RAISING FUNDS

Simplest Ways to Raise a Capital

Funding From Immediate What are they?
Network
Savings Discretionary funds from unspent money earned previously by the
entrepreneur.
An amount of money that is available to spend on things that are not
considered necessary but that may be useful.
Partnership Includes investment from relatives, friends, and acquaintances.
Loans Money advances, which may be source from individuals, informal channel,
or financial intermediaries like banks.
Customer’s Advance Terms of sales advantageous to the seller such as cash with order (CWO),
asking for downpayment (DP), cash on delivery (COD), or collecting
franchise fee upfront.
Never put your capital (money) at risk may it be your money, family’s money, or your investor’s
financial well-being. You must always be responsible in handling or starting a business. You need to create
or have a 1-year financial projections for you to be able to see impacts of your business decisions to your
finances.
You have to have a knowledge on the risks on taking up a business since there is always what we call
capital at risk where your capital can grow or you can lose it if you don’t manage it properly.

Sources of Funding from Outsiders

Funding from What are they?
outsiders
Angel Investor Money invested by an outside individual to a firm.
An angel investor is a wealthy person who invests his or her own money in a
company, usually a start-up business. Angel investors expect to take ownership
positions in the companies they support because their capital is unsecured, and they
have no claim on the company's assets.
Super Angel Big amount of money invested by an outside individual to a firm.
Super Angel is the same as an angel investor, the difference is super angel are often
experienced entrepreneurs themselves and play a more active role in mentoring,
networking, and advising the startups they fund.
Venture Capital Amount of money invested by outside investors, typically over 10 individuals with
none owning over 10% of the investment pool, forming themselves as a venture
investing company.
Venture capital (VC) is generally used to support startups and other businesses with
the potential for substantial and rapid growth. VC firms raise money from limited
partners (LPs) to invest in promising startups or even larger venture funds. (Mostly
ginagamit and VC upang suportahan ang mga bagong negosyo na may potential na
lumago.)
Private Equities Amount of money invested by outside investors, typically over 10 individuals,
forming themselves as a private equity investing company, focusing on firms that
already have revenues and profit.
It is the same as Venture Capital, the only difference is that private equities
fund/support businesses na already operating and kumikita na.
Going Public Amount of money invested via initial public offering (IPO) from the stock market.
Going public typically refers to when a company undertakes its initial public
offering, or IPO, by selling shares of stock to the public, usually to raise additional
capital.
Most billionaires here in the Philippines and elsewhere have taken their money via Initial Public Offering
selling roughly 20% of their company to the public at a premium in exchange for cheap funds to finance
their expansion.
Top 3 Companies in the Philippines in terms of Market Capitalization
 SM Investments
 SM Development
 BDO
With a total of 3.2 trillion Pesos total combined capitalization for the 3 companies as of Feb 2018. All 3
companies are owned by Henry Sy, founder of the SM Group, which has over 200 companies under them.
(Read the book regarding Henry Sy, masadutak agexplain nagtiddug.)
Entrepreneurs must therefore not limit their expansion on internally generated funds, or borrowing
money from bank, asking partners to put in more money. On a bigger scale, the company may be attractive
to public investors in the stock market.
If you’re an entrepreneur, do not limit your funds just by using your savings or from loans but
instead try to learn IPO or other methods of having funds as this can be eye catching to public investors.

WHY PARTNERS ARE NEEDED

The right partners can provide needed funding, opening doors to further fund and spread financial
risk, creating immediate credibility, and making the entrepreneur highly accountable. They can open their
own network of contacts to be accessible to the entrepreneur as well as provide mentorship, preferably not
just at a professional level but also at a personal level.
A business partner can help fund the business and provide an important injection of cash into the
organization. Another reason why some individuals form a business partnership or get investors is so that
they can benefit from different skill sets. There are so many advantages of having other people have
feedback to your ideas being an entrepreneur and it narrows your knowledge gap on your business. This can
also give you idea if you asked/told any investors/partners and they are not interested in any of it, this means
that either it is bad, or they know that it will not generate good income in the future.
TEN BENEFITS OF HAVING GREAT PARTNERS
Note: Entrepreneurs must and always carefully assess the value added they get from their potential partners
before closing a partnership deal.
1. Provide immediate feedback on strengths and weaknesses of plans.
Positive feedback from your partners can highlight your plans/ideas strengths and reinforce the areas
where it excels. On the other hand, constructive feedback can shed light on areas where your
ideas/plans may need improvement or development. It helps identify weaknesses and areas for
growth.
2. Help give operational and strategic directions.
They can help in (Strategic planning) setting an organization's long-term direction and goals,
considering market trends, business needs, and internal resources. (Operational planning) or breaks
down organizational goals into day-to-day activities and short-term objectives.
3. Provide additional funding.
4. Spread out financial risks.
5. Narrow your knowledge gap.
6. Offer immediate credibility to your company.
7. Open their network of contacts to you (key suppliers, customers) to lower costs or raise revenue.
8. Give an assurance of fairness on dealing with valuation and stock ownership specially after
recovering investment.
9. Mentorship on a professional level.
10. Mentorship on a personal level.
OUTSIDE INVESTORS AND YOUR COMPANY’S WORTH
If outside investors is needed, discipline is needed and the entrepreneurs cannot do the business
leisurely as investors expect the entrepreneur to work hard for long hours to grow fast, attain goals, be better
than competition and be market leader.
(PACOPY DYAY ADDA BOOK NGA TULOY NA)
(Explain u han ko unay naawatan)
Three Series of Investment
Series Revenue Profit Description Risk Investment
Premium
A No No Product or business exist but High None or
no business operation Lowest
B Yes No Business exists with revenue Moderate but can be Case to Case
generation but lack either attractive if investment
revenue sources or productivity with leapfrog volume way
scale to be profitable. beyond breakeven point
C Yes Yes Company is operating with Low Highest
both revenue and profit
increasing.
Note that series A is not a business but only an idea.
(Explanation is in the book. Just read it.)
Also note that for single proprietorship types of companies, profitability is based on the promise that
owners have a paycheck as part of the expenses. (ITULUY YU ISURAT DYAY ADDA BOOK).

ENDOWMENT EFFECT AND LOSS AVERSION

For investors to gain, a challenge of entrepreneur is to avoid the endowment effect.
Endowment Effect – a supply-side thinking of overvaluing the things they have more than what they are
worth in the market, a reflection of emotions and cognitive blind spots.
The endowment effect is a manifestation of loss aversion, wherein people place extra value on goods they
own compared to identical goods they do not own.
Loss Aversion – People typically place more importance on potential losses than they place on potential
gains.
Loss aversion reflects a person's preference to prefer avoiding losses to acquiring gains. (Iniiwisan ng
entrepreneur na magkaroon ng loss or pagkalugi).
(pakibasa NALANG YUNG PIC NG BOOK, AJAY EXPLANATION)

WHAT IS THE ROI EXPEXTED

What is the meaning of ROI? Return of Investment
Note: The best investment is always the one that gives the highest return of investment (ROI), that pays out
dividend consistent with investor’s goals. (TULOY YU TIL LAST NA OR TRY U ISHORT CUT
NAGRIGAT HEHE).

WHO TO PARTNER WITH

(DAKAU MAN AGARAMID DTA HAN KO MAGETS)

WHAT INVESTORS ARE LOOKING FOR

There are four important and inter-related clusters of questions that investors will likely be asking,
and entrepreneurs must have answers to these.
QUESTIONS INVESTORS NEED TO ASK
Inter-related Goal Key Questions they ask themselves
Factors for
Investors to
Maximize ROI
Market To determine if there is - Is the market/industry big with lots of unserved
a scalable and market?
sustainable market. - Can it be scaled fast?
- Are there customers waiting?
- Are there exclusive agreements?
Product To determine if the - Is the value proposition (product and price)
value proposition is compelling to the customers to keep buying?
compelling and - Is the product or technology already available?
ownable. - Is there a potential source of competitive
advantage, i.e a barrier for competitive entry?
- Is the margin good for better cashflow?
People To determine if the - Has the entrepreneur done well in the past?
entrepreneur is - Has the entrepreneur demonstrated high AQ?
trustworthy and - Is this entrepreneur committed and is the right
believable person for the job?
- Does my intuition feel good about working with
the entrepreneur?
ROI To determine, if beyond - Are uncertainties negated?
market, product, and - Is the timing, right?
people, it is a good - Are tensions controllable/
investment. - Is it a good deal?