Chapter 13: Financing for Startups

Question 1

What are the 3 types of financing?

Answer 1

1. Equity Financing
2. Debt Financing
3. Bootstrapping

Question 2

What is equity financing?

Answer 2

Raising capital by selling shares in the business.

Question 3

What are the key sources of equity financing + explain them

Answer 3

1. Angel Investors
   Wealthy individuals investing in exchange for equity. Typically invest at early stages. Offer mentorship and industry connections.
2. Venture Capitalists (VCs)
   Professionals investors managing pooled funds. Invest in high-growth companies in exchange for significant equity.
3. Equity Crowdfunding
   Small investments from a large number of individuals in exchange for shares. Ideal for startups seeking community-driven support.

Question 4

What are the advantages and disadvantages of equity financing?

Answer 4

Advantages: Provides large sums of money without repayment, investors bring strategic guidance and networks.

Disadvantages: Dilution of ownership, potential loss of control due to investor influence.

Question 5

What is debt financing?

Answer 5

Borrowing funds with a promise to repay interest.

Question 6

What are the key sources of debt financing?

Answer 6

1. Bank Loans
2. Convertible Debt
3. Government Programs

Question 7

What are the advantages and disadvantages of debt financing?

Answer 7

Advantages: Retain ownership and control, predictable payment schedule

Disadvantages: Regular payment obligations, risk of financial strain if revenue does not meet expectations.

Question 8

What is due diligence?

Answer 8

Investors conduct thorough assessments to evaluate the viability of a startup.

Question 9

What are the components of due diligence?

Answer 9

1. Market opportunity
2. Team capabilities
3. Product/service
4. Financial metrics
5. Risks

Question 10

What is valuation?

Answer 10

The process of determining a startups worth.