financing new venture

7/28/2019 Financing New Venture

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Sources of Capital

For Entrepreneurs


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Debt Versus Equity

The use ofdebtto finance a new

venture involves a payback of the

funds plus a fee (interest for the useof the money. Equity financing

involves the sale of some of the

ownership in the venture.


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Debt Financing

Commercial Banks

Other Debt-Financing Sources:

Trade CreditAccounts Receivable Financing

Factoring

Finance Companies


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Source of Finance Throughout the

Evolution of the Entrepreneurial Firm

Le

velofInvestm

entRisk

A

ssumedbyInvestor

High

Low

Seed Start-Up EarlyGrowth

Established

Founder, friends,and family

Business Angels

Venture Capitalists

Nonfinancialcorporations

Equitymarkets

Commercial banks

Stage of Development of the Entrepreneurial Firm


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Equity Financing


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Public Offerings

Going public is a term used to refer to acorporations raising capital through the sale ofsecurities on the public markets. Here are some ofthe advantages to this approach:

Size of capital amount Liquidity

Value

Image

(new issues, referred to as initial publicofferings IPOs)


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Public Offerings

Disadvantages of going public:

Costs

Disclosure Requirements

Shareholder pressure


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Sophisticated Investors

Sophisticated investors are wealthy

individuals who invest more or less

regularly in new and early- and late-stage ventures. They are knowledgeable

about the technical and commercial

opportunities and risks of the business inwhich they invest.


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The Venture Capital

Market


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Dispelling Venture Capital Myths

Myth 1: Venture capital firms want to own control ofyour company and tell you how to run the business.

Myth 2: Venture capitalists are satisfied with a

reasonable return on investment.

Myth 3: Venture capitalists are quick to invest

Myth 4: Venture capitalists are interested in backing

new ideas or high-technology inventions

management is a secondary consideration.

Myth 5: Venture capitalists need only basic summary

information before they make an investment.


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Criteria for Evaluating

New-Venture Proposals


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Venture Capitalist Screening Criteria

Venture Capital Firm Requirements

Nature of the Proposed Business

Economic Environment of Proposed Industry

Proposed Business Strategy

Financial Information on the ProposedBusiness

Proposal Characteristics

Entrepreneur/Team Characteristics


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Informal Risk Capital

Angel Financing

Many wealthy people are looking for

investment opportunities. They arereferred to as business angels or

informal

risk capitalists.


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Types of Angel Investors

Corporate Angels

Entrepreneurial Angels

Enthusiast Angles

Micromanagement Angels

Professional Angels


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The Pros and Cons of Business

Angel Investments

Angels Characteristics

Value-adding

Geographically dispersed

More permissive investors

Investment Characteristics

Seek Smaller DealsPrefer start-up & early stageInvest in all industry sectors

Like high-tech firms

Added Bonuses

Leveraging effect

Give loan guarantees

No high fees

Advantages

Business Angels

Disadvantages

Littlefollow-on

money

Want a say

in firm

Could turnout to be

devils

No nationalreputation

to leverage

financing new venture

Documents