foundations of entrepreneurshp elikem nutifafa kuenyehia management consultant & corporate...
Post on 19-Dec-2015
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FOUNDATIONS OF
ENTREPRENEURSHP
Elikem Nutifafa KuenyehiaManagement Consultant & Corporate Lawyer
CLASS SIX: ACQUIRING FINANCIAL CAPITAL
Agenda For Class Six
• Recap of Class five• Acquiring Financial Resources• Give you opportunity to ask
questions
Distinct Stages for Capital• Founding Stage
– Initial vision for business. – Development of strategy– May require capital for research, concept
development etc– Entrepreneur & friends/family
• Seed Stage– Money required to start the business
(‘seed’)– Typically comes from friends & family,
bank loans, etc...
Distinct Stages for Capital
• Growth stage – Where you need to fund business to
enable it sustain its growth– Stage where you are likely to get the most
interest from investors
• Harvest Stage– Where founders seek to ‘harvest’ their
investment– Trade Sale, Sale to other investors, IPO etc
Considerations in seeking capital
• Be clear what you need money for, how much– Starting point should be b/plan cash flow
statements
• Give consideration to Fixed Capital vs. Working Capital
• From whom you raise capital is more important than the terms
• Investors typically want to see that the entrepreneur has his ‘skin in the game’
Acquiring Financial Resources
SOURCES OF CAPITAL• Equity Capital
– Personal Savings– Friends & Family– Angel Investors– Stock market
• Debt Capital
Equity v Debt Capital• Equity capital is an investment in
the ownership through the purchase of shares
• Debt capital is money that is borrowed and which must be repaid over time. Usually doesn’t include any share ownership
Sources of Funding
• Self funding/Bootstrapping• Friends & Family• Angels• Venture Capital• Stock market• Bank Financing• Lease Financing• Corporate profit/Internal sources
Self funding• Self funding
– Cheapest Form of Capital• No other associated costs other than
opportunity cost
– Shows your skin is in the game– More savings you have, the less equity
you have to give up– Generally 'unreliable' source – takes
long time to save/inflation etc– Takes away 'survival money'
Friends & Family• Relying on personal relationships to fund venture• Friends & Family more patient and less
meddlesome than other investors• Can put strain on underlying relationship
– Particularly when business is not going well• Maybe difficult to raise huge sums through this
route• Friends & Family should be able to accommodate
losses.• Unrealistic or misunderstood expectations
– Clarify!
Angels
• Basically a ‘good’ guy with money who can be persuaded to invest in your venture– Typically retired entrepreneurs
• Might be investing for reasons other than returns
• “Smart Money” - can add significant value to entrepreneur's business
Venture Capital
• Venture Capitalists:– finance new & growing businesses– Acquire equity in ailing companies with
prospects– Bring smart money, contacts and active
hands on management– Invest for medium term– Exit is important
Why Some Cannot Access VC funding
• No knowledge of what VCs offer• Poor corporate governance• Unwillingness to give up control• Lack of transparency/honesty• No business plan/corporate plan
Equity Capital
• Shareholders acquire shares in the company
• For partnerships, you invest in the partnership
• May give investor say in the direction of company
• Adv for entrepreneur is that he does not have to repay
• Shareholders get paid dividends out of profits
• Involves parting with ownership– 50% of something is better than 100% of nothing
Debt Capital
• Overdrafts• Term loans• Floating rate vs Fixed rate• Demand vs. Fixed Maturity• Secured vs. Unsecured
Stock Exchange
• IPO provides medium to long term capital needs of company
• IPO = initial public offer• A company is listed when its shares are
approved to be bought and sold on the Stock Exchange
• Must appoint a licensed dealing member of GSE to sponsor application and take through listing process
• Both existing and new shares can be listed on exchange
Stock Exchange• GSE has three official lists
– First Official List– Second Official List– Third Official List
• Minimum capital requirements– FOL : 100M– SOL : 50M– TOL : 25M
• Minimum public float– Shares offered to public should not have a market
value of less than 30M for FOL, 15M for SOL and 5M for TOL
– 25% or more of Company’s shares should be issued to public
• Spread of shareholders– Spread of shareholders at close of IPO should be
adequate (in opinion of GSE)
Stock Exchange
• Minimum Period of existence– TOL – one year but can be waived
• Profitability– SOL/TOL – must have strong potential to be
profitable
• Management & Directors– Evidence that management possesses
requisite expertise– Character and integrity of management &
directors must be acceptable to GSE
TIPS
• Real Money Needs Real Structures -A worthy vessel is needed for a worthy cause
-The scheduling of repayment of investments and reporting of profits may require specific management skill; this will be demonstrated this through complex projections
-Corporate governance structures give investors some confidence that their money will be put to good use and that their returns will be managed and delivered
TIPS (cont’d)
• Personal Investment– Most investors want to know how much the promoters
have put into the venture
– The smaller your personal investment, the smaller the share you retain after others invest
– Structure “friendly” investments as part of your personal investment
TIPS (cont’d)
• Financial Reporting– Income Statement: net income
– Cash Flow Projection: net cash
– Balance Sheet Projection: net worth
– 1 year, 2 years, 5 years
• Unlike what you’d imagine, you need these reports even more than your potential investors do
TIPS (cont’d)
• What Do Financial Reports Demonstrate?– Fundamental understanding of your business
– How long it will take to break even
– What your profit margins are likely to be
– How much money you need (and when you’ll need it)