Private equity & Venture capital Essay Example | Topics and Well Written Essays - 750 words

Private equity & Venture capital - Essay Example The sale price for the company that would make sense for the venture capital fund to convert its convertible preferred stock will be ($3/1.75) = $1.714 per share. d) Explain how a participating convertible preferred stock (PCPT) differs from a standard convertible preferred stock, and what benefits it has for the investor purchasing the PCPT. Why would existing investors agree to use a PCPT security in a new financing round? PCPT is a convertible stock that basically provides a specific dividend that in the event of liquidation can be paid or converted before any other stock while a standard convertible preferred stock takes precedence after other categories of stocks such as PCPT. PCPT enables an investor to get precedence claim over other categories of stocks hence ensuring that their investment is assured with some gain. An existing investors would agree to use a PCPT security in a new financing round because it offers a first claim in the case of liquidation. Further, it is easier to convert existing stocks into PCPT. Private equity firms have well informed and highly sophisticated investors. This ensures that the process of establishing and crafting operational strategies and priorities is basically built on deep transparency between the stakeholders. Further, they align themselves around an explicit and focused drive, objectives and interests hence resulting to comparative advantage. Private equity requires that an engaged and effective board be built to manage the funds. Further, they aim at buying a company using debts and then considerably reducing or cutting costs so that they can realize short term profits to settle the debts and further increase in the growth prospects. Proprietary deals gives a specific investor an opportunity a first chance to bur or purchase a company or a business , before the said company or business is actually presented to other investors by the investment banker or