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raising capital - ideas for the entrepreneur

Page history last edited by Brian D Butler 9 years, 10 months ago

 

 

 

 

 

 

$$ raising guides

Guide for launching early-stage technology companies.   We focus on how to deal with Venture Capitalists, How to give a great pitch, Building revenue and customers, Building your Management Team, Setting Valuation, Preparing your Finances, Meeting with Investors, Negotiating Term Sheets, Exit Strategies, and more..

 

Table of Contents: 


 

 

 

 

Find Venture Capital money

 

see  Global Directory of Funding  

(which includes consultants and posting boards, etc)

 

Common Sources of Financial Capital:

 

Angel investor

- An angel investor (business angel in Europe, or simply angel) is an affluent individual who provides capital for a business start-up, usually in exchange for ownership equity. Unlike venture capitalists, angels typically do not manage the pooled money of others in a professionally-managed fund. However, angel investors often organize themselves into angel networks or angel groups to share research and pool their own investment capital.

 

Bootstrap funding -

Bootstraps are companies that are started by their founders with their own personal money, without any external financing. While such a funding involves a huge risk for the founders, the absence of any other stakeholder, gives the founders a complete freedom and helps them realize their vision without any external interference.

 

bank loans -

A loan is a type of debt. All material things can be lent but this article focuses exclusively on monetary loans. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.

 

Business plan competitions

are a great way to put your company in front of venture capitalists

 

business incubators -

Business incubators are organizations that support the entrepreneurial process, helping to increase survival rates for innovative startup companies. Only entrepreneurs with feasible projects are admitted into the incubators, where they are offered a specialized menu of support resources and services. The resources and services open to an entrepreneur include: provision of physical space, management coaching, help in making an effective business plan, administrative services, technical support, business networking, advice on intellectual property and sources of financing. The incubation process is intended to last around 2-5 years.

 

 

Equity Financing

Equity financing incurs the greatest risk of all capital on the part of the investor. Equity investors demand high returns, commensurate with that risk. This sections meant to cover equity financing that is available for management buyouts, growth financings, acquisition financing, employee buyouts, ESOP financing and recapitalizations.

 

 

Equity line of credit

if very similar to a bank line of credit in that cash is available to the company on an "as needed" basis. The difference is the company repays the investor in stock. 

 

Factoring - accounts receivable financing -

Factoring is often used synonymously with accounts receivable financing. Factoring is a form of commercial finance whereby a business sells its accounts receivable (in the form of invoices) at a discount. Effectively, the business is no longer dependent on the conversion of accounts receivable to cash from the actual payment from their customers, which takes place on typical 30 to 90 day terms. Businesses benefit from the acceleration of cash flow.

 

Mezzanine financing:

A type of financing popular with Private equity and venture capital firms. 

 

peer-to-peer lending -

done between individuals circumventing the bank's traditional role in this process. Peer-to-peer lending is a means by which borrowers and lenders may transact business without the traditional intermediaries, such as banks. It can also be known as Social Lending.

 

Private equity -

Private equity is a broad term that refers to any type of equity investment in an asset in which the equity is not freely tradable on a public stock market . Passive institutional investors may invest in private equity funds, which are in turn used by private equity firms for investment in target companies. Categories of private equity investment include leveraged buyout , venture capital , growth capital , angel investing , mezzanine capital and others. Private equity funds typically control management of the companies in which they invest, and often bring in new management teams that focus on making the company more valuable.

 

Public funding - IPO -

An initial public offering (IPO) is the first sale of a corporation's common shares to public investors. The main purpose of an IPO is to raise capital for the corporation. While IPOs are effective at raising capital, they also impose heavy regulatory compliance and reporting requirements. The term only refers to the first public issuance of a company's shares; any later public issuance of shares is referred to as a Secondary Market Offering. A shareholder selling its existing (rather than shares newly issued to raise capital) shares to public on the Primary Market is an Offer for Sale

 

Personal equity -

Bootstraps are companies that are started by their founders with their own personal money, without any external financing. While such a funding involves a huge risk for the founders, the absence of any other stakeholder, gives the founders a complete freedom and helps them realize their vision without any external interference.

 

 

Revolving Line Of Credit

Revolving lines of credit are the most common and least expensive form of business loan for small- and mid-sized companies. Companies typically enter into revolving facilities to fund their working capital, which is the amount of current assets (cash, inventory and receivables) in excess of current liabilities (items such as payables).

 

Senior Term Debt

Senior term debt is the second most common form of financing for a small and mid-sized companies. Senior term debt is typically lent against the collateral value of property, plant and equipment. Senior term debt comes in many varieties and there are many sources of this type of financing. It is typically the second most expensive form of financing. 

 

Venture Capital -

is a type of private equity capital typically provided by outside investors for financing new, growing, or struggling businesses. Venture capital investments are generally high-risk investments but offer the potential for above-average returns and/or a percentage of ownership of the company. A venture capitalist (VC) is a person who makes such investments. A venture capital fund is a pooled investment vehicle (often a partnership) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans

 

venture capital loan -

not a common way to go, but it is sometimes possible to raise debt funding from venture capitalists. 

 

 

 

Rounds of funding

 

Evaluating Opportunities – Drivers of Value

Valuation of a Starting Point

 

Seed - <$3M

Series A - <$10M

Series B - <$25M

Series C - <$50M

 

 

 

Diagram from Winter Park Angels

 

 

 

 

What is the difference between (a) Equity finance, and (b) debt finance

 

(a)  Equity finance:  finding investors....Investors are gamblers. They will look at your invention as if it were a hand dealt in a game of poker and decide, based on the odds of business, whether this hand is likely to be a winner. If they share your excitement, believe in the potential, and understand the odds, they may buy into your hand. That, in a nutshell, is equity financing. Someone is willing to gamble on becoming a part-owner of your enterprise.

 

(b) debt finance:  see our discussion on bank loans

 

 

What is the cost of different capital sources:

 

The rate of return that an equity investors expects is (of course) higher than that of a debt financer.  This makes sense:  a banker that lends you money under strict terms, and expects payments every month in interest (perhaps with assets such as inventory as security) should feel safer, and demand less of a return on his investment than an equity investor that will only profit if the business is a success. 

 

Based on this logic:  equity capital should be the most "expensive", and debt capital should be the least expensive, as shown here: 

 

subordinated mezzanine debt

 

see our discussion the cost of capital, (WACC) for more info

 

 

 

 

 

 

Tips for Social Entrepreneurs:

 

Investing in socially good projects

funding for the social entrepreneur

 

 

 

 

How to save money on a startup

 

Here is a list of very practical advice for startups, and how to save money.  Its an outside link, but is full of very useful tips.  Please read them before wasting your money on things you dont need: link here

 

 

 

 

 

How much is your Business worth?

 

business valuation 

Venture Capital Method of Valuation

 

 

raising capital - ideas for the entrepreneur

 

1. Your attorney, accountant, and other advisers can help you structure equity investments in creative ways. For example, one business took a $5 million equity investment on the condition that the first $5 million in profits would go to the investor. After that, profits would be divided between the investor and the CEO (and founder) of the business according  to a sliding scale. If the business were to earn over $10 million a year, for two years the CEO would end up with more money than the investor. Even if the company didn’t hit the desired numbers, the CEO still received a regular salary.

 

For more: see 

 

issuing shares

Abiding by Securities Laws

Presenting your plan to Venture Capitalists

Video clip How to Raise Money from VCs * great, funny video

 

 

Importance of the Management Team

 

see our discussion on Human Resources for startups ,and  Management training

 

 

Term Sheet (negotiation with VC's)

 

see our discussion on term sheets

 

YouTube plugin error

 

 

Exit Strategy

for more see our discussion on Exit Strategies

 

 

 

 

EZ numbers software

 

http://www.eznumbers.com/Video.html - excel based spreadsheet software (awesome!)

www.eznumbers.com

EZ numbers discount for TBirds

 

 

 

 

 

 

Creative finance ideas for entrepreneurs

 

Your attorney, accountant, and other advisers can help you structure equity investments in creative ways.  For example, one business took a $5 million equity investment on the  condition that the first $5 million in profits would go to the investor.  After that, profits would be divided between the investor and the CEO  (and founder) of the business according to a sliding scale. If the business were to earn over $10 million a year, for two years the CEO would end up with more money than the investor. Even if the company didn’t hit the desired numbers, the CEO still

received a regular salary.

 

 

 

 

 

 

Other online sources of information

 

Services

(a) http://startupjournal.com/partners/kennedy.html: This is a link from startupjournal.com website. This site offers a service of listing Venture Capital companies in a chosen industry. But, for a fee.

(b) http://www.startupzone.com/index.asp: Startup Zone is a website offering an array of services for startups in technology industry. Investors, other startups, job seekers and product/service vendors use the company’s flagship service, List Zone. This provides hooks to a range of challenges like financing, hiring, partnerships etc.

(c) http://www.venturedrive.com/: Venture Drive is a venture catalyst company dedicated to accelerating time to money for early stage businesses. Expressway™ deal development and acceleration process leads to “deal certification” and access to their network of "Angel" investors and venture capital funds.

Journals/Media/Websites/Links

(a) http://www.planigent.com/html/articles.html: This website provides links to some of the recent and interesting articles on business plans and raising capital. A must read.

(b) http://www.nwfusion.com/columnists/2000/0925anderson.html and http://www.nwfusion.com/columnists/2000/0807anderson.html: These are interesting articles giving a ‘lighter vein’ perspective of securing venture financing. Two view points: one from VC angle and the other from entrepreneur angle.

(c) http://tenonline.org/: Get-to-the-point website offering straight answers to the entrepreneurs and inventors. A very practical guide.

(d) A venture finance virtual community: NVST Database; Weston; Apr/May 1999; Jan Davis Tudo

(e) Getting to market: Seed capital may be thin on the ground, but a good idea still has a strong chance of support. European Venture Capital Journal; London; Sep 1, 2001; Michael Murphy

 

 

source: www.mbainaday.com

 

 

 

 

 

KookyPlan Links

 

 

see also:

 

 

 

Common terms:

accredited investor - rules about who you can sell equity to. 

research funding - Capital to fund research with the objective of clarifying the market opportunity, identifying competition, and defining the factors that will determine success. 

seed funding - A relatively small amound of financial capital provided to start development and prove the concept. It rarely involves initial marketing. 

startup capital - startup for launch, having already completed proof of concept and primary development 

1st stage capital

2nd stage capital

 

 

 

 

Books for fund raising

 

Book Reviews

To draw funding from VCs, you must learn to think like a VC. “Venture Capital: The Definitive Guide for Entrepreneurs, Investors and Practioners,” can give you that insight.

By Joel Cardis, Sam Kirschner, Stanley Richelson, Jason Kirschner and Hildy Richelson 

Published by John Wiley & Sons

Read entire review...

 


“Nanotechnology: A Gentle Introduction to the Next Big Idea”

By Mark A. Ratner & Daniel Ratner

Published by Prentice Hall

"Nanotechnology: A Gentle Introduction to the Next Big Idea”explains why this scientific breakthrough could be fertile grounds for investors....(read entire review)

 

 


You Need to Be a Little Crazy: The Truth About Starting and Growing Your Business                                                                     

By Barry Moltz

Launching a startup takes a solid business plan, funding and a dab of craziness. Barry Moltz explains how to tap your craziness to become a successful entrepreneur in “You Need to Be a Little Crazy: The Truth About Starting and Growing Your Business....(read entire review)

 

 

 


When Venture Capitalists Say No – Creative Financing Strategies & Resources

By Ron Peterson

When VCs say no to a deal, startups need to get creative. Author Ron Peterson shows how to develop creative financing strategies in his new book When Venture Capitalists Say No – Creative Financing Strategies & Resources.....(read entire review)

 

 


Venture Capital Due Diligence

By Justin Camp

Doing due diligence involves being a financial private eye. Find the clues that can predict success for an investment opportunity....(read entire review)

 

 


Venture Capital Investing: The Complete Handbook for Investing in Small Private Businesses for Outstanding Profits

By David Gladstone

Investing in small companies can reap big profits, if you know how to pick the winners. David Gladstone's "Venture Capital Investing: The Complete Handbook for Investing in Small Private Businesses for Outstanding Profits," explains that the organization of a company is often a predictor of success....(read entire review)

 

 


Not Just a Living

By Mark Henrick

Mark Henrick’s book, “Not Just a Living,” examines how being an entrepreneur demands not only a great business idea, commitment and finding funding but also a lifestyle decision. Learn how to balance it all in this entertaining book...(read entire review)

 

 


Angel Financing: How to Find and Invest Private Equity

By Gerald A. Benjamin, Joel Margulis

The search for angel investors is always a challenge. "Angel Financing: How to Find and Invest Private Equity" offers entrepreneurs a strategy to make the search more efficient and successful.....(read entire review)

 

 


Judo Strategy Can Give Businesses of All Sizes a Fighting Chance

By David Yoffie and Mary Kwak  

Regardless of the size of your business, read “Judo Strategy” by Harvard Professor David Yoffie and Mary Kwak to learn how to throw the competition....(read entire review)

 

 

 


Building The Awesome Organization

By Katherine Catlin and Jana Matthews

Building the awesome organization is not a dream, but can be definite reality. Read how in the intriguing book, "Building the Awesome Organization." Learn the basic steps to achieve this goal. This timely book makes for great summer reading....(read entire review)

 

 


The Biotech Investor's Bible

By George Wolff

 

Get the closest thing to the gospel truth from the Biotech Investor's Bible. It's a must read for every investor who should be aware of the financial opportunities in the biotechnology markets...(read entire review)

 


Finding Money: The Small Business Guide to Financing

By Kate Lister and Tom Harnish

Lenders want to lend and investors want to invest. Entrepreneurs need to find the right investors and how to pitch them for money. Finding Money: The Small Business Guide to Financing gives entrepreneurs an insiders look into how investors evaluate business opportunities...(read entire review)

 

 


The Phoenix Effect:

9 Revitalizing Strategies No Business Can Do Without

By Carter Pate and Harlan Platt

Every business can use a dash of revitalizing - whether a struggling one or a healthy business. Discover the nine revitalizing strategies that make companies hum...(read entire review)

 


Starting Up and Advising an Emerging Massachusetts Business

Edited by Lawrence H. Gennari

Don’t let the title, “Starting Up and Advising an Emerging Massachusetts Business,” fool you, the book edited by Lawrence H. Gennari offers sound  advice on launching a business anywhere...(read entire review)

 

 


The Angel Investor’s Handbook: How to Profit from Early-Stage Investing

By Gerald A. Benjamin, Joel Margulis

If you’ve considered getting into the exciting, but risky world of angel investing, check out the Angel Investor’s Handbook: How to Profit from Early-State Investing by Gerald A. Benjamin and Joel Margulis. This detailed work can help potential investors identify winning businesses and avoid losers. ...(read entire review)

 

 


Good to Great: 

A Fresh Look at Management Practices

By Jim Collins

 

Good to Great is a fresh look at management strategy and practice; and many of the findings shake up our accepted techniques. An iconoclastic work, it offers several  key concepts that fly in the face of modern business culture and have upset previously unquestioned management assumptions...(read entire review)

 


Unleashing the Ideavirus

By Seth Godin

Published by Do You Zoom, Inc.

What's an Ideavirus? Godin says an Ideavirus is a fashionable idea that spreads through a section of the population, teaching, changing and influencing everyone it comes in touch with...  (read entire review)

 


Going Solo, The Best Resources for Entrepreneurs & Freelancers

Stanley I. Mason Jr. - Editor

Published by Resource Pathways Guidebook

 

Stanley  Mason Jr., the editor of Going Solo, was pilot during WWII and used to fly over towns and think about how many people operated their own small businesses. Even the large companies started out as small ones. That epiphany drove Mason to become an entrepreneur for the last 30 years...(read entire review)

 


 

Financing & Building an E-Commerce Venture

By Marc Kramer

Many books deal with how to write a business plan or build a successful management team or how to raise venture capital. But Financing & Building an E-Commerce Venture takes the reader through the entire gamut of launching an e-business...(read entire review)

 

 


 

'Angel Investing', by Mark Osnabrugge and Robert J. RobinsonAngel Investing - Hatching Start-up Funds with Start-up Companies

by Mark Van Osnabrugge and Robert J. Robinson

Angel Investing offers an authoritative guide for the entrepreneur seeking capital and the private investor looking for a better return on investments of $100,000 or more. It is a comprehensive guide on the emerging form of financing, complete with stories of investors and companies that have led the way in angel investing... 

(read entire review)

 


DONE DEALS - Venture Capitalists Tell Their Stories

Edited By Udayan Gupta, Harvard Business School Press

In Done Deals, journalist Udayan Gupta explores the history of Venture Capital as told through the eyes of some of the industry's most influential players... 

(read entire review)

 

 

 

 

 

 

 

 

 

 

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