Private Equity

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Venture Capital

Venture capital is one of the forms of financing privately held companies aimed at solving problems in obtaining necessary financial resources from classical sources such as banks despite the fact that there is a real quality business plan available.

The basis lies in providing funds by an investor to the company to implement perspective business intents most often by entering into company’s authorized capital or by its increase, or their combination with loan provisions. Depending on the business life-cycle the company is in at the time of investment, we differentiate following forms of the financing:

  • Seed capital – This is the financing of early stages of a company’s business activity in the process of its establishment or financing company doing business for a very short time. It includes financing of the development of a new product prototype and its patent protection, financing of market research about a new product or service, financing the business plan, the selection of management team and establishing a company up to the moment when it is possible to begin with the start-up financing.

  • Start-up capital – It is financing of the beginning of the company’s activity. This stage supposes that the product is already prepared, management team is in place, the result of market research is available, and the market into which the company intends to penetrate is clearly defined. Financing in this phase can be focused on marketing in the initial stage, production or distribution.

  • Early stage development capital – In this phase, it is the financing of companies that already exist, but with certain limitations, they have the potential for their further development. These companies are not able to raise the finances for their growth through loans from banks, most often because these companies do not have any collateral.

  • Later stage development – expansion capital – These are investments in already well-established companies that have the potential for their further expansion. The capital is provided for example for the construction of a production line, an increase in the working capital of the company, introducing a new product or service, targeting geographically further markets, expansion to foreign markets. In Europe this is the most frequent focus of venture capital.

  • Rescue capital – It is a special type of venture capital investment, when the management of loss-making company is financially supported in its effort to rescue the company. It is rather a rare method of financing that is often connected with other types, such as with financing of management buy-outs. The condition of providing funds in this case is the connection of investment with the development program that should enable the company after its rescuing to its further expansion and growth aimed at keeping company’s operation.

  • Debt replacement capital – It is used in cases when projects that are otherwise promising become loss-making for a short time. At that time, the venture capital investor pays off a part of the company’s debts, for which it receives the capital share in it.

  • Acquisition capital – It represents the activity of private companies, when the capital invested is intended for financing the purchase of another company, or its part. It consists of mutual buying and taking over the proportionate ownerships of passive shareholders by active ones.

Our goal is to find companies with unique ideas, with high growth potential, which lack required financial resources for their implementation. At the same time we are actively looking for companies capable of surviving, with professional management and clear vision of the future of the company, based on a well-prepared business plan, but inable to bring it to life due to lack of finances. Such management is the deciding success factor of the whole project.

A return of invested resources above average is one of the conditions for our investment.

The time horizon of this type of investment ranges between three to five years. From the exit forms of our investments we find most appropriate – sale of investor’s share to members of the management (buy-back) under pre-defined conditions or sale to strategic investor (trade sale). Due to character of investments of Arca Capital, in many cases the type of exit is in the form of sale to the financial investor. In the medium-term horizon Arca Capital believes that in connection with the development of the capital market one of the future alternatives will also be IPO (Initial Public Offering).

Buy-out

The goal of Arca Capital in this field is to invest into existing companies with participation of quality management team, followed by mutual achievement of increasing value of the target company.

Investments are performed through the following forms:

  • purchase of a company as a whole
  • purchase of parts of companies – divisions, operations etc.
  • re-capitalization of companies with few owners with the aim of achieving liquidity or growth of capital employed, while allowing for keeping significant ownership of the company further.

At the same time participating managers have options to obtain shares in such companies, while with management buy-out form the management which is already active in the company purchases the share, and with management buy-in, new management team comes in from the outside.

Mezzanine finance

It is often connected with other forms of finance as one of the supporting tools, which does not however rule out its sole application in such cases where the actual state of the company enables it. Capital entrance is in most cases dealt with using subordinated debt, but can also be in the form of redeemable preferred shares.

Restructuring

Complex solution often for a company in a critical state, which requires prompt action and decisive decisions. It is used in cases where the company is adjudicated for bankruptcy or is under threat from being adjudicated for bankruptcy. Ideal outcome after the worsening of the situation is stopped is to restructure the company often by using temporarily drastic measures. The necessary condition for our participation in projects of this type is the existence of undisputable comparative advantage of the target company, which forms the base for triggering positive changes.

Other forms of investments

Despite the above mentioned and most commonly used forms of investment, we do not rule out any other forms, or their combinations. The prerequisite for each of them is that the above-average undertaken risk corresponds to the above-average rate of return.