Raising capital

 I was fortunate enough to have guest speakers in my university seminar, who went through the types and considerations of listing on the capital markets. This is especially interesting and useful if you're keen to enter private equity (PE) or venture capital (VC). Luckily for me, I am interested in these fields.

There are several types of equity markets products - private placements, IPO, SPAC, post-listing and equity-linked convertible note. Private placements include early stage funding for start-ups and Pre-IPO placements are where investors long the equity. SPAC is an interesting one because we have read several news about the boom in special purpose acquisition companies (SPACs), including that of the EV company Lucid-CCIV merger.

IPO is probably one of the most heard-of exit strategies for private equity investments. It basically means the firm will list their stocks onto an exchange for the first time in order to raise large amounts of capital to further expand their business, or pay off debt etc. An IPO takes months to complete, and some of the high-profile IPOs include Bumble at $2.2 billion which made the CEO Whitney Wolfe the youngest self-made female billionaire in the world. This process involves back-and-forth engagements between the firm and analysts and underwriters, and ultimately come up with a deal on the valuation of the company, education on the firm etc.

There are several places where equities can be listed, such as Singapore Exchange (SGX) and New York Stock Exchange (NYSE). Noticeably, HKEX has an extremely large amount of IPO in volumes at $67,711 billion as compared to SGX's $833 billion. Different exchanges also have varying IPO sector breakdowns. For example, the Technology, Media and Telecomm (TMT) sector is 35% on the NYSE/NASDAQ, but only 11% in SGX, which gives us something to think about when deciding on where best to list the firm.

Key valuation methodologies include DCF, DDM, comparables which I have written about in my previous post.

Overall, there are several ways companies can raise capital, either through private placements of IPO listings. In general, firms that have a solid business plan, fundamentals, forecast and lower risk are more attractive and will be valued at a higher price.