Posted on Thursday, March 24th, 2011 at 1:21 am.
Today’s economic situation creates ideal opportunities for angel investors and venture capitalists. It was reported that the world’s economy today may appear to be improving statistically but many believe that the global economic conditions are only getting worse. When a high intensity earthquake and ensuing tsunami devastated Japan last Friday – March 11, 2011, the world was shocked and in great turmoil.
Japan, as one of the richest countries of the world is currently suffering from nuclear crisis that may influence the global economy, and may affect the health condition of the nation and its neighboring countries. It was the worst earthquake experience that this country ever had, and the worst calamity that ever happened to this country. Japan gets more than a quarter of their power from nuclear energy. The country has several nuclear reactors and became the third largest nuclear power user in the world providing 34.5% of its electricity. So many countries depend on nuclear power. But what happened in Japan recently made safety officials seek desperately on how to avert catastrophe because this nuclear meltdown is enough to impact human health.
Prior to the catastrophic event in Japan, several countries experience tragic situations as the strong forces of nature hit these countries while some experience chaos and wasted so many lives due to civil wars because of political ill-power or political dynasty. Following are just few of the major disasters encountered by some countries today, creating a humongous effect in their economies.
- A strong earthquake wreaked havoc in New Zealand last month and killed so many people while hundreds are still missing and left damages that caused billions of dollars.
- The wettest season ever in Australia happened earlier this year where one of its biggest cities and some towns were ravaged by heavy floods, killed few people but affecting thousands of families and establishments that cost billions of dollars in its damages.
- In south-eastern Brazil as well, they experienced the worst natural disaster after several decades. More than 500 people were known to have died in heavy floods and damaged a huge amount of money in their properties.
- Egypt encountered its first real international crisis and the biggest disaster since the Iranian revolution that happened three decades ago, pushing the Egyptian regime out of power. This also caused several civilian lives and affected a lot of foreign workers in the country.
- The people power started by the Egyptians subsequently brought tumultuous revolutions by Libyan and Bahraini people, still with the aim of pushing their leaders out of power due to political dynasty or regime. These countries are major producers of oil and employed thousands of foreign workers but they were vastly affected because they have to be sent back to their own countries.
- Saudi Arabia and Qatar are afraid to be the next middle-eastern countries to have possible signs of hostilities. According to some economists, if this would ever happen this could be the worst catastrophe that would eminently disturb the global economy.
To raise venture capital is one of the solutions to economic recovery today. Angel investor networks are very positive of seeing their money grow by investing in start-up businesses with potential, or in some business establishments that are still in the recovery phase after the catastrophe. Those who have good business lines of credits are very much capable of acquiring these unsecured business loans quickly. Entrepreneurs and investors can easily connect with each other no matter which part of the world they are because of the advancement of technology.
Posted on Friday, March 18th, 2011 at 12:15 am.
A placement agent is a financial firm who act as an intermediary in the world of fundraising. Sometimes it is an individual but more often a firm, who assists entrepreneurs, private companies, or institutional investors who are willing and capable of investing a private equity fund. Basically, they match cash-hungry funds with cash-rich investors. They are often structured as groups within huge investment banking firms such as Credit Suisse Private Fund Group and UBS Investment Bank, or as separate boutique investment banks such as MVision Private Equity Advisers and Campbell Lutyens.
In the context of private equity, a placement agent serves several functions for a company such as raise mezzanine capital or venture capital, as well as raise investor commitments to new private equity funds. The market is very competitive especially with the advancement of media and technology, and the need of a placement agent is now certainly arising in this new economic environment. They are crucial to fundraising for emerging markets of private equity funds.
A company usually hires a placement agent in order not to spend too much of its own time seeking for mezzanine capital or growth equity investors. Sometimes the lender also commissions an agent so that the fund partners can aim attention at management issues rather than focusing on how to raise venture capital. Mounir Guen, chief executive of MVision says, “A placement agent is a necessity.” Why? “Because if the job is done well it brings a level of sophistication and experience to the fundraising process.” This is because financial institutions have become more crucial and sophisticated in evaluating potential investments.
In the past, these agents were hired to introduce private equity funds to the investors or to what they termed as limited partners (LP), and simply congratulated after a job well done. But today, they are highly valued advisors who understand and know their limited partners and the market’s appetite for different approaches. They also advise and assist fund managers and help develop marketing strategies. Their critical responsibility is constantly trying to satisfy their limited partners and value their judgment in order to establish long term and deep relationship.
Placement agents can bring a myriad of relationships with growth equity investors, mezzanine capital firms, or venture capitalists. They can cherry-pick investors that are likely to come into a particular fund, increasing efficiency and minimizing risk in the fundraising project, according to James Coleman who joined Deloitte LLP after UBS Investment Bank, two of the globally known financial services firms. They can also advise some existing owners of private equity assets on secondary market sales of their interests.
Placement agents are mostly compensated through fees ranging from 1 percent to 3 percent by the companies or individuals who raise capitals. Sometimes their fees and terms of engagement would extremely vary depending on the length of time to execute the fund and based on the amount of money raised.
Posted on Tuesday, March 1st, 2011 at 4:51 am.
Mezzanine Capital, also known as Mezzanine Debt, is a type of liability funding that comprises equity-based option, such as rights and warrants, and a lower-priority debt. It is a hybrid debt matter that is in subordinate to an existing debt, a debt provided by senior lenders such as banks and venture capital investors. It is frequently used in financing acquisitions and buyouts where it can be used to prioritize new owners ahead of existing owners in the event that a bankruptcy occurs. It basically gives the lender the right to assume ownership of the company if the debt is not paid back in time and in full.
Mezzanine capital is commonly used by companies beyond the start-up phase but before initial public offering or IPO, to fund the last stage of the projects or to fund unexpected operational costs before going public. This unsecured form of funding usually involves attachment of security interest to the stock of a corporation and does not attach a security interest on its physical asset. Because mezzanine debt is unsecured, lenders typically charge a higher interest rate more than on senior debt instruments. For some riskier projects such as real estate business, the interest rate differs significantly. Hence, many companies try to seek other less expensive forms of debts before acquiring mezzanine debt.
Mezzanine debt behaves more like a stock than a debt because of the enclosed options that include stock call options, rights, and warrants. Oftentimes it is an expensive source of funding than secured debt or senior debt. Nevertheless, it is advantageous because it is treated more like equity on a company’s balance sheet and may make it easier to acquire standard bank financing. It does not require collateral and no typical inspections just like in a typical conventional lender, thus, providing the mezzanine capital quickly. However, if the borrower defaults, the lender therefore will be entitled to receive ownership interests in the entire corporation, including all physical assets and liabilities.
Companies who invest mezzanine capital should be profitable. They must have proven track record in their chosen industry with established reputation and product, a history of profitability, and should have a viable expansion plan to draw attention for future mezzanine funding. These are typically what these lenders look for since they offer high return of investment with high risk, and a placement agent is hired accordingly. They are an outside firm who would help market the lender’s fund to institutional investors.
Posted on Tuesday, March 1st, 2011 at 4:42 am.
Angel Investor is also known as business angel or informal investor. The term Angel originally comes from Broadway that was used to describe wealthy individuals who provided money for theatrical productions. Angel investors are opulent individuals who organize themselves to provide seed capital for start-up businesses and share their knowledge to an entrepreneur on how to run the business. They mentor another generation of entrepreneurs by making use of their wide experiences and networks. Most of these investors are retired entrepreneurs or executives who are interested in investing their money and wanted to stay abreast of the business development apart from monetary return. They are also good sources of useful contacts allowing entrepreneurs the opportunity to network with others in their industry.
According to a Harvard report by William R. Kerr, Josh Lerner, and Antoinette Schoar, start-up companies funded by angel investors are less likely to fail than those companies who rely on other forms of initial financing. Financial institutions like banks offer loans to entrepreneurs but they demand for payment of interest on the invested capital, while angel investors usually get considerable control over company’s decisions, apart from owning a significant portion of the company.
Venture Capitalists, on the other hand, contrive the merged money of others in a professionally-managed fund. They are corporate entities that pool money from a range of institutional and individual investors. They usually possess greater expertise in leading companies through successive funding stages leading to an Initial Public Offering or IPO. For new companies with limited operating history and are too small to raise capital in the public markets, small companies that have not yet reached the point where they are able to obtain a bank loan or complete a debt offering, Venture Capital is very much appealing.
Venture Capital firms are much less likely to invest in startup companies at the seed capital stage. This is because the range of venture capital transaction is large around US$500,000 to US$10 million, or above while the range of angel investor transaction is typically from US$25,000 to US$100,000 for an individual, and up to US$1 million, or more, when acting in a group. However, venture capital may provide second round financing after angel investors.