raising capital

RAISING CAPITAL RAISING CAPITAL by DAVID E VANCE Rutgers University School of Business, Camden, NJ, USA Library of Congress Cataloging-in-Publication Data A C.I.P Catalogue record for this book is available from the Library of Congress ISBN-10: 0-387-25319-X free paper ISBN-13: 978-0387-25319-0 e-ISBN-10: 0-387-25320-3 Printed on acid- e-ISBN-13: 978-0387-25320-6 © 2005 Springer Science+Business Media, Inc All rights reserved This work may not be translated or copied in whole or in part without the written permission of the publisher (Springer Science+Business Media, Inc., 233 Spring Street, New York, NY 10013, USA), except for brief excerpts in connection with reviews or scholarly analysis Use in connection with any form of information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now know or hereafter developed is forbidden The use in this publication of trade names, trademarks, service marks and similar terms, even if the are not identified as such, is not to be taken as an expression of opinion as to whether or not they are subject to proprietary rights Printed in the United States of America springeronline.com SPIN 11378457 CONTENTS Chapter RISK, REWARD, SIZE AND TIME TO EXIT Introduction Understand Your Needs What Is Capital? Typical Sources of Capital Risk, Reward, Transaction Size and Time Risk Factors: Stages in a Company's Life Cycle Factors Bearing on Reward 11 Transaction Size 12 Time to Exit 12 Chapter SELF-HELP, THE ENTREPRENEUR'S SOURCES Introduction 17 Self-Reliance 17 How Much Capital is Necessary? 18 Seven Strategies to Get Start-up Capital 19 Chapter BANKS Introductions 33 The Banker State of Mind 33 Bank Facilities 34 Underwriting 37 Quality of Financial Data 44 Bank Covenants, Terms and Conditions 45 Myth and Mythology 47 Are Banks Reliable Partners? 48 Bank Debt Is Good 49 Contents vi Chapter SMALL BUSINESS ADMINISTRATION Introduction 55 Overview 55 Eligibility 56 Mechanics 57 Underwriting 58 Collateral 58 Personal Guarantees 59 Documentation 59 Loan Covenants Loan Programs Chapter ASSET BASED LENDERS AND FACTORS Introduction 69 Traditional Asset Based Lenders 69 Specialized Asset Based Lenders Tranche B Lenders Sale & Leaseback 74 Note Discounters 77 Factors 79 Chapter BUSINESS MODELS, BUSINESS PLANS Introduction 89 Why Is Capital Needed? 90 How Much Capital Is Needed? 92 Risks of Underestimating or Overestimating the Capital Needed 94 Market Assessment 94 Business Model 99 Marketing Plan 105 People to Execute the Plan 106 Chapter ANGEL INVESTORS Introduction 111 What is an Angel Investor? 111 Angels Go Where Others Fear to Tread 112 What is the Profile of an Angel? 113 Contents vii Angel Investment Criteria 114 What Rate of Return Do Angels Want? 122 Due Diligence 122 Angel Investor Advice 123 Where Are Angels Found? 125 Chapter VENTURE CAPITAL Introduction 139 Risk versus Reward 140 Who Needs Venture Capital? 141 Scope of Venture Capital Investments 141 The Structure of Venture Capital Firms 142 Venture Firm Operations 144 General Criteria for Making an Investment 144 Oversight 145 Costs of Using Venture Capital 145 Valuation 150 Exit Strategies 152 Venture Capital Search 155 Chapter STRUCTURING THE DEAL Introduction 163 Investment Agreement 165 Valuing the Company 165 EBITDA Multiplier Method 166 Revenue Multiplier Method 168 Discounted Cash Flow 169 Similar Companies 171 Modeling 174 Intellectual Property 176 Securities 177 Payoff Analysis 179 Exit Provisions 183 Other Investment Agreement Issues 187 vlll Contents Chapter 10 THE PITCH: LANDING THE INVESTOR Introduction 197 Threshold Conditions 198 Sales 203 Time and Confidence Building 206 Financing Rounds 207 Pitch Format 208 The Deal Sheet 10 Chapter 11 SECURITIES REGULATON Introduction 15 Security Defined 16 Why Are There Securities Laws? 16 Why Bother With Securities Laws? 16 Overview of the Regulatory Thicket 17 Exemptions from Federal Securities Law 17 Public Offerings versus Private Placements 18 Private Placements, Non-Public Offerings 220 Regulation D 222 Documentation for a Private Placement 228 State Securities Laws 23 Overview of State Regulation 233 Selecting a Lawyer 236 Chapter 12 PUBLIC OFFERINGS Introduction 24 The Decision to Go Public 242 Investment Banks 245 Pricing Securities 247 Mechanics of an Initial Public Offering 25 Market Makers 254 IPO Road Show 254 Investment Bank Fees 255 Underwriter's Duty 257 Lock-ups: Getting Rich Slowly 258 Requirements to be Listed on Major Stock Exchanges 259 Going Private 262 Contents Chapter 13 SMALL PUBLIC OFFERINGS Introduction 267 Regulation of Small Public Offerings 267 State Regulation 27 Means of Stock Distribution 274 Chapter 14 SMALL BUSINESS INVESTMENT COMPANIES Introduction 287 Characteristics of SBIC Investments 288 Eligibility for SBIC Funding 292 Restrictions on SBIC Operations 293 How SBICs Raise Capital and Are Structured 293 Finding an SBIC 296 What Will an SBIC Need to Know? 298 Chapter 15 INTERNAL SOURCES OF CASH Introduction 305 How Much Capital Is Appropriate? 306 The Cash Cycle 308 Accounts Receivable 308 Inventory 13 Plant, Property and Equipment 16 Accounts Payable 17 Chapter 16 BONDS Introduction 32 General Characteristics of Bonds 322 Risk Minimization 322 Bond Structure 325 Federal Regulation of Bond Sales 33 Risk Management Strategies 333 Early Bond Redemption 336 Sinking Fund 337 Junk Bonds 338 Bond Sales in Secondary Markets 340 x Contents Chapter 17 COMMERCIAL PAPER Introduction 345 Securities Regulation and the Definition of Commercial Paper 346 Who Can Issue Commercial Paper? 346 Cost of Commercial Paper 347 Managing Short Term Financial Risk 349 Managing a Commercial Paper Operation 349 Maturity Strategies 350 Chapter 18 OTHER FINANCING VEHICLES Introduction 353 Syndicated Loans 353 Bridge Loans 354 Mezzanine Financing 355 Securitization 355 Private Investment in Public Entities (PIPES) 357 Bankruptcy and Super Priority Loans 359 Government Grants and Loans 361 Appendix A Appendix B Appendix C Appendix D Appendix E Index 371 Future Value Interest Factor 365 Future Value Interest Factor for an Annuity 366 Present Value Interest Factor 367 Present Value Interest Factor for an Annuity 368 CD Table of Contents 369 Raising Capital ENDNOTES Jonathan Jones, William W Lang, Peter Nigro "Recent Trends in Bank Loan Syndications: Evidence for 1995 to 1999, Economic and Policy Analysis Working Paper #2000-10, December 2000, pp.6,9 Lynn W Adkins "Bank Regulators Data Show Continued Increase in Adversely Classified Syndicated Bank Loans of at Least $20 Million," The Bank Place, TheBankPlace@aol.com www.bnkstrategies.corn/articles/ Syndicated%20Loans%200ct%205.pdfm downloaded 11/13/2003 Jones p.2 William Del Biaggio, 111 "Debt Is Good," American Venture, July, 2001, p15 Ibid p15 Henny Sender, "Mezzanine Fund Opens, Goldman Sachs Launches Biggest Fund of Its Kind, Raising $2.7 Billion," Wall Street Journal, September 9,2003, p.C5; Kopin Tan "Profile of Mezzanine Financing Rises," Wall Street Journal, October 1,2003, p.B6C Vinod Kothari Securitization: The Financial Instruments of the New Millennium, Published by: Academy of Financial Services, Calcutta - 700 039 India, 2003, p.4 Mark Furletti "An Overview of Credit Card Asset-Backed Securities," Payment Card Center Discussion Paper, Federal Reserve Bank of Philadelphia, December 2002 gp 1-2 Steven L Schwartz "Securitization Post-Enron," 25 Cardozo Law Review 2003 Symposium Issue on "Threats to Secured Lending and Asset Securitization" submission draft 10/23/03, pp.4-6 lo Stonehenge Financial Partners, LLC, website www.stonehen~efp.com/Securitization.htm, downloaded 11/12/2003 l Susan Chaplinsky and David Haushalter "Financing Under Extreme Uncertainty," University of Virginia, Darden Graduate School of Business Administration, chaplinsk~s@vir~inia.edu, 434-924-4810, unpublished paper draft September 2002 l Chaplinsky pp.7-11 l Chaplinsky pp.6-8 14 Chaplinsky p.5,8 l5 Chaplinsky p.3 and Table Future Value Interest Factor WIF(i, n) 0.75% 1.00% 125% 1.50% 2.00% Period Interest Rates n 0.50% 1.005 1.01003 1.01508 1.02015 1.44 1.5376 1.69 1.8496 1.728 1.90662 2.197 2.51546 2.0736 2.36421 2.8561 3.42102 1.02525 1.03807 1.05101 1.06408 1.07728 1.10408 1.15927 1.21665 1.27628 1.33823 1.40255 1.46933 1.53862 1.61051 1.76234 2.01136 2.28776 2.48832 2.93163 3.71293 4.65259 10 1.03038 1.04585 1.06152 1.07738 1.09344 1.12616 1.03553 1.0537 1.07214 1.09085 1.10984 1.14869 1.04071 1.0616 1.08286 1.10449 1.12649 1.17166 1.04591 1.06956 1.09369 1.11829 1.14339 1.19509 1.05114 1.07758 1.10462 1.13227 1.16054 1.21899 1.19405 1.22987 1.26677 1.30477 1.34392 1.26532 1.3401 1.41852 1.50073 1.31593 1.4071 1.50363 1.60578 1.36857 1.47746 1.59385 1.71819 1.42331 1.55133 1.68948 1.83846 1.48024 1.62889 1.79085 1.96715 11 12 13 14 15 1.0564 1.06168 1.06699 1.07232 1.07768 1.08566 1.09381 1.10201 1.11028 1.1186 1.11567 1.12683 1.13809 1.14947 1.16097 1.14642 1.16075 1.17526 1.18995 1.20483 1.17795 1.19562 1.21355 1.23176 1.25023 1.24337 1.26824 1.29361 1.31948 1.34587 1.38423 1.42576 1.46853 1.51259 1.55797 1.53945 1.60103 1.66507 1.73168 1.80094 16 18 20 24 28 1.08307 1.09393 1.1049 1.12716 1.14987 1.12699 1.14396 1.16118 1.19641 1.23271 1.17258 1.19615 1.22019 1.26973 1.32129 1.21989 1.25058 1.28204 1.34735 1.41599 1.26899 1.30734 1.34686 1.4295 1.51722 1.37279 1.42825 1.48595 1.60844 1.74102 30 32 36 40 48 1.1614 1.17304 1.19668 1.22079 1.27049 1.25127 1.27011 1.30865 1.34835 1.43141 1.34785 1.37494 1.43077 1.48886 1.61223 1.45161 1.48813 1.56394 1.64362 1.81535 1.56308 1.61032 1.70914 1.81402 2.04348 1.81136 1.88454 2.03989 2.20804 2.58707 50 60 72 84 96 108 120 240 360 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00% 12.00% 15.00% 18.00% 20.00% 24.00% 30.00% 36.00% 1.0075 1.01 1.0125 1.015 1.02 1.03 1.04 1.05 1.06 107 1.08 1.09 1.1 1.12 1.15 1.18 1.21 1.2544 1.3225 1.3924 1.01506 1.0201 1.02516 1.03023 1.0404 1.0609 1.0816 1.1025 1.1236 1.1449 1.1664 1.1881 1.02267 1.0303 1.03797 1.04568 1.06121 1.09273 1.12486 1.15763 1.19102 1.22504 1.25971 1.29503 1.331 1.40493 1.52088 1.64303 1.03034 1.0406 1.05095 1.06136 1.08243 1.12551 1.16986 1.21551 1.26248 1.3108 1.36049 1.41158 1.4641 1.57352 1.74961 1.93878 1.2 1.24 1.3 1.36 1.58687 1.71382 1.85093 1.999 2.15892 1.6771 1.82804 1.99256 2.17189 2.36736 1.77156 1.94872 2.14359 2.35795 2.59374 1.97382 2.21068 2.47596 2.77308 3.10585 2.31306 2.66002 3.05902 3.51788 4.04556 2.69955 3.18547 3.75886 4.43545 5.23384 1.71034 1.8983 2.10485 2.33164 1.79586 2.0122 2.25219 2.51817 1.88565 2.13293 2.40985 2.71962 1.97993 2.2609 2.57853 2.93719 2.07893 2.39656 2.75903 3.17217 2.58043 2.81266 3.0658 3.34173 3.64248 2.85312 3.13843 3.45227 3.7975 4.17725 3.47855 3.89598 4.36349 4.88711 5.47357 4.65239 5.35025 6.15279 7.07571 8.13706 6.17593 7.43008 10.6571 17.9216 29.4393 7.28759 8.9161 13.2148 23.2981 40.0375 8.59936 10.6993 16.3863 30.2875 54.451 10.1472 12.8392 20.3191 39.3738 74.0534 11.9737 15.407 25.1956 51.1859 100.713 1.60471 1.87298 2.18287 2.54035 2.95216 3.42594 1.70243 2.02582 2.40662 2.85434 3.37993 3.99602 1.80611 2.19112 2.6533 3.20714 3.86968 4.66096 2.03279 2.5633 3.2251 4.04893 5.07237 6.34118 2.28793 2.9987 3.92013 5.11169 6.64884 8.62711 3.97031 4.59497 4.71712 5.55992 5.60441 6.7275 7.91108 9.84973 11.1671 14.421 6.13039 7.68997 9.64629 15.1786 23.8839 9.35762 12.3755 16.3665 28.6252 50.0656 14.129 19.6733 27.393 53.109 102.967 18.4884 26.6233 38.3376 79.4968 164.845 31.2426 48.0386 73.8641 174.631 412.864 66.5417 112.455 190.05 542.801 1550.29 136.969 253.338 468.574 1603 5483.9 2.42726 2.57508 2.89828 3.26204 4.13225 3.2434 3.50806 4.10393 4.80102 6.57053 4.32194 4.76494 5.79182 7.03999 10.4013 5.74349 6.45339 8.14725 10.2857 16.3939 7.61226 8.71527 11.4239 14.9745 25.7289 10.0627 11.7371 15.9682 21.7245 40.2106 13.2677 15.7633 22.2512 31.4094 62.5852 17.4494 21.1138 30.9127 45.2593 97.0172 29.9599 37.5817 59.1356 93.051 230.391 66.2118 87.5651 153.152 267.864 819.401 143.371 199.629 387.037 750.378 2820.57 237.376 341.822 708.802 1469.77 6319.75 634.82 976.099 2307.71 5455.91 30495.9 2620 4427.79 12646.2 36118.9 294633 10143 18760.5 64180.1 219562 2569612 1.28323 1.34885 1.43204 1.52037 1.61414 1.45296 1.64463 1.86102 2.10524 2.69159 4.38391 1.56568 1.8167 2.10718 2.44322 3.28103 5.8916 1.71255 2.0471 2.44592 2.92116 4.16114 8.40002 1.8732 2.30672 2.83911 3.49259 5.27733 11.9764 2.04892 2.59927 3.29551 4.1758 6.69293 17.0755 7.10668 10.5196 16.8423 26.965 43.1718 11.4674 18.6792 33.5451 60.2422 108.186 18.4202 32.9877 66.3777 133.565 268.759 29.457 57.9464 130.506 293.926 661.977 46.9016 101.257 254.983 642.089 1616.89 74.3575 176.031 495.117 1392.6 3916.91 117.391 304.482 955.594 2999.06 9412.34 289.002 897.597 3497.02 13624.3 53079.9 1083.66 4384 23455.5 125493 671418 3927.36 20555.1 149797 1091663 7955596 9100.44 46890.4 497929 4752755 56347.5 402996 6864377 502400 5325512 4479450 1.7137 1.8194 3.3102 6.02258 2.24112 2.45136 6.00915 14.7306 69.1195 194.287 540.796 1490.9 110.663 348.912 1088.19 3357.79 12246.2 121740 1184153 1355196 4071.6 10253 2.92893 3.82528 4.99267 8.48826 24.3456 3.30039 4.44021 5.96932 10.7652 34.711 10.8926 19.7155 35.6328 115.889 1204.85 35.9496 87.541 212.704 1247.56 41821.6 Appendix A 11017 29540 30987 92709.1 2.98598 3.58318 4.29982 5.15978 6.19174 3.63522 4.50767 5.58951 6.93099 8.59443 4.82681 6.27485 8.15731 10.6045 13.7858 ft > 6.32752 8.60543 11.7034 15.9166 21.6466 206798 3592252 805680 ON Future Value Interest Factor for an Annuity FVIFA(i, n) n 0.50% 2.005 3.01502 4.0301 5.05025 Period Interest Rates 0.75% 1.00% 1.25% 1.50% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 9.00% 10.00% 12.00% 15.00% 1 1 1 1 1 1 1 2.0075 2.01 2.0125 2.015 2.02 2.03 2.04 2.05 2.06 2.07 2.08 2.09 2.1 2.12 2.15 3.02256 3.0301 3.03766 3.04522 3.0604 3.0909 3.1216 3.1525 3.1836 3.2149 3.2464 3.2781 3.31 3.3744 3.4725 4.04523 4.0604 4.07563 4.0909 4.12161 4.18363 4.24646 4.31013 4.37462 4.43994 4.50611 4.57313 4.641 4.77933 4.99338 5.07556 5.10101 5.12657 5.15227 5.20404 5.30914 5.41632 5.52563 5.63709 5.75074 5.8666 5.98471 6.1051 6.35285 6.74238 18.00% 20.00% 24.00% 30.00% 36.00% 1 1 2.3 2.36 2.2 2.24 2.18 3.99 4.2096 3.64 3.7776 3.5724 5.368 5.68422 6.187 6.72506 5.21543 7.15421 7.4416 8.04844 9.0431 10.1461 10 6.0755 7.10588 8.14141 9.18212 10.228 6.11363 7.15948 8.21318 9.27478 10.3443 6.15202 7.21354 8.28567 9.36853 10.4622 6.19065 7.26804 8.35889 9.46337 10.5817 6.22955 7.32299 8.43284 9.55933 10.7027 6.30812 7.43428 8.58297 9.75463 10.9497 6.46841 7.66246 8.89234 10.1591 11.4639 6.63298 7.89829 9.21423 10.5828 12.0061 6.80191 8.14201 9.54911 11.0266 12.5779 6.97532 8.39384 9.89747 11.4913 13.1808 7.15329 8.65402 10.2598 11.978 13.8164 7.33593 8.9228 10.6366 12.4876 14.4866 7.52333 9.20043 11.0285 13.021 15.1929 7.71561 9.48717 11.4359 13.5795 15.9374 8.11519 10.089 12.2997 14.7757 17.5487 8.75374 11.0668 13.7268 16.7858 20.3037 9.44197 12.1415 15.327 19.0859 23.5213 9.92992 12.9159 16.4991 20.7989 25.9587 10.9801 14.6153 19.1229 24.7125 31.6434 12.756 17.5828 23.8577 32.015 42.6195 14.7987 21.1262 29.7316 41.435 57.3516 11 12 13 14 15 11.2792 12.3356 13.3972 14.4642 15.5365 11.4219 12.5076 13.6014 14.7034 15.8137 11.5668 12.6825 13.8093 14.9474 16.0969 11.7139 12.8604 14.0211 15.1964 16.3863 11.8633 13.0412 14.2368 15.4504 16.6821 12.1687 13.4121 14.6803 15.9739 17.2934 12.8078 14.192 15.6178 17.0863 18.5989 13.4864 15.0258 16.6268 18.2919 20.0236 14.2068 15.9171 17.713 19.5986 21.5786 14.9716 16.8699 18.8821 21.0151 23.276 15.7836 17.8885 20.1406 22.5505 25.129 16.6455 18.9771 21.4953 24.2149 27.1521 17.5603 20.1407 22.9534 26.0192 29.3609 18.5312 21.3843 24.5227 27.975 31.7725 20.6546 24.1331 28.0291 32.3926 37.2797 24.3493 29.0017 34.3519 40.5047 47.5804 28.7551 34.9311 42.2187 50.818 60.9653 32.1504 39.5805 48.4966 59.1959 72.0351 40.2379 50.895 64.1097 80.4961 100.815 56.4053 74.327 97.625 127.913 167.286 78.9982 108.437 148.475 202.926 276.979 16 18 20 24 28 16.6142 18.7858 20.9791 25.432 29.9745 16.9323 19.1947 21.4912 26.1885 31.0282 17.2579 19.6147 22.019 26.9735 32.1291 17.5912 20.0462 22.563 27.7881 33.2794 17.9324 20.4894 23.1237 28.6335 34.4815 18.6393 21.4123 24.2974 30.4219 37.0512 20.1569 23.4144 26.8704 34.4265 42.9309 21.8245 25.6454 29.7781 39.0826 49.9676 23.6575 28.1324 33.066 44.502 58.4026 25.6725 30.9057 36.7856 50.8156 68.5281 27.8881 33.999 40.9955 58.1767 80.6977 30.3243 37.4502 45.762 66.7648 95.3388 33.0034 41.3013 51.1601 76.7898 112.968 35.9497 45.5992 57.275 88.4973 134.21 42.7533 55.7497 72.0524 118.155 190.699 55.7175 75.8364 102.444 184.168 327.104 72.939 103.74 146.628 289.494 566.481 87.4421 128.117 186.688 392.484 819.223 126.011 195.994 303.601 723.461 1716.1 218.472 377.692 371.518 700.939 630.165 1298.82 1806 4450 5164.31 15230.3 30 32 36 40 48 32.28 34.6086 39.3361 44.1588 54.0978 33.5029 36.0148 41.1527 46.4465 57.5207 34.7849 37.4941 43.0769 48.8864 61.2226 36.1291 39.0504 45.1155 51.4896 65.2284 37.5387 40.6883 47.276 54.2679 69.5652 40.5681 44.227 51.9944 60.402 79.3535 47.5754 52.5028 63.2759 75.4013 104.408 56.0849 62.7015 77.5983 95.0255 139.263 66.4388 75.2988 95.8363 120.8 188.025 79.0582 90.8898 119.121 154.762 256.565 94.4608 110.218 148.913 199.635 353.27 113.283 134.214 187.102 259.057 490.132 136.308 164.037 236.125 337.882 684.28 164.494 201.138 299.127 442.593 960.172 241.333 434.745 790.948 1181.88 2640.92 304.848 577.1 1103.5 1704.11 4062.91 484.463 1014.35 2144.65 3539.01 9611.28 767.091 1779.09 4163.21 7343.86 22728.8 1911.59 5456 15664.3 31593.7 127062 50 60 72 84 96 56.6452 69.77 86.4089 104.074 122.829 60.3943 75.4241 95.007 116.427 139.856 64.4632 81.6697 104.71 130.672 159.927 68.8818 88.5745 115.674 147.129 183.641 73.6828 96.2147 128.077 166.173 211.72 84.5794 114.052 158.057 213.867 284.647 112.797 163.053 246.667 365.881 535.85 152.667 237.991 396.057 649.125 1054.3 209.348 353.584 650.903 1184.84 2143.73 290.336 533.128 1089.63 2209.42 4462.65 406.529 813.52 1850.09 4184.65 9442.52 573.77 1253.21 3174.78 8013.62 20198.6 815.084 1944.79 5490.19 15462.2 43510.1 1163.91 3034.82 9545.94 29980.6 94113.4 2400.02 7471.64 29133.5 113527 442324 108 120 240 360 142.74 163.879 462.041 1004.52 165.483 193.514 667.887 1830.74 192.893 230.039 989.255 3494.96 226.023 275.217 1497.24 6923.28 266.178 331.288 2308.85 14113.6 374.413 778.186 1702.99 3865.74 8996.6 21284.3 50882.6 488.258 1123.7 2741.56 6958.24 18119.8 47954.1 128150 5744.44 40128.4 306130 2434771 62328.1 1394021 122400 344289 295390 1723309 927081 6713994 Appendix B 7217.72 29220 156363 836612 4476110 8729.99 14756 42150.7 120393 982106 ON ON 28172.3 52109.8 178275 609890 7137809 21813.1 45497.2 195373 1659761 114190 281733 1679147 832203 2511995 6064789 td Present Value Interest Factor PVIFfk, n) Period Interest Rates 0.50% 0.75% 1.00% 1.25% 1.50% 2.00% 3.00% 4.00% 5.00% 6.00% 8.00% 9.00% 10.00% 12.00% 15.00% 18.00% 20.00% 24.00% 30.00% 36.00% 0.99502 0.99007 0.98515 0.98025 0.97537 0.99256 0.98517 0.97783 0.97055 0.96333 0.9901 0.9803 0.97059 0.96098 0.95147 0.98765 0.97546 0.96342 0.95152 0.93978 0.98522 0.97066 0.95632 0.94218 0.92826 0.98039 0.96117 0.94232 0.92385 0.90573 0.97087 0.9426 0.91514 0.88849 0.86261 0.96154 0.92456 0.889 0.8548 0.82193 0.95238 0.90703 0.86384 0.8227 0.78353 0.9434 0.93458 0.89 0.87344 0.83962 0.8163 0.79209 0.7629 0.74726 0.71299 0.92593 0.85734 0.79383 0.73503 0.68058 0.91743 0.84168 0.77218 0.70843 0.64993 0.90909 0.82645 0.75131 0.68301 0.62092 0.89286 0.79719 0.71178 0.63552 0.56743 0.86957 0.75614 0.65752 0.57175 0.49718 0.84746 0.71818 0.60863 0.51579 0.43711 0.83333 0.69444 0.5787 0.48225 0.40188 0.80645 0.65036 0.52449 0.42297 0.34111 0.76923 0.59172 0.45517 0.35013 0.26933 0.73529 0.54066 0.39754 0.29231 0.21493 10 0.97O52 0.96569 0.96089 0.9561 0.95135 0.95616 0.94904 0.94198 0.93496 0.928 0.94205 0.93272 0.92348 0.91434 0.90529 0.92817 0.91672 0.9054 0.89422 0.88318 0.91454 0.90103 0.88771 0.87459 0.86167 0.88797 0.87056 0.85349 0.83676 0.82035 0.83748 0.81309 0.78941 0.76642 0.74409 0.79031 0.75992 0.73069 0.70259 0.67556 0.74622 0.71068 0.67684 0.64461 0.61391 0.70496 0.66506 0.62741 0.5919 0.55839 0.66634 0.62275 0.58201 0.54393 0.50835 0.63017 0.58349 0.54027 0.50025 0.46319 0.59627 0.54703 0.50187 0.46043 0.42241 0.56447 0.51316 0.46651 0.4241 0.38554 0.50663 0.45235 0.40388 0.36061 0.32197 0.43233 0.37594 0.3269 0.28426 0.24718 0.37043 0.31393 0.26604 0.22546 0.19106 0.3349 0.27908 0.23257 0.19381 0.16151 0.27509 0.22184 0.17891 0.14428 0.11635 0.20718 0.15937 0.12259 0.0943 0.07254 0.15804 0.11621 0.08545 0.06283 0.0462 11 12 13 14 15 0.94661 0.94191 0.93722 0.93256 0.92792 0.92109 0.91424 0.90743 0.90068 0.89397 0.89632 0.88745 0.87866 0.86996 0.86135 0.87228 0.86151 0.85087 0.84037 0.82999 0.84893 0.83639 0.82403 0.81185 0.79985 0.80426 0.78849 0.77303 0.75788 0.74301 0.72242 0.70138 0.68095 0.66112 0.64186 0.64958 0.6246 0.60057 0.57748 0.55526 0.58468 0.55684 0.53032 0.50507 0.48102 0.52679 0.49697 0.46884 0.4423 0.41727 0.47509 0.44401 0.41496 0.38782 0.36245 0.42888 0.39711 0.3677 0.34046 0.31524 0.38753 0.35553 0.32618 0.29925 0.27454 0.35049 0.31863 0.28966 0.26333 0.23939 0.28748 0.25668 0.22917 0.20462 0.1827 0.21494 0.18691 0.16253 0.14133 0.12289 0.16192 0.13722 0.11629 0.09855 0.08352 0.13459 0.11216 0.09346 0.07789 0.06491 0.09383 0.07567 0.06103 0.04921 0.03969 0.0558 0.04292 0.03302 0.0254 0.01954 0.03397 0.02498 0.01837 0.0135 0.00993 16 18 20 24 28 0.9233 0.91414 0.90506 0.88719 0.86966 0.88732 0.87416 0.86119 0.83583 0.81122 0.85282 0.83602 0.81954 0.78757 0.75684 0.81975 0.79963 0.78001 0.7422 0.70622 0.78803 0.76491 0.74247 0.69954 0.6591 0.72845 0.70016 0.67297 0.62172 0.57437 0.62317 0.58739 0.55368 0.49193 0.43708 0.53391 0.49363 0.45639 0.39012 0.33348 0.45811 0.41552 0.37689 0.31007 0.25509 0.39365 0.35034 0.3118 0.24698 0.19563 0.33873 0.29586 0.25842 0.19715 0.1504 0.29189 0.25025 0.21455 0.1577 0.11591 0.25187 0.21199 0.17843 0.1264 0.08955 0.21763 0.17986 0.14864 0.10153 0.06934 0.16312 0.13004 0.10367 0.06588 0.04187 0.10686 0.08081 0.0611 0.03493 0.01997 0.07078 0.05083 0.03651 0.01883 0.00971 0.05409 0.03756 0.02608 0.01258 0.00607 0.03201 0.02082 0.01354 0.00573 0.00242 0.01503 0.00889 0.00526 0.00184 0.00065 0.0073 0.00395 0.00213 0.00062 0.00018 30 32 36 40 48 0.86103 0.85248 0.83564 0.81914 0.7871 0.79919 0.78733 0.76415 0.74165 0.69861 0.74192 0.7273 0.69892 0.67165 0.62026 0.68889 0.67198 0.63941 0.60841 0.55086 0.63976 0.62099 0.58509 0.55126 0.48936 0.55207 0.53063 0.49022 0.45289 0.38654 0.41199 0.38834 0.34503 0.30656 0.242 0.30832 0.28506 0.24367 0.20829 0.15219 0.23138 0.20987 0.17266 0.14205 0.09614 0.17411 0.15496 0.12274 0.09722 0.061 0.13137 0.11474 0.08754 0.06678 0.03887 0.09938 0.0852 0.06262 0.04603 0.02487 0.07537 0.06344 0.04494 0.03184 0.01598 0.05731 0.04736 0.03235 0.02209 0.01031 0.03338 0.02661 0.01691 0.01075 0.00434 0.0151 0.01142 0.00653 0.00373 0.00122 0.00697 0.00501 0.00258 0.00133 0.00035 0.00421 0.00293 0.00141 0.00068 0.00016 0.00158 0.00038 0.00102 0.00023 0.00043 0.00018 50 60 72 84 96 0.77929 0.74137 0.6983 0.65773 0.61952 0.68825 0.6387 0.58392 0.53385 0.48806 0.60804 0.55045 0.4885 0.43352 0.38472 0.53734 0.47457 0.40884 0.35222 0.30344 0.475 0.4093 0.34233 0.28632 0.23947 0.37153 0.30478 0.24032 0.18949 0.14941 0.22811 0.16973 0.11905 0.0835 0.05856 0.14071 0.09506 0.05937 0.03709 0.02316 0.0872 0.05354 0.02981 0.0166 0.00924 0.05429 0.03031 0.01507 0.00749 0.00372 0.03395 0.01726 0.00766 0.0034 0.00151 0.02132 0.00988 0.00392 0.00156 0.00062 0.01345 0.00568 0.00202 0.00072 0.00026 0.00852 0.00346 0.00092 0.00025 0.00011 0.00328 0.00111 0.00023 0.00105 0.00029 0.00033 0.00011 108 0.58353 0.4462 0.34142 0.26142 120 0.54963 0.40794 0.30299 0.22521 240 0.3021 0.16641 0.09181 0.05072 360 0.16604 0.06789 0.02782 0.01142 0.20029 0.16752 0.02806 0.0047 0.11781 0.04108 0.01447 0.00515 0.00185 0.00067 0.00025 0.09289 0.02881 0.00904 0.00287 0.00092 0.0003 0.00863 0.00083 0.0008 Appendix C 7.00% a O • < \ Present Value Interest Factor for an Annuity PVIFA(k, n) Period Interest Rates n 0.50% 0.99502 1.9851 2.97025 3.9505 4.92587 0.75% 0.99256 1.97772 2.95556 3.92611 4.88944 1.00% 0.9901 1.9704 2.94099 3.90197 4.85343 1.25% 0.98765 1.96312 2.92653 3.87806 4.81784 1.50% 0.98522 1.95588 2.9122 3.85438 4.78264 2.00% 0.98039 1.94156 2.88388 3.80773 4.71346 3.00% 0.97087 1.91347 2.82861 3.7171 4.57971 4.00% 0.96154 1.88609 2.77509 3.6299 4.45182 5.00% 0.95238 1.85941 2.72325 3.54595 4.32948 6.00% 0.9434 1.83339 2.67301 3.46511 4.21236 7.00% 0.93458 1.80802 2.62432 3.38721 4.1002 8.00% 0.92593 1.78326 2.5771 3.31213 3.99271 9.00% 0.91743 1.75911 2.53129 3.23972 3.88965 10.00% 0.90909 1.73554 2.48685 3.16987 3.79079 12.00% 0.89286 1.69005 2.40183 3.03735 3.60478 15.00% 0.86957 1.62571 2.28323 2.85498 3.35216 18.00% 0.84746 1.56564 2.17427 2.69006 3.12717 20.00% 0.83333 1.52778 2.10648 2.58873 2.99061 24.00% 0.80645 1.45682 1.9813 2.40428 2.74538 5.89638 6.86207 7.82296 8.77906 9.73041 5.8456 6.79464 7.73661 8.67158 9.59958 5.79548 6.72819 7.65168 8.56602 9.4713 5.74601 6.66273 7.56812 8.46234 9.34553 5.69719 6.59821 7.48593 8.36052 9.22218 5.60143 6.47199 7.32548 8.16224 8.98259 5.41719 6.23028 7.01969 7.78611 8.5302 5.24214 6.00205 6.73274 7.43533 8.1109 5.07569 5.78637 6.46321 7.10782 7.72173 4.91732 5.58238 6.20979 6.80169 7.36009 4.76654 5.38929 5.9713 6.51523 7.02358 4.62288 5.20637 5.74664 6.24689 6.71008 4.48592 5.03295 5.53482 5.99525 6.41766 4.35526 4.86842 5.33493 5.75902 6.14457 4.11141 4.56376 4.96764 5.32825 5.65022 3.78448 4.16042 4.48732 4.77158 5.01877 3.4976 3.81153 4.07757 4.30302 4.49409 3.32551 3.60459 3.83716 4.03097 4.19247 3.02047 2.64275 2.33878 3.24232 2.80211 2.45498 3.42122 2.9247 2.54043 3.019 2.60326 3.5655 3.68186 3.09154 2.64945 11 12 13 14 15 10.677 10.5207 10.3676 10.2178 10.0711 9.78685 9.25262 8.76048 8.30641 7.88687 7.49867 11.6189 11.4349 11.2551 11.0793 10.9075 10.5753 9.954 9.38507 8.86325 8.38384 7.94269 12.5562 12.3423 12.1337 11.9302 11.7315 11.3484 10.635 9.98565 9.39357 8.85268 8.35765 13.4887 13.243 13.0037 12.7706 12.5434 12.1062 11.2961 10.5631 9.89864 9.29498 8.74547 14.4166 14.137 13.8651 13.6005 13.3432 12.8493 11.9379 11.1184 10.3797 9.71225 9.10791 7.13896 7.53608 7.90378 8.24424 8.55948 6.80519 7.16073 7.4869 7.78615 8.06069 6.49506 6.81369 7.10336 7.36669 7.60608 5.9377 6.19437 6.42355 6.62817 6.81086 5.23371 5.42062 5.58315 5.72448 5.84737 4.65601 4.79322 4.90951 5.00806 5.09158 4.32706 4.43922 4.53268 4.61057 4.67547 3.77569 3.85136 3.91239 3.9616 4.00129 3.14734 2.68342 3.19026 2.7084 3.22328 2.72676 3.24867 2.74027 3.26821 2.7502 16 18 20 24 28 15.3399 17.1728 18.9874 22.5629 26.0677 15.0243 16.7792 18.508 21.8891 25.1707 14.7179 16.3983 18.0456 21.2434 24.3164 14.4203 16.0295 17.5993 20.6242 23.5025 14.1313 15.6726 17.1686 20.0304 22.7267 13.5777 14.992 16.3514 18.9139 21.2813 12.5611 13.7535 14.8775 16.9355 18.7641 11.6523 12.6593 13.5903 15.247 16.6631 10.8378 11.6896 12.4622 13.7986 14.8981 8.85137 9.37189 9.81815 10.5288 11.0511 8.31256 8.75563 9.12855 9.70661 10.1161 7.82371 8.20141 8.51356 8.98474 9.30657 6.97399 7.24967 7.46944 7.78432 7.98442 5.95423 6.12797 6.25933 6.43377 6.53351 5.16235 5.27316 5.35275 5.45095 5.5016 4.72956 4.81219 4.86958 4.9371 4.96967 4.0333 4.07993 4.11026 4.14281 4.15657 3.28324 3.30369 3.31579 3.32719 3.33118 30 32 36 40 48 27.7941 29.5033 32.871 36.1722 42.5803 26.7751 28.3557 31.4468 34.4469 40.1848 25.8077 27.2696 30.1075 32.8347 37.974 24.8889 26.2413 28.8473 31.3269 35.9315 24.0158 25.2671 27.6607 29.9158 34.0426 22.3965 23.4683 25.4888 27.3555 30.6731 19.6004 20.3888 21.8323 23.1148 25.2667 17.292 17.8736 18.9083 19.7928 21.1951 15.3725 13.7648 12.409 11.2578 10.2737 9.42691 15.8027 14.084 12.6466 11.435 10.4062 9.52638 16.5469 14.621 13.0352 11.7172 10.6118 9.67651 17.1591 15.0463 13.3317 11.9246 10.7574 9.77905 15.65 13.7305 12.1891 10.9336 9.89693 18.0772 8.05518 8.11159 8.19241 8.24378 8.29716 6.56598 6.59053 6.62314 6.64178 6.65853 5.51681 5.52773 5.5412 5.54815 5.55359 4.97894 4.1601 3.33206 2.7775 4.98537 4.1624 3.33258 2.77763 4.99295 4.16486 3.33307 2.77773 4.9966 4.1659 3.33324 2.77777 4.99921 4.16653 3.33332 2.77778 50 60 72 84 96 44.1428 51.7256 60.3395 68.453 76.0952 41.5664 48.1734 55.4768 62.154 68.2584 39.1961 44.955 51.1504 56.6485 61.5277 37.0129 42.0346 47.2925 51.8222 55.7246 34.9997 39.3803 43.8447 47.5786 50.7017 31.4236 34.7609 37.9841 40.5255 42.5294 25.7298 27.6756 29.3651 30.5501 31.3812 21.4822 22.6235 23.5156 24.0729 24.4209 18.2559 18.9293 19.4038 19.668 19.8151 8.3045 8.32405 8.33095 8.33272 8.33318 6.66051 6.66515 6.66638 6.66661 6.66666 5.55414 4.99945 4.16658 3.33333 2.77778 5.55529 4.99991 4.16666 3.33333 2.77778 5.55552 4.99999 4.16667 3.33333 2.77778 4.16667 3.33333 2.77778 5.55555 4.16667 3.33333 2.77778 5.55555 108 120 240 360 83.2934 90.0735 139.581 166.792 73.8394 78.9417 111.145 124.282 65.8578 69.7005 90.8194 97.2183 59.0865 61.9828 75.9423 79.0861 53.3137 55.4985 64.7957 66.3532 44.1095 31.9642 24.6383 19.8971 16.6358 45.3554 32.373 24.7741 19.9427 16.6514 49.5686 33.3057 24.998 19.9998 16.6667 49.9599 33.3325 25 20 16.6667 10.1059 10.8276 11.4699 12.5504 13.4062 15.7619 16.1614 16.4156 16.5419 16.6047 9.44665 10.0591 10.594 11.4693 12.1371 13.8007 14.0392 14.1763 14.2371 14.2641 12.2335 12.3766 12.451 12.4805 12.4923 10.9617 11.048 11.0887 11.1031 11.1083 9.91481 9.96716 9.98954 9.99667 9.99894 30.00% 0.76923 1.36095 1.81611 2.16624 2.43557 36.00% 0.73529 1.27595 1.67349 1.9658 2.18074 ON 00 2.7575 2.76681 2.77185 2.77604 2.77727 O OS 14.2761 12.4969 11.1101 9.99966 8.33329 6.66666 5.55556 14.2815 12.4988 11.1108 9.99989 8.33332 6.66667 5.55556 12.5 11.1111 10 8.33333 6.66667 5.55556 14.2857 14.2857 12.5 11.1111 10 8.33333 6.66667 5.55556 Appendix D 5 5 4.16667 4.16667 4.16667 4.16667 3.33333 3.33333 3.33333 3.33333 2.77778 2.77778 2.77778 2.77778 a Appendix E 369 CD TABLE OF CONTENTS AGENCY Document Title File Name Format Size SMALL BUSINESS ADMINISTRATION 8(a) Business Development and Small and Disadvantaged Business (SBD) Certification 8(a) Business Plan ACE-Net Model Terms and Conditions for a Securities Offering Application for 504 Loan Program Application for a LowDoc Loan Application for Business Loan Application for Micro Loan (Used for loans under $50,000) Financial Statement of Debtor Lenders Application for Guaranty or Participation Loan Note Personal Financial Statement Regulation C Registration (Rules on the form and content of registration statements and prospectus.) Resolution of Board of Directors SBA Loan Document Checklist SBA Model Balance Sheet SBA Model Cash Flow Budget SBA Model Income Statement SBA Size Standards SBIC Capital Certificate (Used when forming an SBIC) Schedule of Collateral Size Standards by NAICS Code Small Business Administration Act Statement of Personal History sbalOlO sbalOlOc ACE-Net Model Terms and Conditions sba1244 sba4-L sba4 PDF PDF 467KB 510KB Word PDF PDF PDF 67KB 876KB 642KB 284KB sba4-sht sba770 PDF PDF 150KB 83KB sba4-i sbafl47v41 sba413 PDF PDF PDF 121KB 53KB 155KB Regulation C sbal60 SBA Loan Checklist Model Balance Sheet Model Cash Budget Model Income Statement SBA Size Standards HTML 408KB 44KB PDF 3KB Plaintext 25KB Excel 26KB Excel 20KB Excel 306KB HTML sbal-4 sba4-a NAICS Size Standards Small Business Act Form 912 PDF PDF HTML HTML PDF 168KB 96KB 459KB 550KB 208KB 370 Appendix E Stockholder's Confirmation for SBICs sba1405 PDF 155KB PDF 102KB Form 1-A Form 1-A HTML PDF 175KB 198KB Form S-1 PDF 94KB FormD Q&A Small Business and the SEC PDF 939KB Form SB-1 PDF Form SB-2 Regulation A Regulation D PDF HTML PDF 123KB 43KB 283KB PDF 242KB PDF 404KB HTML 390KB PDF 391KB Coordinated Review Request MidAtlantic Region (Forms for other regions are available on: www.nasaa.org CR SCOR Request SCOR For Instructions SCOR Instructions PDF Word 62KB 410KB CASE STUDIES Word 353KB INTERNAL REVENUE SERVICE Request for Transcript of Tax Return f4506t SECURITIES AND EXCHANGE COMMISSION Form 1-A Form 1-A Form S-1 Registration Statement Under the Securities Act of 1933 Notice of Sale of Securities Pursuant to Regulation D - Form D HTML 56KB Q&A Small Business and the SEC 115KB Registration for a Small Business Issuer Registration for a Small Business Issuer Regulation A Regulation D Regulation S-B (Instructions for Regulation S-B completing Form SB-2) Regulation S-K (Instructions for Regulation S-K completing Form S-1) Report on the Uniformity of State Regulatory Requirements for Offerings of Securities That Are Not "Covered Securities" (Explains Federal Pre-emption of state securities laws) NSMIA Report SEC Instructions on Financial Statements Regulation S-X NORTH AMERICAN SECURITIES ADMINISTRATORS ASSOCIATION Case Studies INDEX 10-K annual financial statement 504 Loan Program 7(A) Loan Guarantee 7(m) Micro loan Program Acceleration bank loan Accountants & auditors, investor approval Accounts payable, aged Accounts payable, conserving cash through Accounts receivable Accounts receivable turnover Accounts receivable, aged Accredited Investor Accredited investor affidavit ACE Net Affidavit, accredited investor Affinity group, direct public offering Age of business funded by SBIC American Stock Exchange Angel Clubs Angel expectations, return Angel expectations, return Angel Funds Angel Funds, like venture capital funds Angel investment criteria Angel investor advice Angel investor characteristics Angel investor profile Angel investor risk tolerance Angel investors Angel need for company data Angel preference leading edge technology Angel preference, entrepreneur Angel preference, industry Angel preferences Angel rate of return Angel, company characteristics Angel, governance mechanisms Angel, guidance for Angel, intellectual reward Angel, preference for people over ideas Angel, preference for skilled management Angels, where found Anti-dilution mechanism, puts AR turnover Asset backed securities Asset based lenders Assets Audit 40 64 62 65 46 191 41 317 308-312 308-312 41 226-227 229 229 229 277 291 -292 259-261 130-133 119 122 130-133 131 114-122 123-124 111-112 113-114 112 111-133 118 117 115 121 -122 121-122 121 116-119 120 126-127 121 116 116 125-133 189 308-312 357-359 69-84 45 Audited financial statements for IPO Auditedfinancialstatements, direct offering Auditedfinancialstatements, requirement for Bake off, investment banker search Bank covenants Bank debt, replace via IPO Bank guarantee Bank, chartered by Bank, loan application Bank, myths about Bank, workout department Bankruptcy financing Bankruptcy, Chapter 11 Bankruptcy, Chapter Banks Banks, federal Banks, redline industries Banks, reliability Benchmark companies Benchmarking Benchmarking Billing & collections, metrics for measuring Board of directors, seat on Board seat, Angel demand for Bond features, combination Bond puts Bond rating definitions Bond rating services Bond redemption, early Bond sales, secondary markets Bond sinking fund Bond structure Bond value, computing Bonds Bonds, convertible Bonds, convertible Bonds, general characteristics Bonds, junk Bonds, mortgage Bonds, regulation of Bonds, risk management Bonds, risk minimization Bonds, senior Bonds, trust indenture act Book of orders, public offering Borrowers, large Borrowers, small Borrowing capacity 252 277-278 269-270 252 45, 46 241 35, 36 33, 34 36, 45 47 46 361-363 361 33-50 33 48, 49 48, 49 166 40 166 308-310 190 120 336 335-336 323-324 323-324 336-337 340 337-338 325-327 325-327 321-340 177-178 334-335 322 338-340 334 331-333 333-336 322-324 334 332-333 253 36, 37 36 42, 44 372 Boston stock exchange Bridge loans BSE Business age, SBIC funding Business model Business model Business model, scaleable Business proposition, compelling Business schedule Buy back investment, right to Buyer, partial Calculation of growth rate Calculation, EBITDA multiplier Calculation, revenue multiplier Capital lease Capital requirements, NASAA standards Capital structure, complex Capital, amount needed Capital, amount needed Capital, appropriate amount Capital, credit cards Capital, customer as source Capital, definition Capital, estimating risk Capital, factors determining source of Capital, friends and family Capital, need for Capital, purpose Capital, reasons for raising Capital, sources of Capital, start-up sources Capital, vendors and suppliers Capital, venture Capitalization requirements Caplines Programs Cash cycle Cash flow and debt securities Cash flow breakeven Cash flow valuation Cash flow, steady state Cash, conserving, importance of Cash, raising from accounts receivable Cash, raising from inventoly Cash, raisingfromplant and property CD-rom, Index to Certified lenders Chapter 11, bankruptcy Chapter 7, bankruptcy Cheap stock Chicago Stock Exchange CHX Cincinnati Stock Exchange Collateral, SBA loans Collections, proof of market acceptance Commercial credit company Commercial paper Commercial paper maturity strategy Commercial paper operations Commercial paper rates, managing Commercial paper risk Commercial paper, cost of Raising Capital 259 356 259 291-292 99-105 99-102 200-201 201 205 186-187 185 172 167 168 28 271 182-183 18 92-93 306-308 22-25 27-28 94 20 2,3 90-91 49 19 27 139-158 234 63-64 308 233 169-171 41 306-308 310-312 314-315 316-317 Appdx E 57 361-363 361 233 259 259 259 58-59 204 70 345-350 350 349-350 347-348 349 347-348 Commercial paper, not regulated Commercial paper, who can issue Common stock Company showcases Company size, effect on public offering Company valuation, similar Company value, pre-investment Company, life cycle Company, valuing Competitive advantage Compilation Complex capital structure Comptroller of the currency Concept, understandable, for direct offering Confidence building Conserving cash, importance of Contacting venture firms Control by venture capitalist Conversion premium Convertible bonds Convertible bonds Convertible preferred stock Convertible preferred, participating Coordinated review program Coordinated review program Cost in money, venture capital Cost of commercial paper Cost of goods sold, used in inventory tumover Costs of venture capital Covenants, bank Covenants, default on Credit Cards credit line Credit sales, used in AR turnover Credit scoring Credit, granting to customers credit, letter of Criteria for delisting Criteria, state merit review Criteria, venture capital Crowded market Customer database, direct public offering Customer, as capital source Customers with money Customers with pain Customers, flagship Data, Angel need for Data, entrepreneur expected to have Days sales outstanding Deal sheet Deal sheet Deal size, venture firm Deal structure, variables that affect Deal, characteristics of Deal, structuring Debt ratio Debt securities and cash flow Debt with equity kicker Decline, product life cycle Default, bank loan covenants Defense Loan and Technical Assistance 345-346 346 177 127-128 245 171 -174 171-173 165-176 119 44 182-183 33, 34 276 206-207 306-308 157-158 148-150 335 177-178 334-335 177 179 270 271 -273 146-147 347-348 313-314 145-150 45, 46 46 22-25 35 309 38,39 312-313 35, 36 260 233-235 144 203 277 27-28 202-203 202 205 118 118 309-310 164 210-211 142 164 119-121 163-192 9, 10 233 178 98 46 65 Index Delisting Development, stage of Development, stage of Diligence, due Dilution Dilution of entrepreneur's interest Dilution, maintenance of ownership Dilution, stock options Direct public offering with advisor Direct public offering without an advisor Direct public offering, who should consider Disclosure of risk for merit review Discontinue and write-off, exit Discount for private company Discount rate Discount rate to estimate preferred dividends Discount rate used to estimate bond interest Discount, underwriting Discount, underwriting Discounted cash flow Discounted cash flow, problems with Dividends, estimated required DPO advisor firms DPO advisor, services offered DPO who should consider DPO without an advisor DSO Due diligence Dun & Bradstreet studies Dutch auction criteria for selecting an advisor Dutch auction, small public offering Duty, undenvriteh Early adopters Eady stage, defined Earnings before interest taxes depreciate & amon EBITDA EBITDA model, varying gross margins EBITDA multiplier EBITDA multiplier calculation EBITDA multiplier method Economic cycles, effect on public offering Effective prospectus Elastic price Employee stock options, dilution Entrepreneur matching services Entreoreneur., abilitv, to execute Entrepreneur, angel knowledge of Entrepreneur, cash flow knowledge Entrepreneur, character of Entrepreneur, experience of Entrepreneur, knowledge Entrepreneur, management skills of Entrepreneur, personal credit check on Entrepreneur, personalfinancialstatement Entrepreneur, tax returns of Equation, accounting Equity required by investor Evaluation period, by SEC of prospectus Excess assets Exemptions from Federal securities law Exit clauses 373 180-181 260 Exit payoff 152-155 Exit preference, venture capital 183-187 8, Exit provisions 152-155 122-123 Exit strategies, venture capital 119 188-189 Exit strategy, angel investor 184-185 305 Exit via forced sale 154-155 189 Exit via IPO likelihood 194 190 Exit via puts 184 278-281 Exit via share registration 186-187 279-281 Exit, designing flexibility 186-187 276-277 Exit, designing in 153 272 Exit, discontinue and write off 152 153 Exit, public offering 153 169 Exit, sale to buy-out specialist 153 327 Exit, sale to management 153 178 Exit, sale to private company 153 178 Exit, sale to private equity firm 153 256 Exit, sale to public company 253 Exit, time to 12 169-171 Exit, time to 174 Expansion stage, defined 174-175 178 Expected value, revenue 107 278-281 Experience of entrepreneur 107 278 Experience of management team 65 276-277 Export Working Capital Loan 34 279-281 Facilities, bank 81-83 309-310 Factoring, cost of 80-81 122-123 Factoring, mechanics of 79-80 39 Factoring, reasons for 79-84 275 Factors 150 274-275 Failure to meet objectives, venture capital 34 257 FDIC 34 97 Federal Deposit Insurance Corporation 231 -232 Federal pre-emption of state laws 232-234 166 Federal pre-emption, securities not covered 33 166 Federal Reserve 33 175-176 Federal, banks 257 167 Fee disclosure, underwriting 167 Fees, for underwriting junk bonds 339-340 166 Fees, investment bank 255-257 244 Fees, stock exchange 259, 261 253 Financial condition, unsound, merit review 272-273 96-97 Financial data, quality of 44, 45 139 190 Financial intermediary, venture capitalist 128-129 Financial statements, audited for IPO 252 40 116 Financial statements, public companies 39, 45 115 Financial underwriting 207-208 115-116 Financing rounds 114-116 Finding angels 125-133 142-144 107 Firm structure, venture capital 115 Fitch's bond rating service 323 205 115 Flagship customers 106 Focus groups 101 288 106 Follow-on financing, SBIC 106 Forced sale, exit by 184-185 267-269 Form 1-A 230 181 Form D 220 253 Form S-1, public offering form 306-308 Form SB-1, public offering form 220 220 217-228 Form SB-2, public offering form 220 183-187 Form-lA, regulation A public offering Raising Capital 374 Forms SB-1 & SB-2 Forums for emerging growth companies Fragmented market Friends and family Full disclosure Funding, by industry Funding, type SBIC Future value interest factor Future value interest factor for an annuity FVIF FVIFA General Electric mini-case Going private Governance mechanisms Government grants or loans Granting credit to customers Growth potential Growth rate, calculation of Growth, product life cycle Guidance for angel investors Guidelines for direct public offering Hambrecht & Quist Hire, fire, investor right to decide Home equity loans Impoundment of proceeds Impoundment, proceeds for merit review Indications of interest in public offering Industry preference, angels Industry preferences, SBIC / Venture capital Industry ROA Inelastic price Inelastic price Information about the company Initial financing, SBIC Initial public offering Initial public offering, exit Insider transactions Institutional investors, criteria Institutional investors, purchase of shares Intellectual property, valuation Intellectual reward, angel Interest, bond, estimating required Internal sources of cash International Trade Loan Internet, use in small public offering Introduction, product life cycle Inventory Inventory turnover Inventory, techniques for reducing Investible deal Investment agreement, issues Investment agreement, legal fees Investment agreement, model Investment bank fees Investment banks Investment banks, list of top Investment banks, underwriting Investment by SBIC type Investment criteria, angels Investment criteria, venture capital Investment, stage of 269-270 125-127 117 20 216 290 289 Appdx A Appdx B Appdx A Appdx B 327-331 262 120 363 312-313 117 172 97 126-127 276-277 274-275 191 25-27 234 272 253 121 -122 290 306-308 96-97 97 118 288 241-262 152 233 18 253 176 121 178 305-317 65 278 97 313-316 313-314 315-316 119-120 187-192 165 165 255-257 245-247 256 246-247 291 114-122 144 179 Investment, threshold conditions Investments, staging of Investor control mechanisms Investor matching services Investor, accredited Investor, equity required Investor, landing the Investor, preferred equity required Investors, institutional, criteria IPO decision IPO exit likelihood IPO road show IPO road show IPO, mechanics of IRS form 4506, tax return copy request Junior liens Junior secured lenders Junk bonds Later stage funding Later stage, defined Lawyer, selecting Leading edge technology Leases Legal fees, investment agreement Letters of credit Levers of control, venture capitalist LIBOR Life cycle, company Line of credit Liquidity premium Listing requirements, stock exchanges Loan covenants, SBA Loan guarantees, SBA Loan mechanics, SBA Loan Programs, SBA Loan underwriting, SBA Loan, application Loan, super priority Loans to officers and affiliates Loans to officers and affiliates, merit review Loans, bridge Loans, mezzanine Loans, syndicated Loans, term Lock-up London Interbank Offer Rate Low Documentation loans LowDoc loans Management team Management, proven Management, quality of Management, work ethic of Market acceptance, proof of Market assessment Market dominance, no Market fragmented Market maker Market makers Market size and growth Market size estimates Market value 198 190-191 190-191 128-129 226-227 181 197-211 182-183 18 242-243 154-155 252 254-255 251-254 61 71-73 71-73 338-340 121 236 117 28-29 165 35,36 149 70 35 169 259-261 61 62 57-61 61-65 58 36, 45 361 -363 233 273 356 357 355-356 34, 35 258-259 70 63 63 107 198-200 10 116 204 94-96 117 117 252 254 205-206 118 166 Index Market, crowded or over funded 203 Market, focus on vs technology 124 Marketing plan 105-106 Matching services 128-129 Maturity, product life cycle 97 Mechanics of an initial public offering 251 -254 Merit review criteria 233-235 Merit review guidelines, NASAA 272-273 Metrics for billing and collections 308-310 Mezzanine financing 357 Micro loan program 65 Modeling 174-176 Monetary Control Act of 1980 34 Money, customers with 202-203 Monopolistic Competition 96 Moody's investor service 323-324 Mortgage bonds 334 Multiplier method, revenue 168 NASAA 229 NASAA 271-271 NASAA policy guidelines, merit review 272-273 NASDAQ 259-261 Nasdaq 259-261 National Association of Securities Dealers 259-261 National Stock Exchange 259 National Venture Capital Association 164 Network, personal 125 New business schedule 205 New York Stock Exchange 259-261 North American Securities Administrators Assn 229 North American Securities Administrators Assn 271 -273 Note discounters 71-79 Notes, terms 20, 21 NSX 259 Offer price for securities at IPO 247-251 Offer price, final 253 Oligopoly 95 One hour drive, angel criteria 121 Operating lease 28 Operations, venture firms 142-144 Options, granted to underwriter 254 Options, merit review 272 Organization, angel funds 131 Over funded market 203 Ownership maintenance, dilution 189 Pacific Stock Exchange 259 Pain, customers with 202 Partial buyer 185 Participating convertible preferred 179 Participation in sale 184-185 Payables, conserving cash through 317 Payoff analysis 179-183 Payoff at exit 180-181 PCX 259 Pennsylvania Private Investor Group 131-133 Personal credit check 60 Personal credit check of entrepreneur 106 Personal financial statement 60 Per~onal financial statement of entrepreneur 106 Personal guarantees 59 Personal network 125 375 Personal tax returns, copies 61 Philadelphia stock exchange 259-261 PHLX 259-261 PIPE 359-361 Pipeline, sales 118 Pitch 197 Pitch format 208-210 Pitch, detailed 209-210 Pitch, short 208-209 Pitch, style 210 Pitching 197-211 Pitching, informal 197 Plant, property and equipment, cash fiom 316-317 Pooled assets 357-359 Potential growth 117 PPIG 131-133 Pre-emption, Federal 231-232 Pre-emptive rights 189 Preferences, angel 121 -122 Preferred lenders 57 Preferred stock 234 Preferred stock, convertible 177 Premium price 97 Premium, conversion 335 Premium, public company I69 Pre-production sales strategy 204-205 Pre-revenue, company valuation 169-171 Present value 325-326 Present value interest factor 325-326 Present value interest factor Appdx C Present value interest factor for an annuity Appdx D Preservation of states rights 232 Price control, monopoly power 95 Price elasticity 96-97 Price flexibility limited 97 Price flexibility, loss of 95 Pricing securities at IPO 247-251 Prime rate used to estimate bond interest 178 Prime rate used to estimate preferred dividends 178 Private company value 169 Private investment in public entities 359-361 Private Investor Networks 130-133 Private placement exemption, Regulation D 220 Private placement exemption, Sec.J(a)(l I) 220 Private placement exemption, Sec.4(2) 220 Private placement exemption, Sec.4(6) 220 Private placement options, summarized 227-228 Private placement, company information 229 Private placement, documentation for 228 Private placements 217-228 Private placements, regulations governing 220 Proceeds of sale, remittance by underwriter 253 Proceeds, amount of and purpose 252 Proceeds, impoundment of 234 Proceeds, impoundment, merit review 272 Proceeds, use of, merit review disclosure 272 Product life cycle 98-99 Product life cycle, manipulation of 98 Product, focus on 124 Profit modeling 102-103 Prohibited purposes, SBA loan 57 376 Promissory Note Promoter equity, merit review Promoter's equity Promotional shares Proprietary technology Pro-rata buyout participation Prorata participation in sale Prospectus effective Prospectus, publish final Prospectus, SEC evaluation of Prospectus, share price range in Public company financial statements Public company premium Public offer decision Public offering, company size Public offering, economic cycles Public offering, mechanics of Public offerings Public offerings vs private placements Publicly traded companies, registration forms Purchase with recourse Purchase without recourse Purchases & sales, investor right to approve Pure competition Pure monopoly Puts Puts as anti-dilution mechanism Puts, bond PVIF PVIFA Raising cash from accounts receivable Recourse, purchase with or without Red Herring Red-line Registration by coordination Registration by notification Registration by qualification Registration for IPO Registration forms, publicly traded company Registration, bonds Regulation A Regulation D Regulation D Regulation D Regulation D Reliability, banks Repeat sales Retained earnings Return on assets Return, expected by angels Revenue multiplier calculation Revenue multiplier method Revenue, expected value Review Reward Reward Reward, intellectual, angel Risk Risk factors Risk Management Association studies Risk management strategies, bonds Raising Capital 20,21 273 234 234 201-202 185 185 253 253 253 250-251 40 169 242-243 245 244 251-254 241-262 217-228 220 83 83 191-192 95 95 194 189 335-336 Appdx C Appdx D 310-312 83 252 48,49 235 235 235 252 220 331-333 267-269 218 220 222-228 230 48,49 100, 102 306-308 119 168 168 174-175 44,45 11 121 10, ll 39,40 333-336 Risk vs reward, venture capital Risk, disclosure of for merit review Risk, minimization of in bonds Risk, reduction of Risk, reduction SBA guarantees RMA financial statement studies Road show Road show, IPO Rule 504 Rule 505 Rule 506 S-1, filing as part of IPO process Sale and lease back Sale of IPO shares to institutional investors Sale to buy-out specialist, exit Sale to management, exit Sale to private company, exit Sale to public company, exit Sales Sales & purchase, investor right to approve Sales pipeline Sales strategy, pre-production Sales, as confidence building measure Sarbanes Oxley Sarbanes Oxley SBA SBA certified lenders SBA documentation SBA Express SBA form 912 statement of personal history SBA lenders finding SBA loan collateral SBA loan eligibility SBA loan mechanics SBA loan programs SBA loan prohibited purposes SBA loan underwriting SBA personal guarantees SBA preferred lenders SBA size criteria SBA website SBIC SBIC finding SBIC funding type SBIC funding, eligibility for SBIC funding, sources of SBIC investment, character of SBIC, information needed SBIC, types of Scalability Scaleable Schedule 13-E Schedule of new business SCOR Form Search for venture capital Seat on board of directors SEC evaluation period SEC website SEC, view on internet to sell stock Sec.3(a)lI Sec.3(a)ll 140 272 322-324 11 55 39,40 252 254-255 223-224 224-225 225-226 252 74-76 253 153 153 153 153 203-206 191-192 118 204-205 203 243 262 55,66 57 59-61 63 60,61 57 58-59 56 57-61 61-65 57 58 59 57 56,57 65 287-300 296-298 289 292-293 293-296 288-299 298-300 291 117 200-201 262 205 228-229 155-158 190 253 40 278 220 221 377 Index Sec.4(2) Sec.4(2) Sec.4(6) Secondary market for bonds Securities Securities laws, state Securities regulation Securities regulation, commercial paper Securities regulation, overview Securities, asset backed Securities, convertible preferred stock Securities, held by venture capitalists Securities, pricing Securitization Security defined Security law liability Security law rational Selecting venture capital firms Self-reliance Selling expenses Senior notes Sensitivity analysis Share price as a function of EBITDA Share price as a function of revenue Share price range in prospectus Share price, limits on Share registration, exit strategy Shares, trading in the secondary market Showcases, company and technology Sinking fund Size criteria, small business Size, transaction Size, transaction Small Business Administration Small Business Investment Company Small business issuer Small public offering, stock distribution Small public offerings Small public offerings, analysis of Social responsibility, factor in direct offering Sources of venture capital SPE Special purpose entity Special purpose vehicle Specialized 7(A) Programs SPV Stage of development Stage of development Stage of development, yield required Stage of investment Staged financing Staging investments Start-up, defined State registration, attempts to simplify State regulation State regulation State securities law strategy State securities laws Statement of personal history, SBA form 912 States rights under Federal pre-emption Statistical, credit scoring 220 221-222 220 340 177-179 231 215-236 345-346 219 357-359 177 147-148 247-251 357-359 216 216-217 216 156-157 17 234 334 104-105 249-251 248-249 250-251 234 184 253 127-128 337-338 56, 57 12 55, 66 287-300 269 274-282 267-282 270 276 142 357-359 357-359 357-359 62-65 357-359 8, 179 179 149 190-191 235 233-236 271 -273 235-236 231 60, 61 232 38, 39 Stock Stock distribution, small offering comparison Stock distribution, small public offering Stock exchange fees Stock exchange, listing Stock price as a function of EBITDA Stock price as a function of revenue Stock price at IPO Stock price range in prospectus Stock purchase agreement Stock purchase agreement, issues Stock purchase agreement, model Stock, common Strategy, investor right to approve Structure, venture firm Structuring the deal Subordinated debentures Super priority loan Supply and demand, effect on stock price Sustainable competitive advantage Syndicated loans Tangible net worth Target assets Target price per share Target price per share as a function of EBITDA Target price per share based on revenue Tax return copies Tax returns of entrepreneur Team building, angel Technology showcases Technology, focus on vs market Technology, proprietary Term loans Term sheet Term sheet Threshold conditions for investment Time to close deal Time to exit Time to exit Tranche B lenders Transaction size Transaction, size Trust indenture act U-7 Underwriter, remit proceeds of sale Underwriter's duty Underwriter's options Underwriting & selling expense, merit review Underwriting criteria bank Underwriting fees, disclosure Underwriting fees, junk bonds Underwriting securities Underwriting, bank loan Underwriting, comparative data Underwriting, financial Unsound financial condition, merit review Use of proceeds Valuation Valuation, EBITDA multiplier method Valuation intellectual vrovertv Valuation, modeling 22 281-282 274-282 259, 261 259-261 249-251 248-249 247-251 250-251 229 187-192 165 177 191 142-144 163-192 334 361 -363 248 119 355-356 42 306-308 252 250-251 248-249 61 106 123-124 128 124 201-202 34, 35 164 210-211 198 206-207 12 71-73 12 332-333 228-229 253 257 254 273 37, 38 256-257 339-340 246-247 37, 45 39, 40 39, 45 272 90-91 150-152 166 176 174-176 378 Valuation, similar companies Valuation, times when necessary Valuations, realistic Value EBITDA method Value revenue method Value, pre-investment Valuing the company Vendors and suppliers Venture Capital Venture Capital Association, National Venture capital levers of control Venture capital search Venture capital securities Venture capital staged financing Venture capital, cost in control Venture capital, cost in money Venture capital, costs of Venture capital, exit preference Venture capital, exit strategies Venture capital, failure to meet objectives Venture Capital, financial intermediary Venture capital, sources of Venture Capital, unique role Venture capital, who needs Venture capitalist risk Venture capitalist what they can bring Venture capitalist, selecting Venture exits via IPO Venture fairs Venture firm deal size Venture firm operations Venture firm structure Venture firm, contacting Venture, investment criteria Voting rights, unequal Waiver of Default Warrants, merit review Without recourse Work ethic of management Working capital Workout Department Yield, required at stage of development Yield, required on a bond Raising Capital 171-174 150-152 120 167 168-169 171-173 165-176 27 139-158 164 149 155-158 147-148 149 148-150 146-147 145-150 152-155 152-155 150 139 142 139 141 140 156 156-157 154-155 127-128 142 142-144 142-144 157-158 144 234 46 272 83 116 41 46 179 327 ... Knowing the exact amount of capital needed is important because there are risks to raising too much or too little capital The risk in raising too Raising Capital much capital is that company owners... a Raising Capital company until that company grows to the point where it requires hundreds of millions in capital Let us start at the beginning Entrepreneurs have special problems raising capital. .. venture capital Less than one percent of companies qualify for venture capital and venture capitalists invest for limited periods of time typically five to eight years before they exit Venture capital