lean venture series stage 3 lesson 4 - financing your business

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Stage 3: Preparing to GrowLesson 4: Financing Your Business

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Review• Concepts and questions from

previous lesson(s)• Elevator pitch • Facilitator will share with students

learning objectives for the day:

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Learning Objectives• Define targeted investors for your

start up • Understand the Investment process

and needs of investors• Identify how due diligence happens

and how to be prepared

• Feature set for MVP• Validated learning• Pivots

Problem worth solving? Built something people want? How accelerate growth?

Ideal time to raise funding Concept Source: Blank Four Stages

to the Epiphany; Maurya, Running LeanImage Source: Startitup

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Considerations• Do I have the resources around me to succeed? • Who is a great investor for your company? • Where do you find qualified investors?• What are you going to use the money for?• Where will that investment take you?• How much money do you need?• Are you ready?

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Start-Up Capital Sources• Bootstrap • Credit Cards & Savings • Friends & Family • Crowd-Funding (Kiva, KickStarter, IndieGoGo…)• Angel Investors• Venture Capital • Investment Banks & Private Equity • Banks & SBA Loans• Fed/State/County/City Programs

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And another thing about Partnerships• Potential source of capital• Complexity• Formal Partnership Agreement• Intangibles

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What’s Best? (What’s Possible?)• Loan vs. Gift• Debt vs. Equity• Timing (Pre-Sale, Finance Purchase Orders,

Factoring/Loans against Receivables)• No Free Lunch – or Grants, either• “Skin in the Game”

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Bootstrap, Savings, Credit Cards• Most common financing method,

along with Friends/Family• Caution: Promotional Rates• Tiny bets & incremental funding*• What you can afford to lose• Borrowing from 401Ks

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Friends, Family, Angels• Personal relationship – and network• Invest in the person more than the

business (usually)• Clarity about nature of investment• Ownership, interest, repayments

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What (all) Funders Want

• Loan Amount & Use of Funds• Legitimacy• Business-Like (accuracy, responsiveness)• Clarity (what and how)• Meaning & Purpose• Impact• Alignment with THEIR goals

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Crowdfunding• Kiva (USA)

– Loans $10K max/3 year repayment• Kickstarter, Indiegogo, etc.

– Pre-Sale model

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Venture Capital• Typically 2nd – stage funding• VCs are looking for high growth, big

profits• May be a combination of equity &

debt• Strongly associated with specific

types of businesses – and not with others

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Traditional Lenders• Tend not to lend to “start-up” businesses

(less than two years in business)• Some banks don’t work with “small”

loans at any stage• Collateral required• Strict lending guidelines

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SBA: Small Business Administration• Self-sustaining Federal program• No direct loans to individual businesses• Offer loan guarantees to lenders – not

borrowers (loan amounts up to $5M +)• Micro-Loan Program (up to $50K) through

Intermediaries (several in NJ)

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What’s a Micro-Lender?• Lend to those who cannot access traditional financing

– Smaller loan amounts– Not enough time in business– Poor credit or “thin” credit– Additional services (training, technical assistance)

• Short-term borrowing• Establish creditSeveral in New Jersey: UCEDC, CBAC, RBAC, Intersect Fund, Isles, Inc., ACCION, Finanta, etc.

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State, County, & Local• Burlington County Economic

Development – Small Business Loan Program– Contact: Mark Remsa, Director

mremsa@bcbridges.org• State of NJ – various programs

– www.nj.gov/njbusiness/financing/

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Three-Four-Five C’s• Credit• Character• Collateral• Capacity• Conditions

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What (all) Lenders Want

Financials• Projections & Cash Flow Cycle • Breakeven Point• Personal Financial Statement• Tax History

• Business Plan• Tax Returns (Personal & Business)• Financial Statements – historical

and/or projections• Personal Financial Statements• Other Supporting Documents

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Business Plan• Executive Summary• Company Overview• Industry Analysis• Customers• Competitive Analysis• Marketing Plan• Management• Financial Statements &/or Projections• Appendix

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Deal Killers(For any Federal-Funds program, including SBA)Default on any government loan, including student loansRecent bankruptcyFailure to file tax returnsAll owners not participating in loan Not a US citizen or legal resident (“documented”)

Questions

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