#+title: Section 13 | Lesson 76 - financing alternatives
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* Links
- [[./../mba-main.org][TOC | Business]]
- [[https://www.udemy.com/course/an-entire-mba-in-1-courseaward-winning-business-school-prof/learn/lecture/4301162#overview][S14:L76 course video]]

* notes
** Harvesting an investment
- asset can be transferred to investors
- company can be sold and cash distributed to investors
- company goes public and shares are distributed 6 months post IPO lockup

** Planning an exit strategy
- need to explain liquidity targets to investors when you are raising capital
  - make sure you are both thinking the same way
  - have a lawyer prepare the documents

** Buyouts
- "leveraged buyout" LBO
- financed using debt
- must have great cash flows to secure loans

*** firms
- many public companies partner with private equity firms and go private
- goal is to go public again at some point

**** example firms
- KKR
- TPG

*** management buyout (MBO)
- when management buys the company
  - loans
  - investors
  - their own money

- gains
  - independence
  - control

*** Employee Stock Ownership Plan (ESOP)
- employees buy the company
- all employees own it not just management

** Initial Public Offering (IPO)
*** what is an initial public offering
- private company sells shares to the public through a stock exchange
- this allows
  - company to raise capital for growth
  - early investors and employees to convert their holdings to cash

*** shares
**** types of shares
***** primary
- newly issued shares created by the company for the IPO
- when sold to outsider investors the money goes to the company's treasury
- used to fund expansion, pay debt, invest in new projects

***** secondary
- already existing shares held by people "shareholders"
  - it's the shareholders that make money when selling their shares
  - venture capital firms
  - founders or employees that want to cash out

**** in practice
- most IPOS are a mix
  - primary raises growth capital
  - secondary is the payout for whoever bought in early

**** dilution
- when primary shares are made and sold, existing shares are worth less
- company gets money to raise to invest in projects that can increase it's overall value in cluding the diluted shares

*** structure, underwriting and listing requirements
- underwriting spread is fee the investment bank gets (usually up to 7%)

**** listing requirements for NASDAQ
- share price >= $4, at least 1M publicly held shares
- several years of operating history and financials
- must have a Board of Directors (BOD) with independent members
  - oversee management
  - ensure regularatory compliance
  - protect shareholders
  - maintain audient, compensation and nominating committees

** Troubled Ventures and Turnarounds
*** basics
- turnarounds don't work in tech
- very rare exceptions
  - steve jobs at apple
  - IBM
- this is due to 'secular decline'
  - A secular decline is a persistent, structural decrease in growth, productivity, or demand that continues for many years regardless of normal economic ups and downs.

*** corporate raiders
- dont let sentiment cloud your judgement
- it's a zombie.  shoot it and move on.
  - liquidate
  - sell it

*** ways to die
- financial distress :: when cash on hand is insufficient to pay for current liabilities
- load default :: one missed payment and it is over
- acceleration provision ::  when a firm defaults on just one payment then all future payments are due immediately
- cross default provision :: one late payment on one loan causes all loans to go into default
- foreclosure :: the legal process where lenders collect and take stuff from you
- insolvent :: negative book equity

*** reqlities
- 25% of companies go belly up within 2 years of being founded
- more than 50% of companies shut down within 4 years of being founded

*** bankruptcy law
- a legal code that has many chapters that protect you

**** chapter types
***** types
- chapter 7 :: how people / firms liquidate stuff
- chapter 9 :: how cities deal w/ bankruptcy
- chapter 11 :: how firms deal w/ bankruptcy
- chapter 12 :: how farms deal w/ bankruptcy

***** general rules
- chapters 1, 3, 5 :: general bankruptcy rules
- chapter 15 :: trustees that help banks
- chapter 13 :: restructuring personal debt

***** most important
- chapter 7 - liquidating
- chapter 11 - restructuring

**** chapter 7 liquidation
- after a person / company files for bankruptcy then a court supervises the liquidation process

**** capter 11 bankruptcy filing
- temporarily protects a distressed firm so they can restructure or pay off debt
***** types of restructuring
- operations restructuring :: incraese revenue or cut expenses
- asset restructuring  :: selling assets to improve ratios
  - day sales outstanding
  - inventory conversion period

***** this can save a company
- 65% of companies reorganize
- 28% liquidate
- 7% merge with another firm

***** steps
1. file for chapter 11 with one of 300 bankruptcy courts
2. a bankruptcy judge accepts or doesn't accept petition
3. if no fraud a company has 120 days to make a plan
4. 60 days is then given to creditors to accept the plan
5. investors then vote
