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Chapter 13

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  • 1. CHAPTER 13 DISCUSSION QUESTIONS1) Explain the difference & the advantages/disadvantages ofequity capital & debt capital.2) Discuss the following sources of equity capital:A) AngelsB) Corporate Venture CapitalC) Venture Capital Companies3) Explain the following federal loan programs aimed at smallbusinesses:A) EDAB) HUDC) USDAD) SBIRE) STTR
  • 2. CAPITAL”ANY FORM OF WEALTH EMPLOYED TO PRODUCE MOREWEALTH”-3 MAIN FORMS1) CASH2) INVENTORY3) EQUIPMENT
  • 3. ENTREPRENEURS NEED 3 DIFFERENT TYPES OF CAPITAL1) FIXED CAPITAL2) WORKING CAPITAL3) GROWTH CAPITAL
  • 4. 1) FIXED CAPITAL”CAPITAL NEEDED TO PURCHASE A COMPANY’SPERMANENT OR FIXED ASSETS”-MAIN TYPES OF PERMANENT/FIXED ASSETS:1) LAND2) BUILDINGS3) EQUIPMENT-MONEY INVESTED IN FIXED ASSETS TENDS TO BE FROZENBECAUSE IT CANNOT BE USED FOR ANY OTHER PURPOSE
  • 5. 2) WORKING CAPITAL”CAPITAL NEEDED TO SUPPORT A COMPANY’S SHORT-TERM OPERATIONS”-CURRENT ASSETS MINUS CURRENT LIABILITIES-WORKING CAPITAL IS NORMALLY USED TO:1) BUY INVENTORY2) PAY BILLS3) FINANCE CREDIT SALES4) PAY WAGES & SALARIES5) TAKE CARE OF UNEXPECTED EMERGENCIES
  • 6. 3) GROWTH CAPITAL”CAPITAL NEEDED TO FINANCE A COMPANY’S GROWTHOR EXPANSION IN A NEW DIRECTION”-GROWTH CAPITAL FINANCES:1) EXPANSION OR PURCHASING NEW BUILDINGS2) HIRING ADDITIONAL WORK FORCE3) INCREASING INVENTORY
  • 7. EQUITY CAPITAL VS DEBT CAPITALFINANCING THE CAPITAL REQUIREMENTS OF A START-UPBUSINESS
  • 8. DEBT CAPITAL”THE FINANCING THAT A SMALL BUSINESS OWNER HASBORROWED & MUST REPAY”-FEW ENTREPRENEURS HAVE ENOUGH SAVINGS TOCOVER START-UP COSTS, SO THEY MUST RELY ON SOMEFORM OF DEBT CAPITAL TO LAUNCH THEIR COMPANIES-PRIMARY ADVANTAGE:-ENTREPRENEURS KEEP TOTAL OWNERSHIP &CONTROL OF BUSINESS-PRIMARY DISADVANTAGE:-SMALL BUSINESS LOANS ARE DIFFICULT TOOBTAIN
  • 9. EQUITY CAPITAL”CAPITAL THAT REPRESENTS THE PERSONAL INVESTMENT OFTHE OWNER(S) OF A COMPANY”-SOMETIMES CALLED RISK CAPITAL-PRIMARY ADVANTAGE:-DOES NOT HAVE TO BE PAID BACK LIKE A LOAN DOES-PRIMARY DISADVANTAGE:-THE ENTREPRENEUR MUST GIVE UP SOME, SOMETIMESMOST, OF THE OWNERSHIP IN THE BUSINESS TOOUTSIDERS
  • 10. SOURCES OF EQUITY FINANCING
  • 11. ANGELS”WEALTHY INDIVIDUALS WHO INVEST IN BUSINESS START-UPS IN EXCHANGE EQUITY STAKES IN THE COMPANIES”-TODAY, THE LARGEST SOURCE OF EXTERNAL FINANCINGFOR COMPANIES IN THE START-UP PHASES
  • 12. VENTURE CAPITAL”FUNDS MADE AVAILABLE FOR STARTUP FIRMS WITHEXCEPTIONAL GROWTH POTENTIAL”CORPORATE VENTURE CAPITAL-LARGE CORPORATIONS THAT INVEST IN FLEDGLINGCOMPANIES, MOST OFTEN THOSE IN THE PRODUCTDEVELOPMENT & SALES GROWTH STAGESVENTURE CAPITAL COMPANIES-PRIVATE, FOR-PROFIT COMPANIES THAT PURCHASEEQUITY POSITIONS IN YOUNG BUSINESSES THEY BELIEVEHAVE HIGH-GROWTH & HIGH-PROFIT POTENTIAL
  • 13. THE BOSTON BEER COMPANY: BREWING THE AMERICAN DREAM-MICROLOANS ($500-$25,000): Food and beverage small business owners can get thecapital needed to expand or start a business, purchase inventory or equipment, market abusiness, pay licensing fees, etc.-SPEED COACHING: Small business owners can meet with The Boston Beer Companysemployees to gain customized business advice on a range of topics: marketing,distribution, accounting, etc.