Latin American Capital Markets

ACCESS TO FINANCING FOR SMALL AND MEDIUM ENTERPRISES 401Table 12-4 I Capital Managed, 1998-99I (Billions of U.S. dollars)Region 1998 1999United States 332.3 400.0Europe 79.0 92.0Asia 29.1 38.3Source: Dubocage (2000, p. 18).• 20 percent for early-stage and start-ups• 60 percent for expansion/high-growth companies• 20 percent for pre-lPO companies, mergers and acquisitions, later-stage deals,and special situations.Venture capital has become an important financing tool in Europe; however; privateequity sources in the United States still outperform those in Europe.Table 12-4 comparesequity under management in Europe, Asia, and the United States in 1998 and 1999.The growth of the European venture capital market accelerated in the 1990s.The United Kingdom alone represents 45 percent of the European venture capitalportfolio, and France and Germany are the next largest markets (Yli-Renko and Hay1999). Despite recent growth, the venture capital market is still rather limited. Venturecapital firms receive a high number of proposals, the vast majority of which remainunread or rejected. And venture capital is expensive: a typical venture capitalistdemands around 40 percent of the equity in a company.Initial Public OfferingThe first public equity issue that a company makes is referred to as an initial public offering,or IPO. Many entrepreneurs consider the process of going public as the top offinancial success. However; an IPO requires great strategic planning and analysis fromboth legal and business perspectives. As with other financing mechanisms, going publichas its advantages and disadvantages (table 12-5).Direct Public OfferingDirect public offering (DPO) is a primary market stock or debenture sale of securitiesfrom the company issuing the shares to the public. It may represent an alterna-Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub