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6 Cards in this Set
- Front
- Back
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Why most new ventures need financing/funding (3 reasons) |
1)- Cash flow challenges: purchase inventories, hire and train employees, advertising fees 2)- Capital investment: cost of asset --> equipment typically exceed firms ability to provide funds 3) Lengthy Product Development Cycles: some product are still in the development phase before they generate earnings |
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Personal funds (3 types) |
Business has high risk with uncertain return (weak cash flows, low growth, high leverage) 1)-sweat equity: time and effort from the entrepreneur 2)-friends or family 3)-Bootstrapping : finding ways to avoid need of external financing: through cost cutting, ingenuity ex: hire interns, buy used material, lease equipment, obtain payment in advance, minimize expenses |
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Elevator speech |
when seeking for external funding 60 second statement that outlines the merit of the business description of the opportunity how you solve the problem your capacity the market |
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Source of equity funding 3 |
business offers high return, unique business idea, high growth proven management 1)-Business angels: private investors (50 years old, wealthy), invest personal capital, make relatively small investment, seek 30-40% return difficult to find 2)- Venture capital : investment byVC firms in start ups with high growth potential seek home run, invest in stage and later than angels, perform due diligence is key 3)- IPO: first sales of stock to public, mostly on NASDAQ reasons: Raise equity capital, raise firm's public profile, enable investors to cash out, growth for acquisitions |
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Source of debt financing (6 types) |
1)- Commercial banks: risk averse, focus on proven firms 2)- SBA guaranteed loans: loans for small business not able to get credit elsewhere. 7(A) loan guarantee program. more use by small firms than start ups. operates through private-sector lenders who provides loans that are guaranteed 3)-Vendor credit: postpone payment of good and service 4)-Factoring: sell account receivable at discount against cash 5)- Merchant cash advance: the lender provide lump sum of money in exchange for a share of future sales 6)- Peer to peer lending: loans between individuals (use funding circle) |
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Creative sources of financing (4) |
1)-Crowdfunding: funding a project by raising monetary contribution from a large number of people (kickstarter, indiegogo Reward base: money against product Equity base: money against shares (crowd-funder) 2)- leasing: enables a company to acquire the use of assets with very little down payment --> more expensive than paying cash 3) SBIR and STTR grand SBIR need participation of a researcher free and you can keep the intellectual property 4)- Strategic partners: Formed to share cost of product/service to gain access to articular resources or facilitate speed to market |
