A securities offering (or funding round or investment round) is a discrete round of investment, by which a business or other raises money to fund operations, expansion, a capital project, an acquisition, or some other business purpose.
Components of a round
Hallmarks of an offering include the following (though none are an absolute requirement in every circumstance):
- A prospectus, private placement memorandum, or other document used to advertise the availability and terms of the offering, and to provide disclosure of information investors will need for their due diligence efforts
- A securities filing with relevant state and/or federal regulators
- Various contracts and documents by which the securities are sold such as a subscription agreement, a stock purchase agreement, and a convertible note (which documents a type of convertible security) or other loan document
- Various subsidiary or related agreements such as a buy-sell agreement, investor rights agreement, proxy agreements, and proposed amendments to a company's articles of incorporation
- Underwriters, stockbrokers, finders, and/or agents who help sell and otherwise facilitate the investment transaction.
- Financial projections, financial statements, and projections and promises regarding the use of funds.
Types of rounds
Rounds are often described according to the nature of investors, the size of investment, and the stage of the enterprise.
Because there are no public exchanges listing their securities, private companies meet venture capital firms and other private equity investors in several ways, including warm referrals from the investors' trusted sources and other business contacts; investor conferences and symposia; and summits where companies pitch directly to investor groups in face-to-face meetings, including a variant known as "Speed Venturing", which is akin to speed-dating for capital, where the investor decides within 10 minutes whether s/he wants a follow-up meeting.
Some specialized rounds include:
Offerings may be limited or open-ended. If limited, there is a cap on the number of investors, duration of the round, amount of money raised, number and nature of people to whom the offering is made, and/or the number of shares sold (if it is an equity offering). The offering is ended and the securities are granted at one or more closings. When securities issuances happen from time to time rather than one or several discrete dates, it is sometimes known as a "rolling closing."
A single round usually involves multiple investors buying a company's securities in a distinct time period, at the same price and terms, for a single financial purpose. When multiple investments are close in price and terms, they are "merged" according to securities laws (in other words, they are treated as a single round under the law).
Rounds may have one or more lead investors who negotiate and enforce the terms of the agreement. These are usually the parties with the greatest sophistication, resources, reputation, and/or connection to the investment. There may or may not be other follow-on or
See also
- Private equity
- Public offering
- Investment
- Corporate finance
- List of finance topics
- Securities Act of 1933