1. Chapter Twenty Venture Capital Firms, Finance Companies, and Financial Conglomerates

2. Copyright © 2004 Pearson Education Canada Inc. Slide 20–2 Venture Capital Firms These firms provide funds for start-up companies Often become very involved with firm management and provide expertise

3. Copyright © 2004 Pearson Education Canada Inc. Slide 20–3 Venture Capital Firm Organization 1.Most are limited partnerships 2.Source of capital includes wealthy individuals, pension funds, and corporations 3.Investors must be willing to wait years before withdrawing money

4. Copyright © 2004 Pearson Education Canada Inc. Slide 20–4 Life of Venture Capital Deal 1.Fundraising –Venture firm solicits commitments, usually less than 100 per deal 2.Investment phase –Seed investing –Early stage investing –Later stage investing 3.Exit –Usually IPO as merger U.S. National Venture Capital Association (click on Industry Research) http://www.nvca.com

5. Copyright © 2004 Pearson Education Canada Inc. Slide 20–5 Purpose of Finance Companies They are money market intermediaries Borrow in large amounts (commercial paper) and invest in small amounts (loans)

6. Copyright © 2004 Pearson Education Canada Inc. Slide 20–6 Risk in Finance Companies Default Risk Liquidity Risk

7. Copyright © 2004 Pearson Education Canada Inc. Slide 20–7 Types of Finance Companies Business Finance Companies –Factoring –Leasing –Floor Plan Loans Consumer Finance Companies Sales Finance Companies –Captive Finance Company

8. Copyright © 2004 Pearson Education Canada Inc. Slide 20–8 Finance Company Loans

9. Copyright © 2004 Pearson Education Canada Inc. Slide 20–9 Different Types of Business Loans

10. Copyright © 2004 Pearson Education Canada Inc. Slide 20–10 Finance Company Balance Sheet

11. Copyright © 2004 Pearson Education Canada Inc. Slide 20–11

12. Copyright © 2004 Pearson Education Canada Inc. Slide 20–12 Growth in Finance Companies Current statistics on finance companies http://www.federalreserve.gov/releases/g20

13. Copyright © 2004 Pearson Education Canada Inc. Slide 20–13 Financial Conglomeration Economies of Scale Economies of Slope Many conglomerate mergers are being reversed