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Also, if the PE firm is using a 20% discount rate to evaluate the merits of vendor finance, they are likely fooling themselves more than they are fooling the founders.
It's important to note that these things are common in the private equity world, not the angel investment or venture capital world. The VC world has totally different tricks, like 3x participating preferred, "independent" board members, collusion, and option pools. Also, if the PE firm is using a 20% discount rate to evaluate the merits of vendor finance, they are likely fooling themselves more than they are fooling…
* Cost of capital for the fund
* Cost of capital for investors in the fund
* Cost of capital for the business
However, I tend to agree that you wouldn't want to be throwing a 20% discount rate around against yourself in deal. It's certainly not outrageous though. Think of it as opportunity cost too.
Seems to me that an undergraduate Econ education (or equivilant) would go a long way in seeing through some of these. These look like questions I've seen on exams.
Sorry for the n00b question, but can someone explain the distinction between PE investor & angel/VC? Is angel/VC a subset of PE investor?
angels/VCs fund growing companies and extract profits as the company value grows and is to sold to a company or the public market. A VC would never fund a paper manufacturing company unless this were a wholly new way of making paper and had potential to transform the entire industry.
Sorry for the n00b question, but can someone explain the distinction between PE investor & angel/VC? Is angel/VC a subset of PE investor?
PE investors buy mature companies and extract profits via cost cutting, mergers/acquisitions, re-organizations. A PE firm may buy a paper manufacturing company if they thought they could increase profits by cutting unnecessary costs. angels/VCs fund growing companies and extract profits as the company value grows and is to sold to a company or the public market. A VC would never fund a paper manufacturing company unl…
Earlier quoted context omitted.
PE investors buy mature companies and extract profits via cost cutting, mergers/acquisitions, re-organizations. A PE firm may buy a paper manufacturing company if they thought they could increase profits by cutting unnecessary costs. angels/VCs fund growing companies and extract profits as the company value grows and is to sold to a company or the public market. A VC would never fund a paper manufacturing company unl…
so how relevant is this article for startups? Seems to me this is more for owners of mature companies. Or am I missing something?