Pub Date : 2018-08-31DOI: 10.3905/JPE.2018.21.4.041
M. Anson
Since the birth of Bitcoin in 2009, digital currencies have grown exponentially, spurring debate over their legitimacy. Despite their controversy, they are now impacting the way start-up companies raise capital to finance their initial operations. Called Initial Coin Offerings (ICOs), these funding vehicles raised over $4 billion in 2017. In this article, the author explores the economics of ICOs, and consider their risks and regulatory implications, and their placement within the capital structure of start-up companies.
{"title":"Initial Coin Offerings: Economic Reality or Virtual Economics?","authors":"M. Anson","doi":"10.3905/JPE.2018.21.4.041","DOIUrl":"https://doi.org/10.3905/JPE.2018.21.4.041","url":null,"abstract":"Since the birth of Bitcoin in 2009, digital currencies have grown exponentially, spurring debate over their legitimacy. Despite their controversy, they are now impacting the way start-up companies raise capital to finance their initial operations. Called Initial Coin Offerings (ICOs), these funding vehicles raised over $4 billion in 2017. In this article, the author explores the economics of ICOs, and consider their risks and regulatory implications, and their placement within the capital structure of start-up companies.","PeriodicalId":43579,"journal":{"name":"Journal of Private Equity","volume":"21 1","pages":"41 - 52"},"PeriodicalIF":0.0,"publicationDate":"2018-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.3905/JPE.2018.21.4.041","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48197265","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-08-31DOI: 10.3905/jpe.2018.21.4.008
J. Milam
There is a growing recognition that the concentration of risk or venture capital in so few communities presents not only a challenge for the start-ups emerging from the many university entrepreneurial programs, incubators, and accelerators, but also is having a negative impact on the overall economy. Simultaneously, advancements in technology have undoubtedly improved the efficiency and profitability of many, if not most, industries. However, this has come at the expense of blue-collar jobs—and subsequently, the middle class. Moreover, with the concentration of venture capital in Silicon Valley, Boston, and now New York City, the companies located in those cities receive the lion’s share of funding and enjoy the associated economic benefits of innovation and technological advancement—vibrant and expanding employment opportunities and wealth creation. This double-whammy of job losses across much of the country and concentrated wealth creation in few communities has come to the attention of researchers, forward-thinking community and family foundations, and wealthy individuals concerned with broadening the economic opportunities that innovation and technological advancement provide. The necessity to mobilize capital on a localized or regionalized basis has been labeled Place-Based Impact Investing. This article will review the research and conclusions that have fueled the need for Place-Based Impact Investing, identify the current thought leaders, and describe some of the early efforts at mobilizing “legacy capital” into communities to support the growing but underfunded innovative companies. We also will explore some of the new methods, vehicles, and overlooked tax laws that can accelerate the mobilization of capital on a more geographic and meritocratic manner.
{"title":"The Need for Localized Risk (Venture) Capital: Place-Based Impact Investing","authors":"J. Milam","doi":"10.3905/jpe.2018.21.4.008","DOIUrl":"https://doi.org/10.3905/jpe.2018.21.4.008","url":null,"abstract":"There is a growing recognition that the concentration of risk or venture capital in so few communities presents not only a challenge for the start-ups emerging from the many university entrepreneurial programs, incubators, and accelerators, but also is having a negative impact on the overall economy. Simultaneously, advancements in technology have undoubtedly improved the efficiency and profitability of many, if not most, industries. However, this has come at the expense of blue-collar jobs—and subsequently, the middle class. Moreover, with the concentration of venture capital in Silicon Valley, Boston, and now New York City, the companies located in those cities receive the lion’s share of funding and enjoy the associated economic benefits of innovation and technological advancement—vibrant and expanding employment opportunities and wealth creation. This double-whammy of job losses across much of the country and concentrated wealth creation in few communities has come to the attention of researchers, forward-thinking community and family foundations, and wealthy individuals concerned with broadening the economic opportunities that innovation and technological advancement provide. The necessity to mobilize capital on a localized or regionalized basis has been labeled Place-Based Impact Investing. This article will review the research and conclusions that have fueled the need for Place-Based Impact Investing, identify the current thought leaders, and describe some of the early efforts at mobilizing “legacy capital” into communities to support the growing but underfunded innovative companies. We also will explore some of the new methods, vehicles, and overlooked tax laws that can accelerate the mobilization of capital on a more geographic and meritocratic manner.","PeriodicalId":43579,"journal":{"name":"Journal of Private Equity","volume":"21 1","pages":"13 - 8"},"PeriodicalIF":0.0,"publicationDate":"2018-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46908125","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-08-31DOI: 10.3905/JPE.2018.21.4.014
J. Mathis
Harbor View Advisors recently hosted a roundtable event focused on the trends in Human Capital Management Technology. Participants represented a cross-section of industries and roles including Human Resource (HR) Directors, Talent Acquisition Managers, and Chief People Officers. The participant companies represented sectors that account for roughly 50% of U.S. private employment, including Healthcare, Transportation, Finance, E-Commerce, and Utilities. Opportunities for technology-enabled service in HR are expanding, and investments in the industry are paving the way for future innovations in talent acquisition, employee engagement, and leadership development. Breakthrough technologies, like AI, are growing support in the industry and HR executives are excited to experiment. There is a vision for HR where successful innovations are combined with existing point solutions to form a suite that can deliver a user-friendly experience for both candidates and administrators.
{"title":"Innovations are Coming to the Human Resource","authors":"J. Mathis","doi":"10.3905/JPE.2018.21.4.014","DOIUrl":"https://doi.org/10.3905/JPE.2018.21.4.014","url":null,"abstract":"Harbor View Advisors recently hosted a roundtable event focused on the trends in Human Capital Management Technology. Participants represented a cross-section of industries and roles including Human Resource (HR) Directors, Talent Acquisition Managers, and Chief People Officers. The participant companies represented sectors that account for roughly 50% of U.S. private employment, including Healthcare, Transportation, Finance, E-Commerce, and Utilities. Opportunities for technology-enabled service in HR are expanding, and investments in the industry are paving the way for future innovations in talent acquisition, employee engagement, and leadership development. Breakthrough technologies, like AI, are growing support in the industry and HR executives are excited to experiment. There is a vision for HR where successful innovations are combined with existing point solutions to form a suite that can deliver a user-friendly experience for both candidates and administrators.","PeriodicalId":43579,"journal":{"name":"Journal of Private Equity","volume":"21 1","pages":"14 - 17"},"PeriodicalIF":0.0,"publicationDate":"2018-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.3905/JPE.2018.21.4.014","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43322022","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-08-31DOI: 10.3905/jpe.2018.21.4.018
Gugu Ndlwana, I. Botha
The determinants of private equity investments (particularly venture capital investments) have been studied extensively across developed economies, but this is not the case across emerging markets. This study primarily focuses on the determinants of private equity (inclusive of all sub-classes) among the BRICS countries. Six macroeconomic and market-related explanatory variables, including the Corruption Perception Index, are examined. Private equity funds raised across BRICS serve as the proxy for private equity investments. The study reveals that GDP growth and real interest rate are both statistically significant and positively related to private equity investments across the BRICS countries. Furthermore, market capitalization growth and corporate tax rates are statistically significant, and both are found to be negatively related to the dependent variable.
{"title":"Determinants of Private Equity Investments across the BRICS Countries","authors":"Gugu Ndlwana, I. Botha","doi":"10.3905/jpe.2018.21.4.018","DOIUrl":"https://doi.org/10.3905/jpe.2018.21.4.018","url":null,"abstract":"The determinants of private equity investments (particularly venture capital investments) have been studied extensively across developed economies, but this is not the case across emerging markets. This study primarily focuses on the determinants of private equity (inclusive of all sub-classes) among the BRICS countries. Six macroeconomic and market-related explanatory variables, including the Corruption Perception Index, are examined. Private equity funds raised across BRICS serve as the proxy for private equity investments. The study reveals that GDP growth and real interest rate are both statistically significant and positively related to private equity investments across the BRICS countries. Furthermore, market capitalization growth and corporate tax rates are statistically significant, and both are found to be negatively related to the dependent variable.","PeriodicalId":43579,"journal":{"name":"Journal of Private Equity","volume":"21 1","pages":"18 - 28"},"PeriodicalIF":0.0,"publicationDate":"2018-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.3905/jpe.2018.21.4.018","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45487376","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-08-31DOI: 10.3905/JPE.2018.21.4.053
F. Williamson
Most businesses monitor their sales, marketing, and supply chain strategies. However, the companies with the best governance and risk management also regularly evaluate their capital and financial plans, understanding and thinking ahead about their needs for liquidity, their mix of different types of funding, and the eventual need to return money to their investors. The exigencies of public markets, as well as the law, require public companies to carefully monitor their capital and financial strategies in this systematic way—and to make timely adjustments when this ongoing evaluation points out the need to do so. This necessity has created a process that well-run private companies would be wise to emulate. Accordingly, this article will explore how private companies adopt the governance and risk management practices of public companies to enhance their performance. More precisely, it will explore how they overcome the challenge of having little visibility into capital market conditions for private companies, a problem that public companies do not have because they must abide by regulations that mandate the disclosure of critical financial and operational information.
{"title":"Capital and Financial Strategies for Private Companies: Lessons from Their Publicly Traded Brethren","authors":"F. Williamson","doi":"10.3905/JPE.2018.21.4.053","DOIUrl":"https://doi.org/10.3905/JPE.2018.21.4.053","url":null,"abstract":"Most businesses monitor their sales, marketing, and supply chain strategies. However, the companies with the best governance and risk management also regularly evaluate their capital and financial plans, understanding and thinking ahead about their needs for liquidity, their mix of different types of funding, and the eventual need to return money to their investors. The exigencies of public markets, as well as the law, require public companies to carefully monitor their capital and financial strategies in this systematic way—and to make timely adjustments when this ongoing evaluation points out the need to do so. This necessity has created a process that well-run private companies would be wise to emulate. Accordingly, this article will explore how private companies adopt the governance and risk management practices of public companies to enhance their performance. More precisely, it will explore how they overcome the challenge of having little visibility into capital market conditions for private companies, a problem that public companies do not have because they must abide by regulations that mandate the disclosure of critical financial and operational information.","PeriodicalId":43579,"journal":{"name":"Journal of Private Equity","volume":"21 1","pages":"53 - 58"},"PeriodicalIF":0.0,"publicationDate":"2018-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41345405","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-08-31DOI: 10.3905/jpe.2018.21.4.069
Bradford Cornell, Richard Gerger
Private equity firms market to limited partners by claiming to be able to earn returns on equity of the order of 18% for their investors. Because this rate of return is typically higher than the cost of equity capital for target firms, a question arises as to how private equity firms can pay competitive prices for acquisitions. The author examines that question from a variety of perspectives, and identifies the conditions under which private equity firms are likely to be able to pay fair market value as well as the conditions under which potential targets should say no.
{"title":"Can Private Equity Firms Pay Fair Value for Acquisitions?","authors":"Bradford Cornell, Richard Gerger","doi":"10.3905/jpe.2018.21.4.069","DOIUrl":"https://doi.org/10.3905/jpe.2018.21.4.069","url":null,"abstract":"Private equity firms market to limited partners by claiming to be able to earn returns on equity of the order of 18% for their investors. Because this rate of return is typically higher than the cost of equity capital for target firms, a question arises as to how private equity firms can pay competitive prices for acquisitions. The author examines that question from a variety of perspectives, and identifies the conditions under which private equity firms are likely to be able to pay fair market value as well as the conditions under which potential targets should say no.","PeriodicalId":43579,"journal":{"name":"Journal of Private Equity","volume":"21 1","pages":"69 - 74"},"PeriodicalIF":0.0,"publicationDate":"2018-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.3905/jpe.2018.21.4.069","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42428750","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-08-31DOI: 10.3905/jpe.2018.21.4.059
Slavcho Petrov Parushev
The theoretical model of Private Equity Scorecard Approach (PESA™), introduced an article in the Spring 2018 issue of The Journal of Private Equity (“Private Equity Scorecard Approach: Quality versus Myth”), develops a methodology to value a company based on its quantitative and qualitative indicators. As pointed out in the article, however, any model would only exist in theoretical boundaries, unless applied in practice. In this article, the author discusses the specific characteristics of the internal processes and organizational structure of a private equity fund that uses the PESA™ methodology in its modus operandi. The author provides practical examples of the fund’s approach to investments as well as the necessary information environment in which the fund operates.
{"title":"Putting Private Equity Scorecard Approach (PESA™) to Work","authors":"Slavcho Petrov Parushev","doi":"10.3905/jpe.2018.21.4.059","DOIUrl":"https://doi.org/10.3905/jpe.2018.21.4.059","url":null,"abstract":"The theoretical model of Private Equity Scorecard Approach (PESA™), introduced an article in the Spring 2018 issue of The Journal of Private Equity (“Private Equity Scorecard Approach: Quality versus Myth”), develops a methodology to value a company based on its quantitative and qualitative indicators. As pointed out in the article, however, any model would only exist in theoretical boundaries, unless applied in practice. In this article, the author discusses the specific characteristics of the internal processes and organizational structure of a private equity fund that uses the PESA™ methodology in its modus operandi. The author provides practical examples of the fund’s approach to investments as well as the necessary information environment in which the fund operates.","PeriodicalId":43579,"journal":{"name":"Journal of Private Equity","volume":"21 1","pages":"59 - 68"},"PeriodicalIF":0.0,"publicationDate":"2018-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49521251","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study offers a daily dividend computation model and extends the two conventional arithmetic and logarithmic return equations to include daily dividend. The author examines the effect of daily dividend inclusion on the daily return volatility and Value-at-Risk (VaR) of the five stocks listed in the Dhaka Stock Exchange (DSE) Limited. The research shows that in most cases the inclusion of daily dividends significantly reduces the daily volatility of returns. Also, with a few exceptions, the VaR of the remaining stocks’ return declines substantially, decreasing the maximum expected loss of return. Finally, after inclusion of a daily dividend, the author finds that a more extended holding period offers a proportionately lower VaR of the daily return.
{"title":"Do Daily Dividends Reduce Stock Return Volatility and Value-at-Risk?","authors":"Md. Noman Siddikee","doi":"10.3905/jpe.2018.1.072","DOIUrl":"https://doi.org/10.3905/jpe.2018.1.072","url":null,"abstract":"This study offers a daily dividend computation model and extends the two conventional arithmetic and logarithmic return equations to include daily dividend. The author examines the effect of daily dividend inclusion on the daily return volatility and Value-at-Risk (VaR) of the five stocks listed in the Dhaka Stock Exchange (DSE) Limited. The research shows that in most cases the inclusion of daily dividends significantly reduces the daily volatility of returns. Also, with a few exceptions, the VaR of the remaining stocks’ return declines substantially, decreasing the maximum expected loss of return. Finally, after inclusion of a daily dividend, the author finds that a more extended holding period offers a proportionately lower VaR of the daily return.","PeriodicalId":43579,"journal":{"name":"Journal of Private Equity","volume":"21 1","pages":"75 - 85"},"PeriodicalIF":0.0,"publicationDate":"2018-08-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.3905/jpe.2018.1.072","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45694207","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Over the past 20 years, private equity firms and strategic buyers have aggressively invested in chemical companies, including the logistics supply chain of chemical distribution. The availability of public funds at meager interest rates is the main reason that mergers and acquisitions are happening at such a high pace. Company valuation then becomes very important to determine the value of the deals. Public chemical companies’ comparable metrics, together with profits from precedent transactions, can provide a handy guide for both strategic buyers and private equity firms when considering an acquisition.
{"title":"Valuations of Chemical Companies and Distributors: Comparable Metrics and Precedent Transactions","authors":"T. Bee","doi":"10.3905/jpe.2018.1.070","DOIUrl":"https://doi.org/10.3905/jpe.2018.1.070","url":null,"abstract":"Over the past 20 years, private equity firms and strategic buyers have aggressively invested in chemical companies, including the logistics supply chain of chemical distribution. The availability of public funds at meager interest rates is the main reason that mergers and acquisitions are happening at such a high pace. Company valuation then becomes very important to determine the value of the deals. Public chemical companies’ comparable metrics, together with profits from precedent transactions, can provide a handy guide for both strategic buyers and private equity firms when considering an acquisition.","PeriodicalId":43579,"journal":{"name":"Journal of Private Equity","volume":"21 1","pages":"100 - 87"},"PeriodicalIF":0.0,"publicationDate":"2018-08-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41710862","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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