Transcript Sources of Capital • Equity Versus Debt Capital Source of Equity Capital • • • • • • Personal Savings Friends and Relatives Angels Corporations Venture Capitalists (VCs) Going Public (IPOs)

Sources of Capital
• Equity Versus Debt Capital
Source of Equity Capital
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Personal Savings
Friends and Relatives
Angels
Corporations
Venture Capitalists (VCs)
Going Public (IPOs)
Family & Friends Financing
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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
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Choice of Securities
Control Issues
Evaluation Issues & Financial Covenants
Remedies for Breach of Contract
Business Model
Sources of Debt Capital
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Commercial Banks
Trade Credit
Equipment Suppliers
Savings & Loans
Insurance Companies
Credit Unions
Private Placements
Five Cs of Credit
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Character
Capacity (Cash Flow)
Capital
Conditions
Collateral
Character
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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
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Potential growth in the market?
Competition
Location
Form of Ownership
Loan Purpose
Payoff
Conditions: Banker’s Perspective
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Economy
Industry
Interest Rates
Business Experience
Individual(s) Experience
Inflation Rate
Demand for Money
Risk