financing Flashcards
two types of financing?
debt
equity
sources of financing?
you friend/family angels web bank venture capital firms corporation going public incubators
steps for family/friend financing?
- Be selective
- Warn of the financial risk
- Be prepared for long-term negative
consequences if the business fails
examples of web financing?
kickstarter
banks?
- Will generally focus on the financial record of the entrepreneur
- Will want a personal guarantee and collateral
- May be more interested in making larger loans
- You may be eligible for some governmental assistance
Incubators?
- Businesses specifically geared to taking start-ups from inception to early-round financing
- Often a short-term focus – e.g. 3-6 months
- Will take on a group of start-ups each round
- May have a particular industry focus
- Provide office space, training and contacts
- Provides seed funding in exchange for equity
angels?
- Wealthy individuals who invest directly in businesses.
- Often highly knowledgeable about your industry and understand the risk they are taking.
- Expect high returns.
- Often expect to influence operational decisions.
- Can be tough dealmakers.
Venture capital firms?
- Investment businesses that invest in new ventures.
- Source funds from pension funds, large corporations and wealthy individuals
- Invest in relatively few ventures
- Often looking for more established firms
- Require a clear exit strategy
- Often want to control the firms they invest in
Corporations?
- Companies sometimes (but rarely) make direct investment in other companies
- This is usually with a view to buying the company outright
- May be applicable if your product would be a natural extension of their business, or a key component in their supply chain
Going public?
- Sometimes considered the ‘holy grail’ of business objectives
- Involves much higher degrees of business transparency and compliance
- Can result in a loss of control, and focus on short-term targets
Angels vs Venture Capitalists acording to Dutta and Folta?
- VC more specialised and deeper network (greater endorsement effect)
- VC stronger control rights than Angels (may increase management commitment & conflict)
- VCs have shorter investment time horizons
Dutta and FOlta conclusion/finding?
VC preferred:
• Rates of innovation (proxied by patent numbers) were the same for VC backed firms as for Angel backed firms
• Impact of innovation (proxied by patent citations) were greater for VC backed firms
• Possible reasons:
• Portfolio of VC firms may increase citations
• VC firms might be more visible
• VC firms might be encouraged more to ‘swing for the fence’
why are financial plans important?
crucial for you, investors and business partners
• Financial plans need to be honest, clear and credible
• Most new businesses fail because they run out of cash, in turn because projections were too optimistic
Common components of financial plan?
- Start-up costs / capital requirements
- Income statement
- Balance sheet
- Cash flow statement
- Debt management schedule
- Returns analysis / valuation
what are startup costs?
• Acquisition price of an existing business
• Capital investment in land, building, renovations and equipment prior to
starting operations
• Operating losses in the startup phase
