Securities offering

Asecurities offering(orfunding roundorinvestment round) is a discrete round ofinvestment,by which a business or other enterprise raises money to fund operations, expansion, acapitalproject, 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):

• Aprospectus,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 theirdue diligenceefforts
• Asecurities filingwith relevantstateand/or federal regulators
• Various contracts and documents by which the securities are sold such as asubscription agreement,astock purchase agreement,and aconvertible note(which documents a type ofconvertible security) or otherloandocument
• Various subsidiary or related agreements such as abuy-sell agreement,investor rights agreement,proxy agreements, and proposed amendments to a company'sarticles of incorporation
• Underwriters,stockbrokers,finders, and/oragentswho 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.

• Pre-seed andseed rounds(also called "friends and family" rounds) are used to launch an enterprise
• Angel roundsare early investments byangel investors.
• Venture roundsare large ($1M-$30M) investments led byventure capitalfirms. These are often denoted by the series of stock sold, e.g. "A round," "B round" and so on. The name of the round suggests the stage in the company's growth. A company that reaches a "D" or "E" round without achieving some success raises concerns; a company that has been through a major restructuring may renumber its series, e.g. an "AA round" or an "A' round." Informally, these rounds might be termed a "first round," second round, "and so on.
• Amezzanine roundis late stage private funding, meant to carry a company over until a public offering or majormergeroracquisition

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:

• Adown roundis an investment that is at a lower price per share (or unit) than a previous round. This may trigger thedilutionprotection provisions, if any, of contracts with earlier investors.
• Abridge loanis a relatively small investment, short of a full-scale investment round, to help a company that would otherwise run out of money.
• Acram downis an investment in a struggling company by which the company's earlier investors and other owners are bought out entirely at a discounted price, or the value and terms of their securities are greatly reduced.
• Public offeringsare rounds of investments sold to the public and listed on asecurities exchangerather than sold to a limited group of investors. Aninitial public offeringis the first such offering by which a formerly private company "goes public."

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 anequityoffering). 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 tosecurities laws(in other words, they are treated as a single round under the law).

Rounds may have one or morelead investorswho 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 orsilent investorswho participate in the round. One other distinction is between public offerings forpublic companies,which are widely advertised and subscribed, and private offerings made byprivate companies,which have strict limits on the number and nature of the potential investors.

In the United States most offerings are regulated under theSecurities Act of 1933.

See also

• Private equity
• Public offering
• Investment
• Corporate finance
• List of finance topics
• Securities Act of 1933