Formula
The Lehman formula is a formula used by investment banks for the raising of capital for a business, either in public offerings or private placements, and is normally payable by the vendor(s) of the business once the funds have cleared. It deals with amounts greater than a million dollars. Below this mark, brokerage services and investment banks usually offer a set of tiered fees, or set-rate trading prices (such as $9.95 per trade).
Above a million dollars, the following is the Lehman Formula as originally described:
- 5% of the first $1 million raised from investors
- 4% of the second $1 million raised from investors
- 3% of the third $1 million raised from investors
- 2% of the fourth $1 million raised from investors
- 1% of everything above $4 million raised from investors.
The Lehman Formula was widely used in the 1970s, 1980s and 1990s. In recent years, due to inflation, a multiple of the formula is often used instead. For example, 5% of the first $10 million, plus 4% of the next $10 million is a common formula.
Its popularity has waned recently, mainly because there is little incentive for the adviser to "go the extra mile" in achieving a higher sale value. That has led to alternates such as the Double Lehman Formula (see below).
Read more about this topic: Lehman Scale
Famous quotes containing the word formula:
“In the most desirable conditions, the child learns to manage anxiety by being exposed to just the right amounts of it, not much more and not much less. This optimal amount of anxiety varies with the childs age and temperament. It may also vary with cultural values.... There is no mathematical formula for calculating exact amounts of optimal anxiety. This is why child rearing is an art and not a science.”
—Alicia F. Lieberman (20th century)
“Given for one instant an intelligence which could comprehend all the forces by which nature is animated and the respective positions of the beings which compose it, if moreover this intelligence were vast enough to submit these data to analysis, it would embrace in the same formula both the movements of the largest bodies in the universe and those of the lightest atom; to it nothing would be uncertain, and the future as the past would be present to its eyes.”
—Pierre Simon De Laplace (17491827)
“I cannot give you the formula for success, but I can give you the formula for failurewhich is: Try to please everybody.”
—Herbert B. Swope (18821958)