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Financing: Equity and Debt - Coggle Diagram
Financing: Equity and Debt
The "Secrets" to Successful Financing
Entrepreneurs cannot overestimate the importance of making sure that the "chemistry" among themselves, their companies, and their funding sources is a good one
Plan an exit strategy
Put social media to work to locate potential investors.
Financing a Business
Layered financing: Piecing together capital from multiple sources
Capital
Equity capital
Represents the personal investment of the owner(s) in the business
Debt Capital
Must be repaid with interest
Entrepreneurs must cast a wide net to capture the financing they need to launch their businesses
Personal Savings
Bootstrapping
The most common source of equity capital for starting a business
Accelerators
Offer a structured program that lasts from three months to one year
The most important contribution is the coaching and mentoring received
Provide a small amount of seed capital and a wealth of additional support for start-up companies
Examples: y Contributor and Tech Stars
Angels
Wealthy individuals who invest in emerging entrepreneurial companies in exchange for equity (ownership) stakes.
Informal angel "clusters" and networks
Venture Capital Companies
Private, for-profit companies that purchase equity positions in young businesses that they believe have high-growth and high-profit potential
Target companies with high-growth and high-profit potential
What Do Venture Capital Companies Look For?
Growth industry
Viable exit strategy
Competitive edge
Competent management
Intangibles factors
Corporate Venture Capital
About 300 large corporations across the globe invest in start-up companies
Capital infusions are just one benefit; corporate partners may share marketing and technical expertise
Going Public
Initial Public Offering (IPO)
When a company raises capital by selling shares of its stock to the public for the first time.
Characteristics of Successful IPO Candidates
3 to 5 years of audited financial statements that meet or exceed SEC standards
Solid position in a rapidly-growing industry
Average company age is 10 years
Strong record of earnings
Sound management team with experience and a strong board of directors
Scalability
Consistently high growth rates
Steps to Take a Company Public
File with the SEC
Wait to "go effective"
Prepare the registration statement
Road show
Negotiate a letter of intent
Sign underwriting agreement
Choose the underwriter
Meet all state requirements
The Nature of Debt Financing
Borrowed capital allows entrepreneurs to maintain complete ownership of their businesses, but must be repaid with interest.
Small businesses are considered more risky than corporate customers
Asset Based Lenders
Discounting accounts receivable
Inventory financing
Advance rate: The percentage of an asset's value that a lender will lend.
Purchase order financing
Other Methods of Financing
Leasing
Rollovers as Business Startups (ROBS)
Factoring Accounts Receivables
Credit cards