Replies to post #55534 on JP 3E Holdings Inc (JPTE)

[alliecorp]

It's called a Redemption Clause. This can happen when a venture capital firm provides the company an opportunity to purchase their shares back, plus a premium, instead of selling these shares back on the open market. Sometimes occurs and referred to as a third party buy back. These arrangements are not made public, nor do they have to be until the company purchases the shares back from the venture capital firm, the third party.

The third party or venture capital firm can purchase the companies shares to facilitate an MBO or management buy out, or MBI management buy in (could also be a combination of both) and then hold the shares until the company is generating revenues to purchase these shares back.

A company will also do this during a time when the believe the shareprice is undervalued on the open market.

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What are the ways a venture capital firm will exit an investment?

A venture capital firm enters a relationship with a company with the expectation that a significant return of investment will result when the firm exits the investment. The firm plans for that exit to take place within a certain amount of time, usually from three to six years, depending on the development stage of the company in which it is investing.

There are several common exit strategies:

IPOs: An IPO -- or initial public offering -- is a company's first public stock offering, which takes place when a company goes public by registering its securities with the Securities and Exchange Commission.

Mergers and acquisitions: In an era of large companies dominating industry landscapes, acquisition is often the targeted and most common exit strategy. Smaller companies have, in essence, become the research and development arm of larger companies who often look to buy them once their innovations can contribute to their own profitability.

Redemption: Another alternative is that the company may be required to buy back a venture capital firm's stock at cost plus a certain premium. Often a venture capital firm will put a redemption clause (sometimes referred to as a "buy-back clause") in the investment terms which allows them to exit their investment in your company in the event that an IPO or acquisition does not happen within a designated time period.

http://allbusiness.cbsnews.com/business-finance/equity-funding-private-equity/2407-1.html

Types of Venture Capital transactions and definitions:

Seed - Very early stage finance that allows a business concept to be developed.

Start-up and early stage - Used to develop the company's products and fund its initial marketing (early stage
finance is for companies that have commenced operations but are probably not yet
profitable)

Expansion - Used to grow and expand an established company (also known as development or growth capital)

Bridge financing - Short-term venture capital funding provided to a company generally planning to float within a year.

Refinancing bank debt - Used to reduce a company's level of gearing.

Secondary purchase - A venture capital firm acquires existing shares in a company from another venture capital firm.

Replacement equity - Allows existing non-venture-capital investors to buy back or redeem part or all of
another investor's shareholding.

Rescue/turnaround -Enables a company to resolve its financial difficulties or be rescued from receivership.

Management buy-out (MBO) - Enables the current operating management to acquire, or purchase a significant
shareholding in, the business.

Management buy-in (MBI)- Enables a manager or group of managers from outside a company to buy into it
(a combination of a buyout and a buy-in is known as a BIMBO)

Institutional buy-out (IBO)- Enables a venture capital firm to acquire a company, following which the incumbent
and/or incoming management is given or acquires a stake in the business (the deal differs from an MBO in that it is driven by the institution(s) rather than the management)

Leveraged build-up (LBU) - A venture capital firm acts as principal to buy a company with the aim of making
further relevant acquisitions to develop an enlarged business group.




The secret to profitable investing is to buy into well-run companies at the beginning of their earnings growth cycle—before Wall Street takes notice and bids up the stock price.
My opinions are my own. You have to decide and do what's best for you.

[GeorgiePorgie]

traderfan, You have jumped to conclusions again.

First of all this is all just my opinion and I am entitled to post my positive opinion every bit as much as you are entitled to post your negative opinion. Now try to follow along here and imagine that sometimes there are creative ways to finance. It is important to keep in mind that creative financing can come in many different sizes and shapes. Sometimes creative financing involves stages, balloons and/or bridges for example and can even involve a straw man purchase when the principals name is not to be known.


Of course Spooz is diluting. Is Spooz buying back their shares directly on the open market? I did not say that. Could Spooz have made arrangements with a financier to buy their shares from them on the market and hold them for a buy out from Spooz later? I suppose. As the second part of a two part finance package, could Spooz use the proceeds from a deal it made with a major brokerage for example to pay for the shares the third party has been holding, then retire the shares to the treasury? What would that do to the company's market cap and it's subsidiaries market caps?

You would do well to keep an open mind and not try to predispose everyone else's opinion with your negativity.