Venture capital as a tool for a successful IPO

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Venture capital as a tool for a successful IPO

• Synopsis
• There are many creative transactions that
  can help you enter the IPO market in a stronger
  position. Among them are acquisitions, mezzanine
  financing, private placements, joint ventures,
  recapitalizations, and venture capital.
• This presentation will focus on venture
  capital opportunities.
• Igor Kadimov
• IPO-Congress UK Representative
• 22.08.2006
• London

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Venture capitalists private equity investors

• Venture capitalists - those investors that look
  at start-up, early stage and follow-on financing.
  Venture capital is most appropriate for a
  fast-growing business with the potential to
  generate the exceptional returns that venture
  capitalists expect.
• Private equity capital is defined as
  institutional investors who only invest in
  well-established companies, usually in some sort
  of leveraged acquisition. You should be aware
  that many private equity firms in the UK and
  Europe describe themselves as venture
  capitalists, but never invest in early stage
  companies.

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The form of the Venture Capital

• Venture capital can take the form of
• common stock
• preferred stock convertible into common stock
• or debentures convertible into common stock
• The financial package is structured to allow the
  venture capitalists to liquidate their investment
  and realize their profits when the investment
  matures (5-7 years).

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Monitoring experience

• Venture capitalists when serving as the lead
  investor closely monitor the companys
  performance and frequently require board
  representation, which is often a blessing because
  venture capitalists generally have the business
  experience to make a meaningful contribution to
  the company.

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Knowledge Skills

• Venture capitalists can offer
• valuable contacts
• market expertise
• business strategy
• Therefore, it is important to find potential
  investors whose skills, experience, goals, and
  reputations complement yours.

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Bridge financing

• Many venture capital firms concentrate on
  specific industries or stages of investment, such
  as bridge financing.
• There may be a period of time in which either
  your company or the IPO market is not quite ready
  for a public offering. You probably will need
  capital to sustain your growth in the meantime.
• Bridge capital - financing provided to a company
  that is expecting to go public within six months
  to two years-may be the answer. This type of
  financing is often structured to be repaid from
  the proceeds of the anticipated public offering.

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Approaching and Planning

• Approaching venture capitalists may require some
  additional preparation beyond that required for
  other sources of financing.
• Recognizing their focus on your particular
  product or service and their prospective equity
  stakes, you will want to provide detailed plans
  and projections.

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Plan before you act

• Specify
• the amounts and timing of financing requirements
• the applications of all such funds
• year-by-year (and month-by-month for the first
  one or two years) sales and profit projections
• the projected time frame for completion or
  maturity of the venture
• and the way in which the venture capitalist will
  liquidate the investment and realize profit.

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Consider this before you meet venture capitalists

• In preparing for the negotiations, you should
  also carefully consider
• How much of the companys equity you and the
  current shareholders are willing to give up, both
  now and in future.

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Golden rule tips

• Making sure that your needs are compatible with
  the venture capitalists needs is probably the
  most critical step toward a successful outcome
• Tips to remember
• The presence of venture capitalists as
  shareholders in the offering firm certifies the
  quality of the IPO through their investment in
  financial and reputational capital.
• At some point in the future, the venture
  capitalist supplying the funds will want to
  harvest, or cash in on, its investment.

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Venture capital as a financing alternative
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Findings

• VC (Venture capital) backed firms are younger,
  have higher asset values and larger percentages
  of equity in their capital structures.
• VC baked firms are able to attract higher quality
  underwriters and auditors as well as a larger
  institutional following than non-VC backed IPOs.
• They are able to reduce the costs of going
  public significantly lower underpricing and
  underwriter compesation.
• VC do not cash out the IPO. In only 43.3 per cent
  of IPOs did VCs sell shares in less than 1 per
  cent of offerings did the VCs cash out entirely.
  On average 8 per cent of VC holdings were sold at
  the IPO.

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IPO-CONGRESS Everything you should know about
the Russian IPO Market

• IPO-Congress is the first Russian think-tank,
  which provides professional informational
  assistance to Russian/CIS companies, wishing to
  conduct an IPO (Initial Public Offering), and to
  all other IPO players involved in the floatation
  process either on the Russian stock exchange
  floors or abroad
• www.ipo-congress.ru is an official web site of
  the IPO-Congress, administered and supported by
  The Securities and Investment Institute (Moscow,
  Russia)
• The Securities and Investment Institute is a
  leading Russian institution drawing on the best
  intellectual resources of experts in stock
  market. It carries out the training, research and
  consulting activities in the related fields. More
  information can be found on www.ifru.ru
• Igor Kadimov
• IPO-Congress UK Representative
• Tel. [phone]
• E-mail london_at_ipocongress.ru