Venture Capital: Special Case Financing

Turnaround: Funding provided to a company that is experiencing problems in order to re-structure or help solve their problems and gain momentum. Investors evaluate a company’s cost structure, management, and position in the market.

When evaluating the cost structure, an investor’s focus is on a proposed cost-cutting and savings strategy rather than on new management or a shift in the business plan. The new management team is evaluated in its previous experience with turnarounds of similar companies, its investment into the business, and its proposed strategy. Investors also weigh in the company’s position in its market. These are outside factors that affect a company’s performance.

Leveraged Buyouts (LBO): These are funds provided to buy a company or a subsidiary from a major corporation. The assets of the company are used as collateral for the funds. Proceeds are used for acquisitions, divestitures, valuations, refinancing, and management acquisitions.

Leverage-buyout financing is based on a company’s cash-flows strength and likelihood to continue. This type of company has cash-flow predictability; operating performance; and enterprise-value based on technology, customer base, franchise value, or brand.

Although most of the venture capitalists in the United States invest in technology companies—and the industry gets a lot of attention for these investments—they also invest in business services, construction, industrial products, restaurants, retailing, and socially responsible companies

© 2006 Guideye.com