Post on 03-Apr-2018
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Sources of Capital
For Entrepreneurs
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Debt Versus Equity
The use ofdebtto finance a new
venture involves a payback of the
funds plus a fee (interest for the useof the money. Equity financing
involves the sale of some of the
ownership in the venture.
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Debt Financing
Commercial Banks
Other Debt-Financing Sources:
Trade CreditAccounts Receivable Financing
Factoring
Finance Companies
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Source of Finance Throughout the
Evolution of the Entrepreneurial Firm
Le
velofInvestm
entRisk
A
ssumedbyInvestor
High
Low
Seed Start-Up EarlyGrowth
Established
Founder, friends,and family
Business Angels
Venture Capitalists
Nonfinancialcorporations
Equitymarkets
Commercial banks
Stage of Development of the Entrepreneurial Firm
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Equity Financing
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Public Offerings
Going public is a term used to refer to acorporations raising capital through the sale ofsecurities on the public markets. Here are some ofthe advantages to this approach:
Size of capital amount Liquidity
Value
Image
(new issues, referred to as initial publicofferings IPOs)
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Public Offerings
Disadvantages of going public:
Costs
Disclosure Requirements
Shareholder pressure
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Sophisticated Investors
Sophisticated investors are wealthy
individuals who invest more or less
regularly in new and early- and late-stage ventures. They are knowledgeable
about the technical and commercial
opportunities and risks of the business inwhich they invest.
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The Venture Capital
Market
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Dispelling Venture Capital Myths
Myth 1: Venture capital firms want to own control ofyour company and tell you how to run the business.
Myth 2: Venture capitalists are satisfied with a
reasonable return on investment.
Myth 3: Venture capitalists are quick to invest
Myth 4: Venture capitalists are interested in backing
new ideas or high-technology inventions
management is a secondary consideration.
Myth 5: Venture capitalists need only basic summary
information before they make an investment.
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Criteria for Evaluating
New-Venture Proposals
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Venture Capitalist Screening Criteria
Venture Capital Firm Requirements
Nature of the Proposed Business
Economic Environment of Proposed Industry
Proposed Business Strategy
Financial Information on the ProposedBusiness
Proposal Characteristics
Entrepreneur/Team Characteristics
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Informal Risk Capital
Angel Financing
Many wealthy people are looking for
investment opportunities. They arereferred to as business angels or
informal
risk capitalists.
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Types of Angel Investors
Corporate Angels
Entrepreneurial Angels
Enthusiast Angles
Micromanagement Angels
Professional Angels
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The Pros and Cons of Business
Angel Investments
Angels Characteristics
Value-adding
Geographically dispersed
More permissive investors
Investment Characteristics
Seek Smaller DealsPrefer start-up & early stageInvest in all industry sectors
Like high-tech firms
Added Bonuses
Leveraging effect
Give loan guarantees
No high fees
Advantages
Business Angels
Disadvantages
Littlefollow-on
money
Want a say
in firm
Could turnout to be
devils
No nationalreputation
to leverage