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Sources of Finance Patent in New Ventures
Presented By: Praneet Raj Mukesh Singh Amit Shukla vivek jain
New Ventures - An undertaking that is dangerous, daring, or of
Framework of the New Ventures
• Individuals are people involved in starting a new organization; • Organization is the kind of firm that is started; • Environment is the situation surrounding and influencing the new organization; • New venture process is the actions undertaken by the individuals to start the venture.
Starting a New Venture
if sufficient finance can’t be raised.The hardest part of starting a business is raising the money to get going. However. . The entrepreneur might have a great idea and clear idea of how to turn it into a successful business. it is unlikely that the business will get off the ground.
The entrepreneur needs to decide: • • • • How much finance is required? When and how long the finance is needed for? What security (if any) can be provided? Whether the entrepreneur is prepared to give up some control (ownership) of the start-up in return for investment? .Raising finance for start-up requires careful planning.
extra investment in capacity) .g.g. r raw materials + allowance for amounts that will be owed by customers once sales begin) • Growth and development (e. The finance needs of a start-up should take account of these key areas: • Set-up costs (the costs that are incurred before the business starts to trade) • Starting investment in capacity (the fixed assets that the business needs before it can begin to trade) • Working capital (the stocks needed by the business – e.
.Sources of finance Finance sources may be internal or external. medium or long term: • Short Term: Finance the business for up to 1 year. but they may also be short. • Medium Term: Finance the business for up to 5 years • Long term: Finance the business for more than 5 years.
Sole Traders and Partnerships cannot • The use of the finance – large expensive machinery will require a long term source. paying off an outstanding account will only require a short term source .Choosing a source of finance • Legal Structure – PLCs and LTDs can sell shares.
• Profit levels – The higher the profits the more money to use from internally. A firm with low profits (which needs the money the most!) will find external sources hard to find. . However.Choosing a source of finance • The amount required – The larger the sum. lenders often want to see that the borrower is also taking a risk so may be a combination. the less likely the owners are to be able to raise the money internally.
• Views of the owners – May be reluctant to lose control of a firm.Choosing a source of finance • Level of Risk – A risky enterprise will find it harder to raise capital. . especially a family firm and thus reject shares and venture capital. May have to rely on personal sources. some may welcome the advice a venture capitalist can give. although venture capital may be available. However.
Can be achieved through: • Generating increasing sales – increasing revenue to impact on overall profit levels • Use of retained profit – used to reinvest in the business • Sale of assets – can be a double edged sword – reduces capacity? .Internal Sources of Finance and Growth • ‘Organic growth’ – growth generated through the development and expansion of the business itself.
External Sources of Finance • Long Term – may be paid back after many years or not at all! • Short Term – used to cover fluctuations in cash flow • ‘Inorganic Growth’ – growth generated by acquisition .
SOURCES OF FINANCE SPONTANEOUS SOURCES NEGOTIATED SOURCES. 13 .
credit from suppliers of services etc are the examples of spontaneous financing. general public are called as “negotiated financing.• Spontaneous finance: Finance which naturally arises in the course of business is called as “spontaneous financing.” Trade creditors. financial institutions. credit from employees. say commercial banks. Negotiated financing: Financing which has to be negotiated with lenders.” 14 .
trade credit . inventory ordering and supplies . 15 . credit card .Short term sources of finance • Short term financing is essential to provide capital deficit businesses funds for short term period of a year or less. and short term bank loans etc. These are the main short term sources of finance:Bank overdraft . These funds are usually for businesses to run their day-to –day operations including payment of wages to employees.
Bills discounting The commercial banks advance to the borrower by discounting his bill.. 16 . Short-term loans The bankers makes a lump-sum payment to the borrower or credit his deposit account with the money advanced. directors and the general public.Public deposit Business firm are raising short-term finance from their member .
Debentures (Bond)= 20% Internal Accruals (Reserve & Surplus)= 12% Debentures (Bond)= 33% 4.Internal Accruals (Reserve & Surplus)= 24% 3.Term Loans (Long Term)= 8% Term Loans (Long & Short Term)= 13% 17 .Equity Capital= 58% MAHINDRA FINANCE Equity Capital=42% 2.EXAMPLE OF LONG TERM AND SHORT TERM FINANCE :STANDARD CHARTED BANK 1.
.External sources • Loan capital • This can take several forms. but the most common are a bank loan or bank overdraft.
• Bank loans are good for financing investment in fixed assets and are generally at a lower rate of interest than a bank overdraft.g. 5 years). • The bank will usually require that the start-up provide some security for the loan. although this security normally comes in the form of personal guarantees provided by the entrepreneur. with the bank stating the fixed period over which the loan is provided (e.Bank Loan • A bank loan provides a longer-term kind of finance for a start-up. . the rate of interest and the timing and amount of repayments.
in the sense that it is only used when needed. a major customer fails to pay on time). . • An overdraft is really a loan facility – the bank lets the business “owe it money” when the bank balance goes below zero.Bank Overdraft • A bank overdraft is a more short-term kind of finance which is also widely used by start-ups and small businesses. in return for charging a high rate of interest. • As a result.g. an overdraft is a flexible source of finance. • Bank overdrafts are excellent for helping a business handle seasonal fluctuations in cash flow or when the business runs into short-term cash flow problems (e.
• They may be prepared to invest substantial amounts for a longer period of time. • Both of these are positives for the entrepreneur. the main source of outside (external) investor in the share capital of a company is friends and family of the entrepreneur. . tensions develop with family and friends as fellow shareholders. Almost inevitably. they may not want to get too involved in the day-to-day operation of the business. • Opinions differ on whether friends and family should be encouraged to invest in a start-up company.Share capital – outside investors • For a start-up. there are pitfalls. However.
• One caveat: structure the deal with the same legal rigor you would with anyone else or it may create problems down the road when you look for additional financing. and it's good practice for later. • Prepare a business plan and formal documents-you'll both feel better. .• But friends and family are still the best source for both loans and equity deals. • They are typically less stringent regarding the credit and their expected return on investment.
Angels often make their own skills. • Angels range from professionals. • Business angels are professional investors who typically invest £10k £750k. • In addition to their money. • They prefer to invest in businesses with high growth prospects. experience and contacts available to the company. • Angels tend to have made their money by setting up and selling their own business – in other words they have proven entrepreneurial expertise. . to successful entrepreneurs. although the entrepreneur needs to accept a loss of control over the business.Business Angels • Business angels are the other main kind of external investor in a startup company. • Getting the backing of an Angel can be a significant advantage to a start-up. such as doctors and lawyers.
• A start-up is much more likely to receive investment from a business angel than a venture capitalist. often much more). • Venture capitalists rarely invest in genuine start-ups or small businesses (their minimum investment is usually over £1m. . • They prefer to invest in businesses which have established themselves.But venture capital is a specific kind of share investment that is made by funds managed by professional investors.Venture Capital • We also see Venture Capital mentioned as a source of finance for start-ups. Another term you may here is “private equity” – this is just another term for venture capital.
.Private Lenders • Private lending represents a viable alternative when the bank says "no". • Private lenders look for the same information and will conduct similar due diligence as the banks. • But they typically specialized in an industry and are more willing to take on higher-risk loans if they see the potential.
• It is also a strong signal of commitment to outside investors or providers of finance. • This is a cheap form of finance and it is readily available. • Investing personal savings maximises the control the entrepreneur keeps over the business. redundancy or an inheritance. • Often the decision to start a business is prompted by a change in the personal circumstances of the entrepreneur – e. .Internal Sources PERSONAL SOURCES Savings and other “nest-eggs” • An entrepreneur will often invest personal cash balances into a start-up.g.
• The use of mortgaging like this provides access to relatively low-cost finance. then the property will be lost too. • The entrepreneur takes out a second or larger mortgage on a private property and then invests some or all of this money into the business. if the business fails. The way this works is simple. although the risk is that.• Re-mortgaging is the most popular way of raising loan-related capital for a start-up. . .
managed poorly. Managed well. assuming you use them just for that and not for long-term financing. In fact. they're extremely effective. the use of credit cards is the most common source of finance amongst small businesses. • Credit cards are a great tool for cash flow management. • Keep one or two cards with no balance on it and pay it off every month to give yourself a 30 to 60 day float with no interest.Credit cards • This is a surprisingly popular way of financing a start-up. • And the low introductory rates on some cards make them some of the cheapest money around. they're extremely expensive. .
• Retained profits .
founded for the purpose of forming the start-up.• Share capital – invested by the founder – The founding entrepreneur (/s) may decide to invest in the share capital of a company. – This is a common method of financing a start-up. – The founder provides all the share capital of the company. . retaining 100% control over the business.
Patents Value of Patents in Venture Capital Investment .
. • These young tech-centric companies are really new ventures that often have new ideas and no way to demonstrate their worth to investors.000 new companies founded each year.Why Patent • There are an estimated 600. and many with aspirations to be the next Google.
• To become one of the great technological and business success stories. • It takes the ability to create a compelling value proposition to customers and investors alike. . especially to investors. • Patents can be an important part of that value proposition. • There are few things more persuasive for a company that has a few great ideas than to show potential investors tangible proof of the new venture’s intellectual prowess. it takes more than just a great idea and hard work.
Patent oppositions increase the likelihood of receiving VC. presumably because they are anticipated. but ultimate grant decisions do not spur VC financing.• Investors are faced with considerable uncertainty and therefore rely on patents as signals when trying to assess the prospects of potential portfolio companies. . financing those ventures faster which later turn out to have highquality patents. • VCs pay attention to patent quality. • The process of patenting generates signals which help to overcome the liabilities of newness faced by new ventures.
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