Restructuring Private Equity Investments

Abstract

Numerous privately held, venture capital backed companies with worthwhile products and good management have needed to raise additional capital to continue their operations, complete product development, or simply survive until the market for their products and services improves. At the same time, valuations have declined dramatically, and companies with substantial valuations a few years ago may be viewed as having virtually no equity value today. The need to raise additional equity capital often requires a complete overhaul of the company's capital structure, with existing investors suffering extreme levels of dilution and new investors demanding a wide array of preferential terms. This article describes those terms and their implications, and applies them to a hypothetical restructuring situation.