This document discusses understanding funding needs for startups and entrepreneurs seeking angel financing. It outlines key questions around determining financial needs, building financial models, and the essential financial documents of income statements, balance sheets, and cash flow statements. The document emphasizes the importance of demonstrating scalable revenues, healthy margins, profitability, and generating more cash than is spent. It provides an overview of various sources of financing at different stages, including self-funding, friends/family, grants/loans, angels, venture capital, banks, and partnerships.

1. Susan L. Preston - Angel Financing for Entrepreneurs - Chapter 4
Understanding
Funding Needs
Angel Financing for Entrepreneurs

2. Understanding Funding Needs
One of the most difficult aspects of any seed/ start-up company is
understanding the financial needs.
• How to realistically determine the financial needs?
• How much needed to get to profitability?
• What factors impact the finance, anticipated or unpredicted?

3. Questions when starting to build their financial models
• What financial documents do you need?
• How many years of projections should you provide?
• How much detail is necessary?
• What are the most important factors or variables for investors?

4. Building Your Financial Future
• Angel investors want to know how you are going to make money,
when you will turn profitable, and when they can expect to receive
a return on their investment.
• You need to address these important financial milestones in your
executive summary, business plan, and presentation in differing
degrees of complexity, and your financial documents need to
support your assertions and forecasts.

5. Three “master” or essential documents
• Income Statements
• Balance Sheet
• Cash flow Statement

6. Building Financial Documents: The Essential Information
• First, can you generate impressive, highly scalable revenues in your
initial market and eventually additional markets or industry areas?
• Second, do you have projections for healthy margins that are at least as
good as industry average, if not better?
• Third, when do you become profitable and how do you grow the bottom
line to a point of maximum value and ultimate investment liquidity?
Fourth, will your business generate more cash from its operations than
it will spend?

7. SOURCES OF FINANCING
The oval
highlights the
development
stage at which
angels typically
invest
compared to
other financing
sources.

8. Various sources of financing an entrepreneur may
want to consider
• Founder: Self-funding—savings, personal loans, credit cards, second
mortgage:
• Bootstrap:
• Friends and family:
• Equipment leasing:
• Bartering:
• Angels:
• Government Grants and Loans

9. Highly abbreviated and provides only nominal information on a few of the
larger and more visible programs:
• Small Business Innovation Research (SBIR) is a highly competitive program that
encourages small businesses to explore their technology
• Small Business Technology Transfer program (STTR; the “R” is the second letter of
transfer).
• Economic development programs
• Venture Capitalist
• Bank
• Technology licensing
• Corporate Partners, strategic partner
• Corporate investment arms
• Incubator based financing

10. Example of just a few programs, for representative
purposes only:
• Federal minority program
• State economic focus area
• Regional economically depressed areas
• Local industry focus—like biotech in Seattle