$$ 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:
see Global Directory of Funding
(which includes consultants and posting boards, etc)
- 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.
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.
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.
are a great way to put your company in front of venture capitalists
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 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.
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 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.
A type of financing popular with Private equity and venture capital firms.
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 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.
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
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 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 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.
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
not a common way to go, but it is sometimes possible to raise debt funding from venture capitalists.
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
(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
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:
see our discussion the cost of capital, (WACC) for more info
Investing in socially good projects
funding for the social entrepreneur
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
Venture Capital Method of Valuation
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
Presenting your plan to Venture Capitalists
Video clip How to Raise Money from VCs * great, funny video
see our discussion on Human Resources for startups ,and Management training
see our discussion on term sheets
for more see our discussion on Exit Strategies
http://www.eznumbers.com/Video.html - excel based spreadsheet software (awesome!)
www.eznumbers.com
EZ numbers discount for TBirds
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.
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
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
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.
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