FINANCING & SOURCES OF FINANCE - Coggle Diagram
FINANCING & SOURCES OF FINANCE
If you think of something, write it down.
TVM inputs gives a picture of Cashflows, e.g., how interest will be payable, repayment of capital.
If there is a foreign currency, always consider hedging as an option on your solution.
Important Considerations & Sources of Finance
If shares are being sold, a valuation should be made.
Period of financing should match period of investment
Private equity investors will require a high return on their investment and will not be willing to pay more for the shares, Shares may need to be discounted.
Reliability of suppliers (NB)
More shares may need to be issued to obtain require amount
Imports being stuck at the habour/ in customs for a long time
Private Equity firms may put a strain on control
Maintenance, repairs, warranty claims, installations of equipment
PE firms make possibility of future funding easy to obtain
Foreign currency fluctuations (If applicable)
They bring valuable expertise to the business and professionalise it for easy exit in future.
Give their networks easily for future growth
Angel investors bring expertise too but lack large team provided by Equity Firms
Angel Investors are more patient and willing to wait
Crowd funders do not necessarily require control but will need a form of compensation, it is important to know what it is.
Social media presence is beneficial for crowd funding
Crowd funders may prefer more tech investments than others.
Crowd-funding requires a large number of people
Expect a lower return on investment
Crowd funding is obtained in the public domain, therefore there are reputational risks associated if the bid fails.
Angel investors provide their expertise on an individual basis.
Selling an Equity stake without loss of control in the business also means that you lose control over who may acquire that interest in future.
e.g. If A sells 20% to B, It will be the decision of B who to sell that 20% to in future.
Consider the equity stake acquired in relation to existing equity to assess fairness and other things.
Debt/Equity ratio shows leverage in the company
Terms of loan finance should match terms of asset acquired if possible.
Timing of payments is important when considering finance
Low interest rates make debt Financing more attractive
Equity = NAV