• Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
2,413
On Slideshare
0
From Embeds
0
Number of Embeds
0

Actions

Shares
Downloads
71
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. Financing a Small Business Part II Equity Financing & Planning for Capital The ABC’s from Start to Finance…
  • 2. Equity or “Risk Capital
    • Equity capital represents the personal investment of the owner(s)…it is often called RISK capital
    • It is called RISK because the investors assume the primary risk of losing their funds if the business fails
    • In the 1990’s entrepreneurs began to turn more to equity financing to get their businesses up & running
    • Apart from personal savings, family and friends, equity capital is tough for a start-up to obtain
  • 3. Equity Financing
    • Most frequently used to fund emerging businesses and to provide “seed” start-up for the early stage and expansion ventures
    • For businesses in their 2 nd and 3 rd level of business development
    • Start-up businesses often have challenges attracting traditional equity investment
    • Start-ups often use the 3 F’s for equity investment
  • 4. The Equity Ladder
    • Start with your personal savings …lenders & investors EXPECT you to reach into your pockets first!
    • 2. Three out of four start-ups tap their family members for capital; followed by friends.
    • Entrepreneurs can take on partners to expand the capital foundation of their business.
    • 4. Angels fill a significant gap in the seed capital market.
    • Venture Capitalists & Capitalist Firms purchase equity positions in young businesses that have high-growth potential
    • Going Public- Public Stock Sale
  • 5. Tips for Tapping the Family & Friends for Funds
    • Consider the impact the investment will have on everyone
    • Keep the arrangement strictly business
    • Keep it professional!
    • Settle the details upfront
    • Create a written document…put the agreement in writing
    • Treat the money as “bridge” financing
    • Develop a payment schedule
  • 6. Angel Overview
    • Angels – are normally wealthy individuals, often entrepreneurs themselves, who invest in business start-ups
    • Angels – have a “personal” interest in the industry and are willing to put money into companies before venture capitalists and institutions. They often fund in “clusters” and can be “patient” to wait for a ROI.
    • Angels are more likely to fund in the range from $10,000 - $2 million (VC’s are more $3 million+)
    • Joe Bezos, CEO Amazon, attracted $1.2 million in Angel financing to start Amazon.com but only after he had tapped-out his friends & family
  • 7. Where to find Angels Make the right contacts, network in the industry Most angels will look for businesses they know something about Internet sightings include: Angelmoney.com, Garage.com, Jumpstart Investments, Angel Investing WomenAngels.net, ACE-Net (sba.gov), Bay Area Regional Technological Alliance
  • 8. Howdy Partner! Partners for Your Equity
    • Consider the Risks before taking on a partner for your business.
    • Follow the UPA (Unified Partnership Agreement Act) in sharing in management profit & losses.
    • A limited partner cannot share in the day to day operations and management & if the business fails they lose ONLY what they have invested in it.
    • Most partnership agreements restrict how a partner can dispose of their interest. Dissolving can be a difficult process.
  • 9. Venture Capital Firms
    • Traditional VC is hard to get…they are looking for companies that grow REALLY Big, REALLY Fast!
    • Many Large Corporations are in the VC business of financing “smaller” businesses
    • Foreign Corporations are also investing in smaller US businesses
    • VC’s normally expect a ROI of 300-500% over 5 to 7 years!!
    • VC’s lend in the area of 1- ??? Million
    • (although smaller products are there)
  • 10. Venture Capitalist Sources
    • Venture Capital Marketplace- www.vcmarketplace.com
    • SBA- SBIC Program (Small Business Investment Companies)- small VC’s provide seed funding with SBA guarantees-
    • Pratt’s Guide to Venture Capital Sources (no relation..sorry)
    • National Venture Capital Association www.nvca.org
  • 11. Planning For Your Capital Needs Having the appropriate business -“financial” plan is critical!
    • Business Plan Types & Uses:
    • Financing- must support ability to repay
    • Investment- illustrates strengths & potential of business in order to capture market share.
    • Describes the “equity investment” and structure
    • Composite (existing)- often used by existing businesses for on-going financing
    • Start-up (“projected”)- details the projected strengths and needs of a new business. The plan MUST BE able to support the assumptions
    • Other types- Strategic, Marketing, Operational
  • 12. Ten Most Common Mistakes Found in Financial Business Plans
    • Too Long
    • No Competition Indicated
    • Unreasonable Expectations & Projections
    • Unreasonable Financial Projections
    • Unrealistic Profitability for Investors
    • Management Skills not demonstrated
    • Unrealistic projections of products & services
    • Lack of Knowledge of Industry
    • Inadequate Calculations
    • NOT Clear to the reader
  • 13. Outline of a Typical Small Business Financing Business Plan
    • Cover Page
    • Cover Letter & Statement of Purpose
    • Table of Contents
    • Executive Summary
    • Description of Business
    • Market Analysis
    • Management
    • Operations
    • Use of Funds
    • Financial Information
    • Supporting Information (resumes, agreements)
  • 14. Checklist for getting it all together!
    • Every bank or organization will have a slightly different list of everything that is needed.
    • Here is a basic list:
    • Applicant Information Sheet
    • Current Personal Financial Statement (for all partners)
    • Schedule of Real Estate Owned
    • Personal Tax Returns- 3 years (or business if in business)
    • Signed Credit Authorization
    • Current Financial Statement
    • Business Debt Schedule
    • If new business, business plan and projections for first 12 months
    • If purchasing, Purchase agreement
    • If franchising, Franchise agreement
  • 15. Where to go for Help!
    • Your local banker
    • The SBDC
    • The SBA
    • Local Consultants
    • US Hispanic Chamber of Commerce
    • Business Plan Pro (software)
    • Bplans.com
    Just a few places to start…There are a lot of resources available!