Raising Capital for an Event Business

Steve Gintowt

SteveGintowt @ gmail.com

Topics CoveredWhy Raise CapitalType and Sources of Capital

Debt FinancingEquity Financing

Advantages / DisadvantagesHow Much to GetProcesses and ProblemsWhere to Find It & Rates

Why Raise Capital Survive

365 Days of Expenses, 1 Day of Income

Grow Scale Increases Profitability Scale Reduces Risk from Single Down Event

Cash OutStart Taking Money Off the Table, Start to Exit

Process

Types and Sources of Capital

SHORT LONGTERM TERM

Friends & Family

Credit Card Bank

Vendor Credit SBA

Revolver Alternative

Factoring (Bibs)

Friends & Family

Private Equity

Alternative

DEBT

EQUITY

DEBT FINANCING

DEBT FINANCING Advantages Disadvantages Don’t Give Up Control

Relationship Ends when Loan Retired

Interest is Tax Deductible Structured: Can Plan

Around It

Adds Risk to Company and Owner

Collateral Locked Up. Covenants

Time and Effort to Find

How Much to Borrow ?(Leverage Ratio)

Debt level as a Multiple of Earnings

SAFE RISKY EXTREME

0 1x 2x 3x 4x

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

5 Year Loan Annual Debt Service, Free Cash

Debt

Ser

vice

% o

f Ear

ning

s

Borrowings as a Multiple of EarningsAmount Borrowed $150k $300k $600k $900k $1.2M

($300,000 of Earnings 10% Interest Rate)

Debt Service 150,000$ Free Cash 150,000$

Debt Service 210,000$ Free Cash 90,000$

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Debt

Ser

vice

% o

f Ear

ning

s

($300,000 of Earnings 10% Interest Rate)

Debt Service 330,000$ Free Cash (30,000)$

Debt Service 230,000$ Free Cash 70,000$

Borrowings as a Multiple of EarningsAmount Borrowed $150k $300k $600k $900k $1.2M

3 Year Loan Annual Debt Service, Free Cash

Importance of Term The TERM is may be more important than the

interest rate Borrow for a LONG ENOUGH TERM to have the

asset be able to help with the payments.

The first year, it’s all on the Core Business “Interest Only” Year 1 “Balloon” Loan – All at Maturity (Not likely)

9 Months 6 Months 3 Months

Numbers of Days Advanced 274 183 91Annulized Interest Rate 40% 60% 120%

Marketing at $2k/month 18,000$ 12,000$ 6,000$ Pro-Forma Interest Expense (3,000)$ 3,000$ 9,000$ Annualized Net Interest Rate Free 12% 72%

Factoring Sell $50,000 of Bibs (500 @ $100 each)

at 30% Discount ($15,000 off. Proceeds $35,000)

Difficulties in Obtaining Debt No Asset Base for Collateral Relatively Small Amount – not worth Bank’s effort Cash Flow Loan - proceeds paid back by

uncertain revenues No Market for Company if things go badly

Higher Risk = Higher Rates

Debt - Where to Find It / Rates

Vendor Credit 0% Relationship Friends & Family negotiable Commercial Bank 3.28 % Fed Reserve Jan 16 Small Business Admin 5.75% - 8.25% Fitsmallbusiness.com Alternative Capital 5.49% - 24.99% Funding Circle

Fundation Credit Cards 13.49% - 23.24% Nerdwallet.com

EQUITY FINANCING

EQUITY FINANCING Advantages Disadvantages No Risk to Business

No Loan Service / More Cash in Business

Access to Investor’s network for additional cash

Don’t have to Repay

More Costly May Lose some Control.

New Decision Processes Mental Energy: Expectations

& Potential for Disagreements Hard to Get $$$ for Small

Event Company (Time/Effort)

Level of Investor Interest at Different Levels

|- Mild -|--- Strong ---| |--------------- Strong -------------|- Mild -|

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100% Percentage of Ownership

Zero Interest

Here

Comparing Cost of Debt vs. Equity Current Company

3 races clearing $400,000 each ($1.2M) Overhead of $800,000 Net Profit of $400,000 Company Value - $2.4M (@6x) Growing at 3% a Year

Raise $150,000 to add a 4th race (cover 1st Year loss) that will eventually be half as profitable normal

Year 1: Lose $150,000 Year 2: Breakeven Year 3: $50,000 Profit Year 4: $100,000 Profit Year 5: $200,000 Profit

Comparison of Debt & Equity Company value increases by $1.6M

$1.2M from New Event, $0.4M from Core Cost of Equity = $398,000 (6.3% of Company) in

Dividends and Valuation

Cost of Debt = $260,000 in Interest and Principle

Equity is almost always more expensiveIn this case 53% more.

Equity - Where to Find It Up to $100,000 Friends and Family $100,000 - $500,000 More Friends and Family $500,000 - $5M People you WISH were your Friends

and Family

Over $2M “Family Offices” of WealthInvestment Firms of Sports Franchise OwnersTraditional Private Equity Firms

No Marketplace or Central Directory

Alternative Capital Reward-Based Sites

Kickstarter, Rockethub, MoolaHoop, Not really applicable

Equity & Debt Sites Funding Circle, Fundera, OnDeck, Dealstruck,

Fundation, Kabbage, Indiegogo

Capital Raising Process Items

Debt – Key Process Items Documentation Requirement

Accurate & Current Financial Statements Bank Statements Tax Returns Lease Agreements

May Require Personal Guarantee

Takes 30 – 60 Days

Equity - Key Process Items See Last Year’s Presentation on LinkedIn

Create a Business Plan Identify an Exit StrategyCompile Diligence Material in Data RoomBusiness Valuation Discussion

Equity - Key Process Items More Documentation / Paperwork

Amending Operating Agreement / Articles of Incorporation

Minority Protections Salary, Loans, Dividends, Owner Expenses

Insert Buyback Clauses Company buys back shares in event of co-owner

death / divorce Put / Call Option

Five Things to Remember

Financing can help you Grow Value Many more Debt Alternatives Debt is Cheaper Than Equity Loan Term - more Important than Rate Equity preserves Company Cash

Copies & Questions

Presentation will be available on LinkedIn

Email questions via LinkedIn or at Stevegintowt@gmail.com