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CHAPTER 9
Secure Funding
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YOU SHOULD KNOW: • -How to secure financial resources
• -The steps you must take to determine the funding you need to raise.
•-Understand the pros and cons of using your .
•personal money • -The pros and cons of raising
money from family and friends
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-why angle investors invest in unknown start-up companies
-why privet equity investors invest in small companies
-The types of debt financing ; secured and unsecured loans .
-The pros and cons of stock financing .
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UNIT 1HOW TO ACCESS FUNDING
**Easy to access (sources of fund):-Your Personal saving .-Your Personal loan .-Your Personal productive assets.-Money from Relative .-Money from friends.
**Difficult to access:-Venture Capital firms .-Venture Capital funds .-Private equity firms.-Bank loans.
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UNIT 1HOW TO ACCESS FUNDING
Conception to newborn seed capitalInfancy to childhood venture capitalChildhood to teenage private equityTeenage to maturity short term bank loans, stock financingMaturity long – term bank loans, bonds
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SIZE OF THE INITIAL FINANCING
•First :The more money you can raise at the beginning ,the better.
•Second :The case of early financing ,less is better .
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HIGH / LOW FINANCING
*Advantages
*Disadvantages
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HIGH FINANCING
Advantages Disadvantages
Permits to survive Much money/ may spend it unwisely
Flexibility
Avoid borrowing from suppliers and banks
Security
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LOW FINANCING
Advantages Disadvantages
Limited capitalization prevents losses
You may give up control/or a piece of the business
Keep attentions on principal objectives
Keep the value of your business
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DEFINITIONSVenture capital firm:
a company that channels investments to new venture.
Private equity firms:Firms that direct investments into young and
promising private companies.the aim is to capture the “high-growth stage”
in young companies.
Venture capital firm:Money that assembled for the purpose of investing in new venture.
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STEPS FROM START TO FINISH
What you need??
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How much money you need to
start?? ?
Convincing the investor
Proving your company to the investor
What offers you can give
paying back the money
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Private Companies
Your Saving Government Agencies
Your Family
Your friends and Colleagues
Banks
Venture Capitalists
Angel investors
SOURCE OF FUNDING
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UNIT 2WHERE TO ACCESS FUNDING
1- Personal money.
2- Family .
3- Friends .
4- Angel investor .
5- venture capital .
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DEFINITIONS
Personal MoneyExamples
• Savings• Mortgage your home.• Buy raw materials using credit card• Sell an item of value to raise cash.
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PERSONAL FINANCE
Advantages Disadvantages
Easy to manage You may need more.
No need to wait long Family mat suffer
No to convince other people High risk
Simple accounting process
You do not owe anybody.
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DEFINITIONS
MortgageA loan based on the value of your house or your
land.
BankruptcyA declaration that the company is unable to pay
back its loans
EquityOwnership or part ownership
Angel Investor (freelance venture capitalist)A rich individual who invests in early-stage
companies in exchange for equity ownership in the business
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Angel Investor
•freelance venture capitalist•A primary source of capital among early-stage companies.•Do not belong to association or trade (like bank or venture capitalist).•
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Equity Capital: public and private
Private Equity: late and early stage
Venture Capital (early stage):Individual and institutional
Angel Investor:Individuals in early- stage venture capital
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What kind of funding sources in your company ??
Question 2:
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UNIT 3TYPES OF CAPITAL
There are two major types of capital:
Characteristics Type of capital sources of funds
They have the legal priority of getting paid a profit-sharing fee , or getting their money back if any thing goes wrong.
Bank loans Debt
Paid back after the bank fully paid.
Loans from investors
“subordinate”
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They have the fixed annual dividend.
They don’t have the rights of voting.
Preferred shares
Equity
The value of the common shares can go up over time.
They have the right of voting.
Common shareholders are decision makers and members of the board.
Common shares
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BANKING AND LENDING INSTITUTION
* They are not risk taker .
•They don’t like to lend money to start-up businesses .
•They classified as the most “impersonal” sources of funds .
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STOCK FINANCING The pose and cons of financing with common stock :
Disadvantages Advantages
Corporate voting Don’t make dividend payment to stockholders .
Shareholders can share in the profits for many years
Improves the credit rating .
Attractive to some investors.
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SELLING SHARES
Disadvantages Advantages
Its like cutting down a newly plan tree.
Raise long-term money .
Facing bad investors in directing once your company gets started.
You don’t have to pay cash dividends every year.
TA: Maha AlzailaiMGT Department