Sources of Capital

• Equity Versus Debt Capital

 Source of Equity Capital
• Personal Savings
• Friends and Relatives
• Angels
• Corporations
• Venture Capitalists (VCs)
• Going Public (IPOs)
 Family & Friends Financing
• Consider the impact of the Investment
• Keep it strictly business
• Settle the details up front
• Create a written contract
• Treat the money as “bridge financing”
• Develop a payment schedule
 Angels
• Individuals who wish to assist others in
their business venture
• Usually found through networks
• Reasonable expectations on equity
position and ROI
• Often passive, but realistic perspective
about business venture
• Exit strategy is important
 Venture Capitalists (VCs)
• Funds are more specialized versus
homogeneous
• Feeder funds are emerging
• Small start-up investments are drying up
• High expectations of equity position and
ROI
• New legal environment
 Legal Environment: Investment
Agreement
• Choice of Securities
• Control Issues
• Evaluation Issues & Financial Covenants
• Remedies for Breach of Contract
• Business Model
 Sources of Debt Capital
• Commercial Banks
• Trade Credit
• Equipment Suppliers
• Savings & Loans
• Insurance Companies
• Credit Unions
• Private Placements
 Five Cs of Credit
• Character
• Capacity (Cash Flow)
• Capital
• Conditions
• Collateral
 Character
• Individual Attributes
• Passion
• Integrity
• Experience
• Staying Power
 Capacity
• Can the business survive?
• Will someone actually purchase the
product or service?
• Can the business produce the product or
service economically?
• Can the business make money?
 Capital
• What level of paid in capital are the
primary founders contributing?
• What percent of the total capital funding
needed is being requested?
• How is the capital being used in the
business?
• Is the capital requested reasonable?
 Conditions
• Potential growth in the market?
• Competition
• Location
• Form of Ownership
• Loan Purpose
• Payoff
 Conditions: Banker’s Perspective
• Economy
• Industry
• Interest Rates
• Business Experience
• Individual(s) Experience
• Inflation Rate
• Demand for Money
• Risk