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August 13, 2010 No Comments Author: Andy Jones

The Difference between Venture Capital & Private Equity

While both venture capital and private equity firms provide cash in exchange for equity positions in companies, the main distinction is the juncture in which the investment is made. With the exception of turnaround investments, private equity firms tend to invest in more established businesses with a history of positive, (and preferably reliable), cash flow whereas venture capital firms tend to invest in earlier-staged companies with a less proven market presence.

March 01, 2010 No Comments Author: Andy Jones

New Data Module – Public Companies has launched a new data module of Public Companies.

The new public company data module allows subscribers to keyword search the business profiles of the largest 4,000 publicly traded companies on the NYSE, NASDAQ and AMEX exchanges.

The key benefit of the keyword search is the ability to quickly find those firms that present a match for a very targeted search term. Why search by SIC, NAICS or other industry codes when you can search on exactly the terms that interest you?

October 28, 2009 No Comments Author: Andy Jones

Investment Banks – after the Crisis

Bulge-bracket is a term used in corporate finance to describe the largest and often most prestigious investment banks. Although there is no strict metric for this classification, bulge-bracket investment banks typically represent clients with transaction values in excess of $50 million.

[NOTE: segregates investment banking firms by the enterprise value of the firms’ typical clients.]

Prior to the 2007-2008 sub prime mortgage crisis, bulge-bracket firms dominated Wall Street. However, many of the largest investment banks were highly leveraged, having borrowed sums of money that were too large relative to their cash or equity capital. This borrowing essentially leverages (amplifies) a firm’s returns (up or down), making the firms particularly vulnerable to market movements. The sub prime crisis therefore had far reaching effects and served as a cleansing of sorts for the financial markets. As the value of mortgage-backed securities in the investment banks’ leveraged portfolios declined, so did the banks’ solvency, which begs the questions: What happened to the Bulge Bracket firms and where are they now?

August 17, 2009 No Comments Author: Andy Jones

Mezzanine Debt

Mezzanine debt is subordinated debt that ranks between senior debt and equity. It is often a more expensive form of financing because it is unsecured (requiring no collateral) and subordinates to senior debt in case of a default.

Mezzanine debt can be used for a variety of purposes, but is generally used in corporate finance deals for growth capital and acquisitions.

Private Equity Info allows you to search U.S. mezzanine firms by state or industry keyword. You may also keyword search the professional biographies of mezzanine executives to quickly determine the right person to approach at a particular firm.

July 29, 2009 No Comments Author: Andy Jones

Senior Lenders

Senior lenders are typically commercial banks or other institutional lending firms that provide senior debt to corporations for a variety of purposes, such as:

  • accounts receivable financing
  • commercial real estate loans
  • equipment financing
  • growth financing
  • M&A financing
  • project financing
  • Small Business Administration (SBA) financing
  • working capital financing
July 28, 2009 No Comments Author: Andy Jones

Agency Theory for PE Firms

Agency Theory addresses the potential conflict of interest created between parties associated with a private equity firm: external investors, managers, entrepreneurs, and/or the owners of the private equity firm involved. Although managers’s compensation is aligned with the private equity firm in a way that rewards a common, shared interest; conflict between these parties can still arise and affect investor behavior.

There are generally three types of agency relationships:

June 18, 2009 No Comments Author: Andy Jones

Investment Banking – Fees

In selecting a Merger & Acquisition advisor, also referred to as an investment banker, the Seller will sign a negotiable engagement letter outlining the fee structure, the service to be provided, and other general terms of agreement.

The M&A Advisor’s fee structure includes a success fee and often a retainer fee and an expense reimbursement fee as well. The inclusion or exclusion of these three components will vary, depending on the investment bank, the deal size and the particular client.

June 09, 2009 No Comments Author: Andy Jones

Private Equity vs Hedge Funds

While there are no strict definitions of a private equity firm and a hedge fund, some distinct differences separate the two types of firms.

Private equity firms and hedge funds are similar in that both invest from a leveraged pool of capital normally contributed by limited partners; both compensate the management team based on a percentage of profits (typically 20%) as well as charge a fee on assets under management (typically 2%); and both are lightly regulated (as of this writing).