Sources of Capital

• Equity Versus Debt Capital

Source of Equity Capital

• Personal Savings

• Friends and Relatives

• Angels

• Corporations

• Venture Capitalists (VCs)

• Going Public (IPOs)

Family & Friends Financing

• Consider the impact of the Investment

• Keep it strictly business

• Settle the details up front

• Create a written contract

• Treat the money as “bridge financing”

• Develop a payment schedule

Angels

• Individuals who wish to assist others in their business venture

• Usually found through networks

• Reasonable expectations on equity position and ROI

• Often passive, but realistic perspective about business venture

• Exit strategy is important

Venture Capitalists (VCs)

• Funds are more specialized versus homogeneous

• Feeder funds are emerging

• Small start-up investments are drying up

• High expectations of equity position and ROI

• New legal environment

Legal Environment: Investment Agreement

• Choice of Securities

• Control Issues

• Evaluation Issues & Financial Covenants

• Remedies for Breach of Contract

• Business Model

Sources of Debt Capital

• Commercial Banks

• Trade Credit

• Equipment Suppliers

• Savings & Loans

• Insurance Companies

• Credit Unions

• Private Placements

Five Cs of Credit

• Character

• Capacity (Cash Flow)

• Capital

• Conditions

• Collateral

Character

• Individual Attributes

• Passion

• Integrity

• Experience

• Staying Power

Capacity

• Can the business survive?

• Will someone actually purchase the product or service?

• Can the business produce the product or service economically?

• Can the business make money?

Capital

• What level of paid in capital are the primary founders contributing?

• What percent of the total capital funding needed is being requested?

• How is the capital being used in the business?

• Is the capital requested reasonable?

Conditions

• Potential growth in the market?

• Competition

• Location

• Form of Ownership

• Loan Purpose

• Payoff

Conditions: Banker’s Perspective

• Economy• Industry• Interest Rates• Business Experience• Individual(s) Experience• Inflation Rate• Demand for Money• Risk