Finance For Generation X & Y - YES Aruba Launch Event

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Slides of my presentation during the official launching of Young Entrepreneurs Stichting (YES!) Aruba @ Renaissance Convention Center (Sept 10, 2013)

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Finance For Generation X & Y - YES Aruba Launch Event

  1. 1. LOGO Edward M Erasmus, MA September 10, 2013 Finance for Generation X & Y
  2. 2. The future of startup funding in Aruba Roadmap Sources of financing 5 things to consider before seeking financing Getting funded: what lenders look at Creative funding alternatives Finance: the science and the practice Key takeaways
  3. 3. Startup Challenges • No financial track record • Lack of evidence of success • Unknown/unconvincing business concept • Scope of risk • Doubtful financial projections
  4. 4. Finance: the science • Funding of assets: own capital or borrowing from third parties • Debt can increase a company’s return on equity • But too much debt can take a company into bankruptcy • How much debt can a company carry? Debt to equity ratio
  5. 5. Finance: the science Golden rule in financing: • Current assets should be financed with short- term debt • Fixed (non-current) assets should be financed with long-term debt
  6. 6. Finance…
  7. 7. Finance is way more than just “showing me the money” Investment budgeting Financing structure Day-to-day operations Scope of Corporate Finance
  8. 8. Three key questions in financing 1. What investments should the firm undertake? Capital budgeting decision 2. What is the best way to finance these long- term investments? Debt or equity? Capital structure decision 3. How should the firm manage its short-term assets and liabilities, such as cash? Working capital management
  9. 9. Finance: the practice • It takes money to make money! • Next to choosing the right products/services (the ‘BIG’ idea), getting the right funding might be the most important decision you’ll ever make for your business venture • Its a daunting task • Risky business (high failure rate)
  10. 10. Startups in Aruba 1 2 3 4 5 6 7 8 9 10 11 total company registrations 1181 1267 1216 1450 1390 1390 1245 1297 1088 1143 1124 1000 1050 1100 1150 1200 1250 1300 1350 1400 1450 1500 amount of companies registered Total Company registrations Source: PriceWaterhouseCoopers Aruba (2012) Entry Patterns of businesses in Aruba 2001-2011
  11. 11. Startups in Aruba Source: PriceWaterhouseCoopers Aruba (2012) Year of establishment Percentage of companies that still exists after 0 year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 9 year 10 year 2001 93% 84% 76% 69% 61% 55% 49% 46% 42% 39% 37% 2002 94% 83% 73% 66% 59% 52% 49% 43% 41% 39% 2003 91% 79% 69% 63% 56% 52% 47% 44% 41% - - 2004 94% 82% 73% 64% 59% 53% 50% 48% - - - 2005 94% 81% 72% 66% 61% 56% 54% - - - - 2006 95% 82% 75% 68% 64% 61% - - - - - 2007 92% 82% 73% 66% 61% - - - - - - 2008 95% 84% 75% 70% - - - - - - - 2009 93% 80% 74% - - - - - - - - 2010 94% 88% - - - - - - - - - 2011 95% - - - - - - - - - - Average 94% 83% 73% 66% 60% 55% 50% 45% 41% 39% 37%
  12. 12. Startups in Aruba Source: PriceWaterhouseCoopers Aruba (2012) Year of establishment Percentage of companies that still exists after 0 year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 9 year 10 year 2001 93% 84% 76% 69% 61% 55% 49% 46% 42% 39% 37% 2002 94% 83% 73% 66% 59% 52% 49% 43% 41% 39% 2003 91% 79% 69% 63% 56% 52% 47% 44% 41% - - 2004 94% 82% 73% 64% 59% 53% 50% 48% - - - 2005 94% 81% 72% 66% 61% 56% 54% - - - - 2006 95% 82% 75% 68% 64% 61% - - - - - 2007 92% 82% 73% 66% 61% - - - - - - 2008 95% 84% 75% 70% - - - - - - - 2009 93% 80% 74% - - - - - - - - 2010 94% 88% - - - - - - - - - 2011 95% - - - - - - - - - - Average 94% 83% 73% 66% 60% 55% 50% 45% 41% 39% 37% On average: seven out of ten new firms survive at least 2 years, half of the companies survive at least 5 years, a third at least 10 years.
  13. 13. Finance: generally two sources… Capital/Equity Debt Company Sources of funds
  14. 14. Types of early stage financing • Capital/Equity: – Own funds (savings) – Angel investors – Venture capital funds – Private equity funds • Debt (loans): – Bank / financial institution
  15. 15. Angel investors, VC’s, PEF’s • Wealthy individuals • Includes: FFF’s • Small investment amounts • Little involvement in day-to-day operations • Corporate entities that use funds from other investors • Large investments • Require seat in the board • Control in operations • Large stake in company • Usually family- owned firms • Small & large investment amounts • Networks • Some involvement in operations
  16. 16. Debt: available in all ‘shapes’ and ‘sizes’ • Short-term: – Working-capital loans (credit lines) – Credit Cards – Etc. • Long-term: – Non-revolving loans (asset-backed) – Mortgage loans (property & building)
  17. 17. A third source…? Capital/Equity Debt Company Sources of funds Grants/Sponsors
  18. 18. Grants/sponsors • Crowdfunding (donations/sponsors) • Crowdsourcing (free knowledge/ expertise/resources) • Government grants
  19. 19. Crowdfunding
  20. 20. Crowdfunding
  21. 21. Crowdsourcing
  22. 22. Alternative funding options • Personal credit/Microfinance (VKB Aruba) • Suppliers credit • Franchise advances/loans • Barter • Business plan competition and other contests • …..
  23. 23. 5 things to consider before seeking financing • Create a business plan • Do your homework • Shop around • Seek advice • Have a Plan B
  24. 24. Startups funding in the U.S. Source: U.S. Census Bureau (2012)
  25. 25. The future of startup funding in Aruba • Most startups do not have enough funds to launch their ideas. • Possible funding aids: – Innovation fund – Venture capital funds – Academic (venture) funds – Crowdfunding (donation-based/investment-based)
  26. 26. A win-win for the capital market (lenders) Initial funding (Zuckerberg & Saverin): around $20,000 Angel investor (Peter Thiel): $500,000 VC (Accel Partners): $13 million 2nd round VC’s: $28 million Microsoft: $240 million IPO: $16 billion
  27. 27. A win-win for the capital market (lenders) • Enough financial track record is built • Success of business is proven • Established reputation • Better understanding of operational structure • Banks are more comfortable in providing lending
  28. 28. Key takeaways • Know your business • Proper funding is key to success • Consider the broad perspective of finance • Explore all avenues • Additional platforms for funding is recommended
  29. 29. LOGO
  30. 30. Edward M. Erasmus, MA e.erasmus@fzanv.com erasmus.bpas@gmail.com Facebook: http://www.facebook.com/edwardmerasmus Twitter: http://www.twitter.com/em_erasmus LinkedIn: http://www.linkedin.com/in/edwardmerasmus Blog: http://edwardmerasmus.wordpress.com

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