Financing Your Venture
It is not as hard as you think!
Who Needs Money?
 Money is an essential ingredient of an enterprise at
every level. Whether it is a life style business or
entrepreneurial
 Money is needed at every stage of business
development
 Start–up businesses
 Mature businesses – need financing to stay on the
cutting edge --- growth
 Debt financing vs. equity financing
Where Do I Find The Money?
What Type of Money do I Need for
a Merger and Acquisition
 Debt Financing?
 Equity Financing?
 Employees
Debt Financing
 Financing for a business which must be repaid when due
 The debt is paid out of the businesses cash flow
 Both interest and principal are paid over time
 While debt is outstanding it bears interest at a rate called the
stated rate, it can be either variable or fixed.
 Debt has no ownership in the business or participate in its
earnings
 Interest is deducted as a business expense
 KEY: the owner keeps their ownership and rights to the
earnings
Various Types of Debt Financing
 Home equity loans
 Bank Loans – commercial and SBA
 Veteran Loans
 Export Express
 504 Loan
 Five C’s of credit have a lot to do with business’s success in
obtaining debt financing.
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Character – borrowers reputation
Capacity – cash flow
Capital – “skin in the game”
Collateral – assets
Condition – interest rate, amount of loan
Common Elements of Debt Financing
 Debt financing governed by a loan agreement – promissory note
 A fixed credit limit or a formula that sets available borrowings
based on a percentage of receivables, inventory, etc.
 Statement on how the funds will be used
 Collateral description – UCC filings
 Personal guarantees
 Initial interest rate, an adjustment formula
 Fees charged by the lender
 Time period of the loan
 Reporting requirements
 Representations and warranties
 Mezzanine
Equity Financing
 Equity is ownership in your business
 Equity represents ownership and the right to participate in
earnings
 Equity is typically
 Common stock or
 Preferred stock
 Valuation – what is the business worth
Convertibility
Board Seats
Voting
Businesses Which Most Attract
VC’s
 Risky ones with proven management
 Substantial growth potential
 First rate person with a good idea
 And a good management and support team
 High risk with high potential payoffs
 Venture Capitalists are always looking for the next Staples,
FedEx, Amgen, Peets.
 Can they take the company and merge it into one of their
portfolio companies
Development Stage
 Equity is usually all one can get in the development stage
 No cash flow
 Equity Investors at early stage
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The business founders
“Friends and Family”
Angel Investors
Venture Capital Firms
Private equity groups
Early stage IPO’s – example
Key: exit strategy!
Angel Investors & Venture Capital
Groups and Hedge Funds
 Angels Invest from $10,000 to $ 2 million
 Venture funds much higher limits of investment dollars
 Time horizons
 Specific Industries they want to invest in
 Annual return targets
 Board participation
 Contract terms which increase their control over business if
financial goals are not realized
 Preferred stock – conversion, mandatory redemption rights,
antidilution
Strategic Partner
 Companies that are in your industry
 Or a related industry
 Examples ebay buying pay pal
 Computer software company that invests in a hardware
company
 Hardware company invests in software
 Similar type of business in same industry
 Roll up
 Geographically placed
 Management team - expertise
Timing
Summary
Debt
 SBA loan  Perimeters are stated
 Keep ownership
 Can come in many forms
Equity
 Linked in to experts
 Bringing in partners,
advisors or board members
 Strategic placement
Nobody gives you power,
you just take it!
Turn your company into a dynamic center of
excellence, where amazing things are always
being initiated!
Questions?