grow outside of the public eye A Harvard study found that companies backed by private equity performed better than their counterparts in the stock market Private equity offered networking and funding Make about 2% annually on administration fees and 20% on profits of company Pros to Private Equity Cons Hard to liquidate Need to find a person/company willing to buy all the assets Not like the stock market where oyu can just sell Price of assets is determined through agreement, not driven by market forces could be good or bad Downsides to Private Equity Invest in young, growing or emerging companies Google Ventures invested in Uber and Nest Not always just monetary investment May help with technical or managerial expertise Want to invest in companies with strong business plan and have a lot of room for growth Venture Capital Venture Capital Pros Have high rate of return on investment Investors get liquidity in company After a certain amount of time, like 4 to 6 years, the investors leave the company through a merger, acquisition or IPO Benefits of Venture Capital Pros Due to being highly profitable, they are also very risky investments Risk-return paradox Rarely obtain majority control Need to do a lot of background research before investing Investing a lot of money Downsides to Venture Capital The sell of securities to a relatively small number of select investors Investors like large banks, mutual funds, insurance companies and pension funds Not open to the general market like a stock Used to raise short term money for the company and long term money for investors Private Placement Private Placement Pros The sell of securities to a relatively small number of select investors like banks and mutual funds Used to raise short term money for the company and long term money for investors This type of investment isn’t regulated by the SEC Can get money faster with less hoops to jump through Information of the deal is not disclosed The firm can remain privately owned Benefits of Private Placement Cons Investing is not as secure because not backed by SEC Can loss a lot of money So have to know what you’re doing Downsides to Private Placement Any of these types of investments will offer Derryfield endless opportunities to grow Take advantage of a great way to raise money Bringing your school into the 21th century Endless Opportunities Conclusion

PRIVATE EQUITY FUNDING

Transcript: HOW DO PE FUNDS WORK? EARLY SUCCESSES Finance: dominated by a few large firms making it difficult for new entrants to compete High legal and capital requirements Construction: Saturated sector Government is the major customer GROWTH PROSPECTS OF PE IN INDIA Private equity refers to a type of investment aimed at gaining significant, or even complete, control of a company in the hopes of earning a high return. Private equity funds invest in assets that either are not owned publicly or that are publicly owned but the private equity buyer plans to take private. The fund would be monitored and evaluated against projected and expected performance. Once the investment objective is met, the exit strategy would be executed. WHO WILL MANAGE THE FUND? Began in the mid 1980's First venture capital funds launched by ICICI and IFCI Commercial Banks started venture capital funds Regional venture capital funds in Andhra Pradesh and Gujarat HOW CAN A PEF WORK IN TRINIDAD AND TOBAGO OTHER STRATEGIES AGRICULTURE WHAT IS PE? HOW CAN A PEF WORK IN TRINIDAD AND TOBAGO Downstream Energy Industry attractive for PE IPO Exit Strategy Challenge of acquiring land, plant and equipment; payback period of the investment would be lengthy Institutional Investors High Net Worth Individuals GROWTH PROSPECTS OF PE IN INDIA 1. Investments are pooled from high net worth individuals and institutional investors, 2. The Fund is either incorporated as a company or a Trust, 3. The Fund may have open-ended or close-ended investments, 4. Managed by an Asset Management Company or Investment/Fund Manager, 5. The Fund typically holds diversified investments to manage risk. 6. Profits are distributed to investors in a pre-determined manner 7. Excess returns are shared between the investors and the Fund Manager. Bharti Airtel - Warbug Pincus deal: - Bharti Airtel received US $292 million from Warbug - Fund enabled Bharti to expand its business from 2 to 23 mobile telecom circles - Warbug Pincus exited by selling off its stake to Vodafone for US $848 million - Warbug secured total gains of around US$ 1.3 billion in the sell-off Attractive for PE as it is underdeveloped and can diversify the economy away from oil and gas dependence. Exit Strategy: sell-off or re-capitalisation HISTORICAL BACKGROUND FACTORS THAT DETERMINE INVESTOR WILLINGNESS TO ENTER PE MARKET EARLY DAYS OF PE IN INDIA STARTING A PRIVATE EQUITY AND VENTURE CAPITAL FUND IN TRINIDAD AND TOBAGO SECTORS FOR PE IN TRINIDAD AND TOBAGO TOURISM Owner cash out Investor buy out Merchant banking Fund of funds CAN PE BE SUCCESSFUL IN TRINIDAD AND TOBAGO Attractive for PE as the Government attempts to incentivise entry into this sector Exit Strategy: Sell-off or re-capitalisation Challenges: family owned farms, seasonal adverse weather conditions and seasonal crops Laws for venture capital funds started taking shape in the mid - 1990's In 1996 the Securities and Exchange Board of India issued the SEBI (Venture Capital Funds) Regulations 2008 Financial Crisis resulted in a slowdown in India's PE industry However, there is currently modest growth and the slowdown is merely a "bump in the road" India remains the 2nd largest Asian recipient of foreign PE after Japan WHO WILL BE THE INVESTORS? Leveraged Buyout (LBO) Growth Capital Mezzanine Capital Venture Capital Shallow Capital Market Small Economy Poor Corporate Governance Family Owned Businesses and Lack of Transparency Lack of Management Expertise GENERAL CHALLENGES IN TRINIDAD AND TOBAGO HAS IS WORKED IN DEVELOPING COUNTRIES AND WILL IT WORK IN TRINIDAD AND TOBAGO? Economic reform by the government in late 80's/early 90's 1995-2000 foreign firms such as Baring PE partners, CDC Capital, Draper International, HSBC Private Equity and Warbug Pincus entered Chris Capital and West Bridge Capital set up with a focus on IT UNFAVOURABLE SECTORS INDIA PE Industry slowed down in 2001-2003 Investment activity revived in 2004 with 6 companies going public PE industry grew from US $2 Billion to US $20 Billion by 2006 PE was the largest investor class driving equity deals in India HOW TO ALLOCATE INVESTMENTS ENERGY WHAT STRATEGIES DO PE INVESTORS USE? IPO Sell-off Re-capitalisation A diverse group of finance specialists, accountants and lawyers with multi-sector experience MONITORING AND EVALUATION OF THE FUND REAL ESTATE DEVELOPMENT Economic Activity Open Market Economy State of Capital Markets Investor Protection and Corporate Governance Regulation Taxation Entrepreneurial Culture and Deal Opportunities Management Expertise Culture Attractive for PE as the Government attempts to incentivise entry into this sector Exit Strategy: IPO, Sell-off to larger manufacturing companies or re-capitalise Challenges: most manufacturing companies in Trinidad are family owned, they may not be willing to part with control or favour transparency. MANUFACTURING GROWTH AND DEVELOPMENT OF PE IN INDIA MOST ATTRACTIVE SECTORS IN INDIA FOR PE Sector diversification Companies should be in

Private Equity Presentation

Transcript: And a 20% performance fee is charged for all profits gained by the company. A 2% management fee is charged annually on assets under management. - When going this route the PE fund is choosing to use debt rather than their own capital to obtain the target company. Ex: If Recap Holdings is managing assets for Solar Extract; a solar energy company, who has 3 billion dollars worth of assets under management then Recap Holdings will generate $60,000,000 in management fees alone. What is Private Equity? Private Equity is simply the buying and selling of Private Companies in order to generate a profit. 3) What is Private Equity composed of. 1) How does Private Equity generate a profit for the firm and managers. When investing within the company the firm must first analyze three key structures in determining it's survivability. - How bad is the distress. - Can the company assets be restructured. - And will the creditors of the company become target holders. "Distressed Buyout" They generally have a performance fee along with a management fee. Carl Ichan Warren Buffet Private Equity firms are composed of high net-worth investors that create a fund for a specific purpose of investing. How does Private Equity generate a profit for the firm and managers? Bill Gates EX: If Solar Extract generated $340,000,000 in net profit, then Recap would benefit $68,000,000 Are investments within companies that are in the stage of development. Typically witnessing negative cash flow and requires a lot of potential before seeing positive cash flow. Is when a Private Equity fund purchases/invests into a company that has taken on a high amount of debt and can no longer function on it's own. Elon Musk "PRIVATE EQUITY INDUSTRY" - They are generally a high risk for investors because these are companies that have not yet found a market to reside in because of idea being fairly new. Is when a fund acquires an existing company using a considerable amount of borrowed funds. "Leveraged Buyout" "Venture Capital" Christian Rampergas Bus 104 10/24/16 2) Types of Private Equity investments. - Distressed Buyout - Leveraged Buyout - Venture Capital

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