Sources of Capital For Entrepreneurs

.Debt Versus Equity The use of debt to finance a new venture involves a payback of the funds plus a fee (interest for the use of the money. Equity financing involves the sale of some of the ownership in the venture.

Debt Financing • Commercial Banks • Other Debt-Financing Sources: – Trade Credit – Accounts Receivable Financing – Factoring – Finance Companies .

and family Business Angels Venture Capitalists Nonfinancial corporations Equity markets Commercial banks Seed Start-Up Early Growth Established Low Stage of Development of the Entrepreneurial Firm .Source of Finance Throughout the Evolution of the Entrepreneurial Firm High Level of Investment Risk Assumed by Investor Founder. friends.

Equity Financing .

Public Offerings “Going public” is a term used to refer to a corporation’s raising capital through the sale of securities on the public markets. referred to as initial public offerings IPOs) . Here are some of the advantages to this approach: • Size of capital amount • Liquidity • Value • Image (new issues.

Public Offerings Disadvantages of going public: • Costs • Disclosure • Requirements • Shareholder pressure .

“Sophisticated” Investors “Sophisticated” investors are wealthy individuals who invest more or less regularly in new and early. . They are knowledgeable about the technical and commercial opportunities and risks of the business in which they invest.and latestage ventures.

The Venture Capital Market .

.Dispelling Venture Capital Myths Myth 1: Venture capital firms want to own control of your company and tell you how to run the business. 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. Myth 2: Venture capitalists are satisfied with a reasonable return on investment.

Criteria for Evaluating New-Venture Proposals .

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 Proposed Business • Proposal Characteristics • Entrepreneur/Team Characteristics .

Informal Risk Capital – “Angel” Financing Many wealthy people are looking for investment opportunities. . They are referred to as “business angels” or informal risk capitalists.

Types of Angel Investors • • • • • Corporate Angels Entrepreneurial Angels Enthusiast Angles Micromanagement Angels Professional Angels .

The Pros and Cons of Business Angel Investments Angels’ Characteristics Value-adding Geographically dispersed More permissive investors Investment Characteristics Seek Smaller Deals Prefer start-up & early stage Invest in all industry sectors Like high-tech firms Added Bonuses Leveraging effect Give loan guarantees No high fees Advantages Business Angels Disadvantages Little follow-on money Want a say in firm Could turn out to be “devils” No national reputation to leverage .

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