Behind Excite@Home's Failure And AT&T's Involvement

VCs Looking To Invest In Public Companies

from the better-deals dept

Thu, Aug 30th 2001 1:41pm — Mike Masnick

More venture capital firms are starting to look at investing in public companies (called PIPEs for "private investment in public entities"). Since so many stocks are so low, and many of the companies are desperately in need of cash, it seems like a good match. The problem is that VCs come with strings attached. They often want a board seat, and can be pretty active. Of course, that could be helpful for a young company that went public too early and is in need of guidance. Of course, who knows how useful that guidance is. VCs "guided" plenty of failed companies in the last few years...

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Ed, 30 Aug 2001 @ 4:45pm

And the public shareholders get. what?
Wouldn't this kind of deal need shareholder approval? If so, my gut reaction as a shareholder would be "tough, let the VCs buy shares on the open market like the rest of us." Of course, that may not count for anything if company insiders own most of the shares.
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Mike (profile), 30 Aug 2001 @ 5:07pm

Re: And the public shareholders get. what?
The public shareholders get a company that hasn't run out of money... Though, in general it does suck for them. This is a situation, though, where the company is selling shares that they own directly to the VC. It's similar, in a sense, to a secondary offering, except that the entire price is negotiated up front, rather than dependent on what the underwriters can do with the shares. Plus, it doesn't immediately dilute the publicly owned shares, because the VCs are locked in for a certain period of time. So, the fact that the money comes at a more set amount from a VC, instead of the underwriter could (if you need justification) account for the below market price of the shares.
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