Small Business Finance…Summer 2009

URG MBA ProgramChapters 6-8

Financing the VentureFinancing in Stages

Successful or not?Milestones

Build and maintain productR & D dimension

On going or up-start?Management Team

Reliable and sound business professionalsMarket PenetrationActual revenue

Raising CapitalBased on past experienceManagement teamCompetitionCurrency of product/technology

Maturity of productNeed for product

Market conditionsMarket penetration/saturationCapital markets

Raising Venture CapitalPre-seed FinancingSeed FinancingFirst State financingSecond and third stage financingPre-IPO Financing

Condition of the company Sources of financing Use of the financed dollar

Sources of CapitalInstitutional Investors

BanksCredit Unions

High Net Worth Individuals (Angels)Locating requires neteworking

CorporationsFoundations (Kellog, etc.)

Public MarketsFinancing with Debt

Practical Capital Raising AspectsSelling shares to stakeholders/shareholdersShare price

Basic value for calculating value of companyFully diluted

Includes equity options and assumption of sales

Pre-money valuePrior to calculating the value of the share

Post-money valueOriginal total of shares, plus new issues

Venture Capital Pro’s and Con’sManagement expectationsLarge market possibilitiesPotential long-term “edge”Synergisim of investorsAnticipated exit

Disadvantage

Next StepsDeciding on the best investment strategyContacting and communicating with

investorsDue Diligence

InvestigationLegal examinationAuditor examinationSEC rules and reporting regulations

Legal and Contractual ResponsibilitiesRestrictions for raising private capitalIssuance in accordance with Rule 504

Exemption of 1 mil in sale over 12 monthsIssuance in accordance with Rule 505

Restricts sales exempt up to 5 mil but maintains regulations on banks, institutional investors, etc.

Issuance in accordance with Rule 506Restricts accredited investor sales of stocksExample: Impax Labs

Meeting RegulationsNumber and identity of offerees and buyers

Investments are offered to people willing to “bare the rist”

Offering documentOutlines (PPM) company information

Personal negotiationsCorporate investors should be diligent with

public offeringsInvestment contract

TermsTerm sheetInvestment AgreementsFinancial Matters

ValuationEmployee Stock OptionsOptions for future investments

LiquidationRight to control and right of informationFounders and Managers rightsRegistration rights