Determine Funding Needs

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Determine Funding Needs

• Stephen Lawrence and Frank Moyes
• Graduate School of Business
• University of Colorado
• Boulder, CO 80309-0419

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Course Outline
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Course Outline This Week
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How much money do we need?

• Review cash flow statements
• Find periods with negative cash balances
• Schedule cash infusion(s) to eliminate negative
  balances
• Add safety cushion (10-25)
• Develop funding strategy
• E.g., staged funding tranches

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Sources of Funds

• Equity funding
• Debt
• Non-traditional

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Equity Funding

• Private Placement
• Friends, family, and fools
• Well to-do investors
• Angels
• Professional investors working alone
• Colorado Capital Alliance (www.anglecapital.com)
• Venture Capitalists
• Most expensive form of financing
• Advantages and disadvantages

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VCs Ideal of an Entrepreneur

• Qualified in hot area
• Technically feasible and likely
• Compelling story, presentable
• Recognizes need for speed to IPO
• Good reputation, references
• Understands need for team
• Diligent, but flexible
• Gets along with investors
• Understands and accepts VC deals
• Is sought after by many VCs
• Realistic expectations

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Debt

• Credit cards
• Bank loans
• Typically want to make secured loans
• Second mortgage on house or property
• Can use equipment facilities to secure loan
• Revolving lines of credit
• Investment banks
• Less expensive than equity
• Advantages and disadvantages

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Nontraditional Funding Sources

• Customers
• Development
• Prepay
• Co-invest
• Vendors

• Leasing
• Factor receivables Other sources
• Advantages disadvantages

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Financial Plan

• Statements (appendices)
• Monthly Income (1 yr)
• Monthly Cash Flow (1 yr)
• Annual Income (5 yrs)
• Annual Balance Sheet (5 yrs)
• Annual Cash Flow (5 yrs)

• Written Financial Plan
• Introduction
• Financial Summary
• Financial Assumptions
• Funding Requirements
• Sources Uses of Funds
• Business Risks

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Ratio Analysis

• Compare to your industry
• Financial ratios
• Profitability
• Returns
• Understand differences
• Adjust financials as necessary