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(15) Sources of financing: equity and debt - Coggle Diagram
(15) Sources of financing: equity and debt
Secrets to successful financing
Internet - vast resources of information
Social media to locate potential investors
Creativity counts
Thoroughly prepared before approaching potential lenders, investors
Raising money takes time and effort
"Chemistry" among themselves, companies, funding sources
The money is out there; the key is knowing where to look
Exit strategy
Right source of capital
When capital gets tight, remember to bootstrap
Capital
wealth to produce more wealth
Debt
Equity (risk capital)
Sources of equity financing
Venture capital companies
Policies and investment strategies
Stage of investment
rapid-growth stage (expansion-stage investing)
later stage of development
early-stage investing
mostly multiple investments in different stages
Advice and contacts
management advice
suppliers, employees, customers, other capital sources
Ownership and control
Investment preferences
niche
Investment size and screening
Business plan funnel
What venture capitalists look for
Competitive edge
distinctive competence satisfying unmet customer needs to unique marketing or R&D approach to create sustainable competitive edge as an industry leader
Growth industry (higher profit potential, >= $100m business in 3-5 years)
Competent management
experience, managerial skills, commitment, ability to expand
Viable exit strategy (3-5 years) - IPO, acquisition, merger
intangible factors (gut feeling)
strategic planning process
management team chemistry, other factors
direction sense
Corporate venture capital
active across all funding stages including seed rounds
investment arms of large corporations
Angels
Public stock sale ("going public")
Registration process
Filing with the SEC
Meeting state requirements
Preparing the registration statement
Negotiating a letter of intent
Choose the underwriter
Wait to go effective
Road show
Sign underwriting agreement
Republic registrations and exemptions
Underwriting characteristics
Strong earnings record
3 - 5 years of audited financial statements that meet or exceed SEC standards
Scalability (maintain or improve efficiency in growth)
consistently high growth rates
Solid position in rapidly growing industry
Sound management team with experience, strong board of directors
Accelerators
Crowdfunding
Friends and family members
Personal savings
Sources of debt financing
Commercial banks
short-term loans
commercial loans (traditional bank loans)
lines of credit
home equity loans
floor planning
intermediate and long-term goals
installment loans
term loans
Successful track record (operating past, financial reports for future projections, proof of sales stability)
sufficient cash flow, business owner (personal guarantee), collateral
Small Business Administration (SBA) Loan Guarantee Programs
7(A) Loan Guaranty Program
Section 504 Certified Development Company Program
Microloan program
Other SBA Loan Programs
Nonbank sources of debt capital