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Swedish Sources of Financial Capital

Slides from a small group seminar given to a group of Masters students at the Royal Institute of Technology in Stockholm, Sweden

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Swedish Sources of Financial Capital

  1. 1. Things to consider when starting out (in Sweden) Sources of Financial Capital Claire Ingram Stockholm School of Economics
  2. 2. 1. Amount of Money Needed 2. Sources of Capital 3. Structuring the Deal
  3. 3. 1. How much money do you need? 2. Sources of Capital 1. Stages of startup financing 2. Investors at various stages 3. Pros and cons of investment forms (discussion) 3. Structuring deals (Feb. 25th) Many options, many stages
  4. 4. 1. Capital Expenditure (Capex) • How much money do you need to get the venture off the ground? • Tangible assets: Hardware, computers, furniture etc • Intangible assets: Legal costs, insurance, rent etc 2. Working Capital • Capital needed to keep company running until it breaks even • Based on projections, so really just an estimate • Often forgotten about – but is really the primary concern of investors How much money do you need?
  5. 5. Month 1 Month 2 Month 3 Total Tangible Hardware Computers Intangible Legal Costs Rent Insurance Counting up Capex
  6. 6. • Most important thing is to deal with immediate risks Money is usually tight Team Risk Technology Risk Market Risk Capital Risk
  7. 7. Capitallessexpenses Time Working Capital: What is ”break even”? Starting point Financial Breakeven Sustainable Breakeven Equity Breakeven
  8. 8. • Financial break even point • Covers external costs through revenue stream • Usually measured in months • Sustainable break even point • Covers external costs, wages and generates some return for the investor (~40%) • Takes a few years, typically 1-3 years • Equity break even point • Repays the capital investment • Can take many years What is ”break even”?
  9. 9. Seed Early Mezzanine Late Stages of Financing Idea Business Plan Prototype Sales Profitability Infrastructure •Using your Capex •Minimum Viable Product •Product Cashflow •Customer/User base •Generating revenue Profit •Generating profit (for investors and selves)
  10. 10. Funding Possibilities Seed • Grants • Loans • Bootstrapping • Friends and Family • Crowdfunding • (Angel Investors) Early • Angel Investors • Venture Capital • Loans • (Crowdfunding) Mezzanine • Venture Capital • Loans • (Buy-outs) Late • Buy-outs • IPOs • Public Placement • Institutional Investors Strategic Partnerships Customer-funded
  11. 11. Tradeoffs to consider Control Bear Risk(s) Alone Equity Dilution Shared Risk(s) Loan Bootstrap Friends & Family Angel VC • Donation/Reward • Equity • Peer-to-peer loan Grant Crowd Institutional Investor
  12. 12. Control Bear Risk(s) Alone 100 % Sale IPO Private Placement Buyout
  13. 13. • Grants • Depends on the terms of the grant • But often no strings attached • Also includes ”competitions” • Loans • Capital amount in exchange for interest • May ask for personal surety • Swedish state agencies often offer loans w/o personal surety • Growth agnostic • Bootstrapping • Working on the side • Financing through credit cards • Customer financed • Friends and Family • Depends on terms – could be a loan or an equity share • Typically growth agnostic • Crowdfunding (get to later) • (Angel Investors) Seed
  14. 14. • Angel Investors • Purchase an equity share • Could be an individual, a team or syndication • Invest at their discretion • Typically expect to get involved in the business – either in management or on the board (or both) • High growth expectations • Venture Capital • Purchase an equity share • Professional investors • Has a pool of funds to invest – but typically more opportunities to invest than firms to invest in • Typically expect to get involved in the business – either in management or on the board (or both) • Even higher growth expectations (”Hockey stick growth”) • Management Fees • Loans • (Crowdfunding) Early Mezzanine
  15. 15. • Buy-outs • Purchase by a large firm (Google, Ericsson etc.) • Purchase by a Private Equity firm • IPOs • Initial Public Offering • Really stringent legal requirements around transparency & disclosure • Disclosure means that investors see firm as less risky • Could be a way to grow business – or an exit strategy for founders/investors • Private Placement Or ”exit?” Late
  16. 16. • Doesn’t resemble the other sources as much • (Potential) customer-financed • Three different varieties: • Donation/Reward, also known as ”Pre order” • Debt • Equity Crowdfunding
  17. 17.  Validate market appeal  Validate pricing  Proof of concept  Build a brand/community  Finance first round of production Reward-based NB for Tech
  18. 18. Image:
  19. 19. Thank You! Claire Ingram Stockholm School of Economics @Claire_EBI