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 --- growthDebt 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. 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

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

Debt Equity

Summary

SBA loan - Perimeters are stated Keep ownership Can come in many forms

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?