Professional Documents
Culture Documents
I. Capital Requirements
II. Sources of Capital
III. Understanding IPO and its process
IV. Dealing with Investment Bankers, risks
in going public, and borrowing from
banks
V. The C’s of Credits and using someone
else’s money
Capital Requirements
The amount of money or financial resources that a
startup or business requires to function, expand, and
meet its objectives is referred to as its capital
requirements.
A business needs capital for many different
purposes, such as starting up, running on a daily basis,
growing, and covering unforeseen costs. To guarantee the
viability and sustainability of their ventures, entrepreneurs
need to carefully evaluate and plan for their capital
requirements.
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Capital Requirements can be categorized
into different types:
Start-Up Capital
This is the initial funding needed to launch a new business. It
covers expenses such as market research, product development,
legal fees, office space, equipment, and other essential resources
required to start operations.
Working Capital
Working capital is the capital needed to cover day-to-day
operational expenses, such as inventory, salaries, rent, utilities,
and other short-term obligations. It ensures that the business can
continue its regular operations without disruptions.
Capital Requirements can be categorized
into different types:
Expansion Capital
As a business grows, it may require additional capital to expand its
operations, enter new markets, or launch new products or services.
Expansion capital is crucial for scaling the business and seizing
growth opportunities.
Contingency Capital
Entrepreneurs should also allocate capital for unforeseen events
or emergencies. Having a contingency fund helps businesses
weather unexpected challenges, such as economic downturns,
market fluctuations, or disruptions in the supply chain.
Some common sources of
Capital:
Personal Money
Many entrepreneurs use their own savings to fund the initial stages of their
businesses. This can be a straightforward and low-risk way to invest in the
venture.
Extended Personal Sources
Entrepreneurs may seek financial support from friends and family
members. This informal source of funding can be more flexible than traditional
financing, but it's essential to maintain clear communication and expectations.
Angel Investors
Angel investors are individuals who provide capital in exchange for equity
or convertible debt in a startup. They often offer mentorship and industry expertise
in addition to funding.
Some common sources of
Capital:
Venture Capital
Venture capital (VC) firms invest in high-growth startups in exchange for equity.
VC funding is common in industries with significant growth potential, such as technology
and biotech. However, it often involves giving up some control and ownership of the
business.
Crowdfunding
Platforms like Kickstarter, Indiegogo, and others allow entrepreneurs to raise funds
from a large number of people, often in exchange for early access to products or other
perks. Crowdfunding can be an effective way to validate market interest.
Bank Loans
Entrepreneurs can apply for loans from traditional banks or credit unions. Loans
may have fixed or variable interest rates, and the entrepreneur is usually required to
provide collateral and demonstrate the ability to repay the loan.
Some common sources of
Capital:
Initial Public Offering
For mature companies with a proven track record of success, going public through an
IPO can provide a substantial influx of capital. However, the IPO process is complex and
expensive.
Private Offering
Stock investors might also invest in a private offering (or private placement) where
the shares are sold to a few investors rather than to the general public through an exchange.
Grants and Start Up Prize Money
Grants that do not need to be repaid might be provided by government or other
agencies to support new venture start-ups. Sometimes entrepreneurs can enter business
planning or similar competitions in which they might win money and other benefits, like free
office or retail space, or free legal or accounting services for a set period of time.
Initial Public
Offering
IPO and its process
Dealing with Investment banks
Initial Public Offering (IPO)
An initial public offering (IPO) is where a company’s
stocks are sold to institutional investors who then
resell them to the public, usually through a
securities exchange like the Philippine Stock
Exchange. An initial public offering is a legal
procedure that a company follows to sell shares of
its business in order to raise money. We refer to this
as going public
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Why a company would enlist to becoming a
public company.
Before an IPO, a company is considered private. As a
pre-IPO private company, the business has grown with a
relatively small number of shareholders including early investors
like the founders, family, and friends along with professional
investors such as venture capitalists and angel investors.
An IPO is a big step for a company as it provides the
company with access to raising a lot of money. This gives
the company a greater ability to grow and expand. The
increased transparency and share listing credibility can also be a
factor in helping it obtain better terms when seeking borrowed
funds as well.
How It Works
PSE, PSE broker, SEC, Investment Banks
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A company's IPO shares are valued using
underwriting due diligence. A company’s previously
held private share ownership changes to public
ownership upon going public, and the value of the
shares held by current private shareholders is
determined by the public trading price.
Special provisions for private to public share
ownership may also be included in share underwriting.
The Philippine Setting for the IPO Process and its Seven Stages
Have you successfully Can your business Do you have resources What asset/s will be put What is the purpose of
repaid loans in the handle the loan to come up with a up to back the loan? this loan and how is the
past? payments? downpayment? economy?
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How Banks and Banks and lenders use the five C’s of credit
Lenders Use as a framework to evaluate a borrower’s
creditworthiness. By reviewing the five
the 5 C’s of characteristics, lenders can gain a
Credit comprehensive understanding of the
borrower’s financial situation and the level
of risk in lending the money.
Banks and other financial institutions
evaluate these factors differently: some create
and apply point systems that incorporate
each element while others look at the five
characteristics more flexibly.
Character
A lender will look at a mortgage applicant’s overall
trustworthiness, personality and credibility to determine
the borrower’s character. The purpose of this is to
determine whether the applicant is responsible and likely to
make on-time payments on loans and other debts.