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The Cape Fear Capital Connection News Hour: Tuesday, September 16, 2014 News and Information About Technology, Capital Markets, and Business In The Cape.

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Presentation on theme: "The Cape Fear Capital Connection News Hour: Tuesday, September 16, 2014 News and Information About Technology, Capital Markets, and Business In The Cape."— Presentation transcript:

1 The Cape Fear Capital Connection News Hour: Tuesday, September 16, 2014 News and Information About Technology, Capital Markets, and Business In The Cape Fear Valley With Thomas Vass The Private Capital News Network Presents

2 Segment 1. The Week In Review: Interview with Kenneth Marks, of High Rock Partners High Rock Partners, an investment banking firm providing strategic and M&A advice, located in Raleigh, North Carolina, serving leaders of emerging growth and middle market companies, has important news. High Rock as an example of building out the Cape Fear regional capital infrastructure.

3 What Their Clients Are Saying About High Rock 3-C Institute for Social Development. “Our work with High Rock Partners significantly accelerated our team’s ability to make crucial strategic decisions, putting us on a path for growth we could not have achieved on our own.” Cellwatch. “High Rock Partners provided extremely valuable assistance to me over the past year. The interaction was always intense as we explored the depths of issues and worked to fully understand possible root causes that were holding me and my team back. Once we knew the problem, the coaching was insightful and expanded my perspective of possible actions that I could take to help grow my business.

4 What Is An Investment Banking Firm ? “Our Mission is to be the go-to advisors for M&A projects and strategic problem solving for the shareholders of emerging growth and middle-market companies.” What does this mean and how would this work in the Cape Fear Region?

5 Segment 2. Two Important News Stories: TrueBridge Raising more than $408 million from 108 investors to invest in venture capital and private equity groups Chapel Hill-based TrueBridge Capital. Story by Lauren K. Ohnesorge, TBJ Using the TrueBridge news to understand What is “carried interest?” What is a fund of funds? Will this idea work in the Cape Fear Region ?

6 About TrueBridge A fund-to-fund investment firm. The firm has a mutually exclusive relationship with the Kauffman Fellows Program, a two-year apprenticeship designed to train future venture capitalists. TrueBridge donates a material portion of its carried interest to that program to build a long-term endowment. The strategy for TrueBridge funds-of-funds is to invest in a concentrated portfolio of well-established, high-performing and typically difficult to access venture capital and growth equity managers.

7 What Is Carried Interest? 20 times investment generally within 24 months is not adequate. Exit must be over $200. Forbes has to draw the line on what deals to consider as moving the needle for the sector as a whole. Public offerings and sales need to hit a $200 million to count toward a partner’s rank In private equity, in order to receive carried interest, the manager must first return all capital contributed by the investors, and, in certain cases, the fund must also return a previously agreed-upon rate of return (the "hurdle rate" or "preferred return") to investors.[4] Private equity funds only distribute carried interest to the manager upon successfully exiting an investment, which may take years. The customary hurdle rate in private equity is 7–8% per annum. In private equity, the standard carried-interest allocation historically has been 20% for funds making buyout and venture investments.[5] Carried-interest rates – performance fees – among hedge funds have historically also centered around 20%, but have had greater variability than those of private equity funds. In extreme cases performance fees reach as high as 50% of a fund's profits, although usually it is between 15% and 20%. The tax code treats that income as a "long-term capital gain," which is taxed at a lower rate than ordinary income (currently maximums of 20 percent versus 39.6 percent).

8 What Is a Venture Capital Fund of Funds? A "fund of funds" (FOF) is an investment strategy of holding a portfolio of other investment funds rather than investing directly in stocks, bonds or other securities. This type of investing is often referred to as multi-manager investment. A fund of funds may be "fettered", meaning that it invests only in funds managed by the same investment company, or "unfettered", meaning that it can invest in external funds. A fund of venture capital funds is a fund of funds that invests in a portfolio of different venture capital funds to access to private capital markets. Clients are usually university endowments and pension funds.

9 Will this type of fund of funds work in the Cape Fear Valley? Already in place at the state level. The N.C. Fund of Funds Program has invested $10 million in four venture capital and angel funds, which in turn invest in North Carolina businesses as early as the conceptual stage: Hatteras Ventures Partners, IDEA Fund Partners, Inception Micro Angel Fund and Salem Investment Partners. The individual funds are responsible for finding and assessing potential investments in North Carolina businesses. The idea would work as an alternative to industrial recruitment and film tax incentives. For example, if elected leaders want to promote a film production, use the fund of funds idea to invest directly in the future profits of the film.

10 Second Important News Story Is From Charlotte: AvidXchange, a Charlotte-based software company By Cathy Martin, Business North Carolina it will quadruple the size of its local workforce, adding 603 jobs to its existing 200 by the end of Founded in 2000, the company provides automated accounts-payable systems to small- and mid-sized businesses. The company will invest $21.4 million in a new, 115,000- square-foot headquarters at the NC Music Factory in uptown Charlotte. The new jobs will pay an average annual salary of about $61,651, slightly higher than Mecklenburg County's $59,046,

11 About AvidExchange AvidXchange revolutionizes the way companies pay their bills by automating invoice and bill payment processes. We are automation experts and have been automating companies’ bill payment processes for more than 10 years to reduce costs, improve productivity, and eliminate paper from their accounts payable and bill payment processes.

12 Applying The Lessons of AvidExchange to The Cape Fear Regional Economic Strategy Existing company, not a startup. Over 6 years old, undertaking continuous product innovation. Very difficult first 3 years. Big break came in years later, job growth is exponential.

13 The Cape Fear Regional Economy Has Technology Firms Just Like AvidExchange There are about 115 firms in New Hanover and Pender. There are about 150 small technology firms in Bladen and Cumberland. There are about 30 firms in Brunswick. These firms should be the focus of economic growth strategy in the Cape Fear region.

14 Segment 3: How The Recent Changes in Private Placement Rules Affect Cape Fear Companies Ability To Raise Capital Next week, our special guest, Jim Verdonik, a securities attorney in Ward and Smith in Raleigh, (919) , will be back for a more indepth discussion about the new rules on raising capital. Rule 506 private placement offerings: Raised $898 billion in new capital in 2012, compared to $1.2 trillion raised through public offerings. Compared to all venture capital in 2012, about $30 billion. Accounted for almost 99% of the total capital raised under Regulation D between 2009 and 2012.

15 Our Continuing Discussion of What Constitutes Fraud in A Private Placement New rules on advertising and marketing of a private placement open new risks for CEOs and companies. Federal law contained in two different sources, both state: 1. to employ any device, scheme, or artifice to defraud, or 2. to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or 3. to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.

16 SEC Rule 10(b)-5 reads: it shall be unlawful for any person, directly, or indirectly, by use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange ‑ 1. to employ any device, scheme, or artifice to defraud, 2. to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under they were made, not misleading or 3. to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

17 Lessons For CEOs In The Cape Fear Region From the moment the CEO embarks on a Reg D Rule 506(c) private placement, all the statements must be true, and nothing can be omitted. All potential investors must be treated uniformly and fairly.

18 Lessons For Elected Leaders and Government Agents Help local accredited investors find and investigate local companies that are offering securities by sponsoring capital market events. Support capital market firms promote events and promote companies so that CEOs can tell their story. Do Not Intervene or Disrupt the Private Capital Market, act to support the private capital market.

19 Segment 4. Our Special Guest: Gary L. Winstead, P resident The LoadMatch Companies The logistics company grew 216 percent over the past three years, going from revenues of $6.7 million in 2010 to $21.2 million in What can we learn from this story?


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