1. No category

IQO
How to raise private equity
as a high-growth company
Sophie MANIGART
Professor Ghent University and Vlerick Leuven Gent Management School
MIGUEL MEULEMAN
Degree in Applied Economics Ghent University
LARCIER
Table of Contents
Introduction
1
Chapter 1.
1.1.
1.2.
1.31.4.
Financing the entrepreneurial
company:
an overview
What makes entrepreneurial finance different
from corporate finance?
.\. ...._.
The role of external investors in the life cycle of a firm
1.2.1. Stages of new venture development
1.2.2. Sources of
finance
Raising private equity
From start-up to IPO: case study Omega Pharma
'
5
5
8
8
10
12
13
Chapter 2.
Financial Planning
2.1. Why is financial planning important?
2.2. The cashflow cycle
2.3- Critical determinants of financial needs
2.3-1. Characteristics of the operations
2.3.2. Working capital policy
2.3.3. Profitability and sales growth
2.4. Pro Forma Analysis
2.4.1. Generating a sales forecast
2.4.2. Financial projections through pro forma analysis
2.5. Dealing with uncertainty
2.5.1. Scenario analysis
2.5.2. Sensitivity analysis
2.6. How much money does your company need?
19
19
21
22
23
24
26
26
29
30
35
35
37
39
Chapter 3.
Valuation
3.1. Pre- and post-money valuation
3.2. Discounted cashflow model (DCF)
3.2.1. Present value of future cash flows
3.2.2. Identifying the relevant cash flows
3.2.3- Continuing value concept
3.2.4. Problems associated with using DCF
for valuing young companies
3.3- Multiples
43
44
47
47
48
50
51
52
II
TABLE OF CONTENTS
3-4. The venture capital method
3-5- The required rate of return for external investors
35.1. The required rate of return or the weighted average cost
of capital in a perfect market
3.5.2. The hurdle rates used by private equity investors
3-6. The effect of dilution
3- 7. Conclusion
Chapter 4.
Structuring a deal
.....'.
4.1. The basic rules
4/ 4.2. Staging of investments and milestones
4.2.1. Advantages for the entrepreneurs, disadvantages
for the investors
4.2.2- Disadvantages for the entrepreneurs, advantages
for the investors
4.3- Financial instruments used to finance entrepreneurial ventures
4.3.1. Straight equity versus straight debt
4.3.2. Preferred equity: downside protection
4.3.3. Debt
financing
4.3.4. Convertible debt
4.4. Structuring a management buy-out or buy-in
4.4.1. Management buy-out and management buy-in
4.4.2. Case Ontex: Introduction
4.4.3- Financial structure of the Ontex deal
4.5. Evaluating the structure of a deal through simulation
Chapter 5.
Private equity contracts
5.1. The role of contracts in the investment cycle
5.2. Documents used during the screening and due diligence phase
53- Post-investment clauses
5.4. Clauses that regulate the transfer of shares
5.4.1. Transfer from entrepreneurs
5.4.2. Transfer linked to exit scenarios. .
55- Closing remarks
Chapter 6.
Types ofprivate equity investors
6.1. The entrepreneurial team
6.2. Family and friends
55
57
58
61
65
66
69
69
71
71
73
75
75
77
82
82
84
84
85
86
88
93
93
94
96
97
97
98
99
101
101
102
TABLE OF CONTENTS
III
6.3- Business angels
6.4. Venture capital or private equity investors
6.4.1. Fund raising and investment activity
6.4.2. The venture capital investment cycle
6.4.3. Organization of an independent venture capital fund
6.5. Comparing business angels with venture capital companies
6.6. Strategic partner
6.7. A short conclusion
103
104
104
106
110
Ill
113
114
Chapter 7.
Exits for private equity investors
7.1. Managing for exit
7.2. Overview of the most common exit routes
7.3. Trade sale
7.4. Sale to another financial investor
7.5. Going public in an initial public offering (IPO)
7.6. Conclusion
115
115
117
120
121
122
124
Chapter 8.
125 V
References
A strategy for raising private equity
129