raising capital for an event business
TRANSCRIPT
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Raising Capital for an Event Business
Steve Gintowt
SteveGintowt @ gmail.com
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Topics CoveredWhy Raise CapitalType and Sources of Capital
Debt FinancingEquity Financing
Advantages / DisadvantagesHow Much to GetProcesses and ProblemsWhere to Find It & Rates
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Why Raise Capital Survive
365 Days of Expenses, 1 Day of Income
Grow Scale Increases Profitability Scale Reduces Risk from Single Down Event
Cash OutStart Taking Money Off the Table, Start to Exit
Process
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Types and Sources of Capital
SHORT LONGTERM TERM
Friends & Family
Credit Card Bank
Vendor Credit SBA
Revolver Alternative
Factoring (Bibs)
Friends & Family
Private Equity
Alternative
DEBT
EQUITY
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DEBT FINANCING
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DEBT FINANCING Advantages Disadvantages Don’t Give Up Control
Relationship Ends when Loan Retired
Interest is Tax Deductible Structured: Can Plan
Around It
Adds Risk to Company and Owner
Collateral Locked Up. Covenants
Time and Effort to Find
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How Much to Borrow ?(Leverage Ratio)
Debt level as a Multiple of Earnings
SAFE RISKY EXTREME
0 1x 2x 3x 4x
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
5 Year Loan Annual Debt Service, Free Cash
Debt
Ser
vice
% o
f Ear
ning
s
Borrowings as a Multiple of EarningsAmount Borrowed $150k $300k $600k $900k $1.2M
($300,000 of Earnings 10% Interest Rate)
Debt Service 150,000$ Free Cash 150,000$
Debt Service 210,000$ Free Cash 90,000$
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Debt
Ser
vice
% o
f Ear
ning
s
($300,000 of Earnings 10% Interest Rate)
Debt Service 330,000$ Free Cash (30,000)$
Debt Service 230,000$ Free Cash 70,000$
Borrowings as a Multiple of EarningsAmount Borrowed $150k $300k $600k $900k $1.2M
3 Year Loan Annual Debt Service, Free Cash
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Importance of Term The TERM is may be more important than the
interest rate Borrow for a LONG ENOUGH TERM to have the
asset be able to help with the payments.
The first year, it’s all on the Core Business “Interest Only” Year 1 “Balloon” Loan – All at Maturity (Not likely)
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9 Months 6 Months 3 Months
Numbers of Days Advanced 274 183 91Annulized Interest Rate 40% 60% 120%
Marketing at $2k/month 18,000$ 12,000$ 6,000$ Pro-Forma Interest Expense (3,000)$ 3,000$ 9,000$ Annualized Net Interest Rate Free 12% 72%
Factoring Sell $50,000 of Bibs (500 @ $100 each)
at 30% Discount ($15,000 off. Proceeds $35,000)
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Difficulties in Obtaining Debt No Asset Base for Collateral Relatively Small Amount – not worth Bank’s effort Cash Flow Loan - proceeds paid back by
uncertain revenues No Market for Company if things go badly
Higher Risk = Higher Rates
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Debt - Where to Find It / Rates
Vendor Credit 0% Relationship Friends & Family negotiable Commercial Bank 3.28 % Fed Reserve Jan 16 Small Business Admin 5.75% - 8.25% Fitsmallbusiness.com Alternative Capital 5.49% - 24.99% Funding Circle
Fundation Credit Cards 13.49% - 23.24% Nerdwallet.com
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EQUITY FINANCING
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EQUITY FINANCING Advantages Disadvantages No Risk to Business
No Loan Service / More Cash in Business
Access to Investor’s network for additional cash
Don’t have to Repay
More Costly May Lose some Control.
New Decision Processes Mental Energy: Expectations
& Potential for Disagreements Hard to Get $$$ for Small
Event Company (Time/Effort)
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Level of Investor Interest at Different Levels
|- Mild -|--- Strong ---| |--------------- Strong -------------|- Mild -|
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100% Percentage of Ownership
Zero Interest
Here
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Comparing Cost of Debt vs. Equity Current Company
3 races clearing $400,000 each ($1.2M) Overhead of $800,000 Net Profit of $400,000 Company Value - $2.4M (@6x) Growing at 3% a Year
Raise $150,000 to add a 4th race (cover 1st Year loss) that will eventually be half as profitable normal
Year 1: Lose $150,000 Year 2: Breakeven Year 3: $50,000 Profit Year 4: $100,000 Profit Year 5: $200,000 Profit
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Comparison of Debt & Equity Company value increases by $1.6M
$1.2M from New Event, $0.4M from Core Cost of Equity = $398,000 (6.3% of Company) in
Dividends and Valuation
Cost of Debt = $260,000 in Interest and Principle
Equity is almost always more expensiveIn this case 53% more.
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Equity - Where to Find It Up to $100,000 Friends and Family $100,000 - $500,000 More Friends and Family $500,000 - $5M People you WISH were your Friends
and Family
Over $2M “Family Offices” of WealthInvestment Firms of Sports Franchise OwnersTraditional Private Equity Firms
No Marketplace or Central Directory
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Alternative Capital Reward-Based Sites
Kickstarter, Rockethub, MoolaHoop, Not really applicable
Equity & Debt Sites Funding Circle, Fundera, OnDeck, Dealstruck,
Fundation, Kabbage, Indiegogo
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Capital Raising Process Items
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Debt – Key Process Items Documentation Requirement
Accurate & Current Financial Statements Bank Statements Tax Returns Lease Agreements
May Require Personal Guarantee
Takes 30 – 60 Days
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Equity - Key Process Items See Last Year’s Presentation on LinkedIn
Create a Business Plan Identify an Exit StrategyCompile Diligence Material in Data RoomBusiness Valuation Discussion
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Equity - Key Process Items More Documentation / Paperwork
Amending Operating Agreement / Articles of Incorporation
Minority Protections Salary, Loans, Dividends, Owner Expenses
Insert Buyback Clauses Company buys back shares in event of co-owner
death / divorce Put / Call Option
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Five Things to Remember
Financing can help you Grow Value Many more Debt Alternatives Debt is Cheaper Than Equity Loan Term - more Important than Rate Equity preserves Company Cash
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Copies & Questions
Presentation will be available on LinkedIn
Email questions via LinkedIn or at [email protected]