Slide 20–1

Chapter Twenty

Venture Capital Firms, Finance Companies, and Financial

Conglomerates

Slide 20–3

Venture Capital Firms

• These firms provide funds for start-up companies

• Often become very involved with firm management and provide expertise

Slide 20–4

Venture Capital Investments

Slide 20–5

Venture Capital Disbursements

Slide 20–6

Top 20 Venture Capital Firms

Slide 20–7

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

Slide 20–8

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

National Venture Capital Association (click on Industry Research)

http://www.nvca.com

Slide 20–9

Purpose of Finance Companies

• They are money market intermediaries

• Borrow in large amounts (commercial paper) and invest in small amounts (loans)

Slide 20–10

Risk in Finance Companies

• Default Risk

• Liquidity Risk

Slide 20–11

Types of Finance Companies

• Business Finance Companies– Factoring

– Leasing

– Floor Plan Loans

• Consumer Finance Companies• Sales Finance Companies

– Captive Finance Company

Slide 20–12

Finance Company Loans

Figure 20-4: Types of Loans Made by Finance Companies, 2001

Slide 20–13

Different Types of Business Loans

Figure 20-5: Types of Business Loans Made by Finance Companies (end of 2001)

Slide 20–14

Finance Company Business Loans Outstanding

Figure 20-6: Finance Company Business Loans, 1991–2001

Slide 20–15

Commercial Paper Placed by Finance Companies

Figure 20-8: Commercial Paper Placed by Finance Companies, 1989–2001

Slide 20–16

Finance Company Balance Sheet

Slide 20–17

Growth in Finance Companies, 1979-1998

Figure 20-9: Growth of Finance Company Assets, 1980–2001

Current statistics on finance companieshttp://www.federalreserve.gov/releases/g20

Slide 20–18

Financial Conglomeration

• Economies of Scale

• Economies of Slope

• Many conglomerate mergers are being reversed