a) Explain why venture capital funding is critical for start-up firms with a lot of intangible assets. (1 mark)

b) Discuss the problem of information asymmetry in venture capital funding. (1 mark)

c) Describe two ways in which venture capital firms structure their funding to reduce risk. (2 marks)

The following information applies for parts d), e) and f). A company makes an initial public offering of shares to raise $210 million, at an offer price of $3.50 per share. The issue is underwritten at $3.00. The costs of preparing the prospectus, legal fees, ASIC registration and other administrative costs add up to $800,000. The firms share price closes at $4.20 on its first day of trade.

d) Calculate the IPO underwriting spread. (1 mark)

e) Calculate the IPO underpricing. (1 mark)

Two years later, the company wants to raise another $27.3 million to finance a new investment project through a seasoned equity offering at $60 per share, and the underwriter charges a 9% spread.

f) How many shares have to be issued through the SEO? (2 marks)

g) Discuss two advantages for firms to raise capital through seasoned equity offerings, as compared with an IPO.