ch.10 - getting financing or funding Flashcards

1
Q
  • Nature of Funding and Financing Process: few people deal with the process of raising investment capital.
  • Why Most New Ventures need funding: there are* three reasons* most new ventures need to raise money during their early life.
A

Importance of getting financing or funding

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2
Q
  • Cash Flow Challenges
  • Capital investments
  • Lengthy Product Development Cycles
A

Three reasons start-up need funding

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3
Q

Inventory must be purchased, employees must be trained and paid, and advertising must be paid for before cash is generated from sales.

A

Cash Flow Challenges

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4
Q

The cost of buying real estate, building facilities, and purchasing equipment typically exceeds a firm’s ability to provide funds for these needs on its own.

A

Capital Investments

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5
Q

Some products are under development for years before they generate earnings. The up-front costs often exceed a firm’s ability to fund these activities on its own.

A

Lengthy Product Development Cycles

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6
Q
  • Personal Funds
  • Debt Financing
  • Equity Capital
  • Creative Sources
A

Alternatives for raising money for a new venture

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7
Q
  • Personal Funds: founders contribute personal funds, sweat equity
  • Friends and Family: second source
  • Bootstrapping: finding ways to avoid the need for external financing or funding through creativity, ingenuity, thriftiness, cost cutting, or any means necessary.
A

Sources of Personal Financing

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8
Q

Step 1: Determine precisely how much money is needed.
Step 2: Determine the most appropriate type of financing or funding.
Step 3: Develop a strategy for engaging potential investors or bankers.

A

Preparing to raise debt or equity financing

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9
Q
  1. Equity Funding: exchanging partial ownership in a firm, usually in the form of stock, for funding.
  2. Debt Fiancing: is getting a loan.
A

Two Common Alternatives for preparation to raise debt or equity financing

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10
Q

Business has:
- high risk with uncertain return
- weak cash flow
- high leverage
- low-to-moderate growth
- unproven management

A

Personal funds, friends, family, and other forms of bootstrapping

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11
Q

Debt Financing

A

Business has:
- low risk with a more predictable return
- strong cash flow
- low leverage
- audited financials
- good management
- health balance sheet

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12
Q

Business has:
- high return
- unique business idea
- high growth
- niche market
- proven management

A

Equity

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13
Q
  • A brief, carefully constructed statement that outlines the merits of a business opportunity.
  • 60 seconds long.
A

Elevator Speech

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14
Q

Step 1: Describe the opportunity or problem that needs to be solved. (20 seconds long)
Step 2: Describe how your product meets the opportunity or solves the problem. (20 seconds)
Step 3: Describe your qualifications. (10 seconds)
Step 4: Describe your market. (10 seconds)

A

Guidelines for Elevator Speech

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15
Q
  • Business Angels
  • Venture Capital
  • Initial Public Offerings
A

Sources of Equity Funding

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16
Q

Individuals who invest their personal capital directly in start-ups
- typically older in their 50s, high income and wealth, educated
- apple and google get it from them
- has increased around 304,900 in the US
- fairly anonymous and are matched up with entrepreneurs via referrals
- ex: Central Texas Angel Network (CTAN) located in Austin TX

A

Business Angels

17
Q

Money that is invested by venture capital firms in start-ups and small businesses with exceptional growth potential.
- goes to follow-on funding for businesses that were originally funding by angel investors, government programs, or by some other means.
- limited partnerships: money managers who raise money in “funds”
-

A

Venture Capital

18
Q

invest in venture capital funds

A

Limited Partners

19
Q

Venture Capitalitists: fund less than 1% of new firms

A

General Partners

20
Q

company’s first sale of stock to the public.

A

IPO: Initial Public Offering

21
Q

reason 1: way to raise equity capital to fund current and future operations.
reason 2: raise a firm’s public profile, making it easier to attract high-quality customers and business partners.
reason 3: a liquidity event that provides a means for a company’s investors to recoup their investments.
reason 4: creates a form of currency that can be used to grow the company via acquisitions.

A

reasons to go public

22
Q
  • Commerical Banks
  • SBA Guaranteed Loans
A

Sources of Debt Financing

23
Q

not viewed as a practical source of financing for start-up firms.

A

Commercial Banks

24
Q

Loan Program
- 7(A) Guaranty Program
- operates through private-sector lenders who provide loans that are guaranteed by the SBA.
- almost all businesses are eligible to apply for a loan.

A

SBA Guaranteed Loans

25
Q
  • Online Lenders
  • Peer-to-Peer Lenders
  • Vendor Credit
  • Factoring
A

Other sources of Debt Financing

26
Q

practice of funding a project or new venture by raising monetary contributions from a large number of people typically via the internet.

2 types of programs:
-** rewards-based**- raise money in exchange from some types of amenity or reward.
- kickstarter and indiegogo most popular sites.

A

Crowdfunding

27
Q
  • Small Business Innovation Research
  • Small Business Technology Transfer
    two important sources of early-stage funding for technology firms.
    provide cash grants to entrepreneurs who are working on projects in specific areas.
A

SBIR and STTR Grants