Sources of Capital

1
Sources of Capital

• Equity Versus Debt Capital

2
Source of Equity Capital

• Personal Savings
• Friends and Relatives
• Angels
• Corporations
• Venture Capitalists (VCs)
• Going Public (IPOs)

3
Family Friends Financing

• Consider the impact of the Investment
• Keep it strictly business
• Settle the details up front
• Create a written contract
• Treat the money as bridge financing
• Develop a payment schedule

4
Angels

• Individuals who wish to assist others in their
  business venture
• Usually found through networks
• Reasonable expectations on equity position and
  ROI
• Often passive, but realistic perspective about
  business venture
• Exit strategy is important

5
Venture Capitalists (VCs)

• Funds are more specialized versus homogeneous
• Feeder funds are emerging
• Small start-up investments are drying up
• High expectations of equity position and ROI
• New legal environment

6
Legal Environment Investment Agreement

• Choice of Securities
• Control Issues
• Evaluation Issues Financial Covenants
• Remedies for Breach of Contract
• Business Model

7
Sources of Debt Capital

• Commercial Banks
• Trade Credit
• Equipment Suppliers
• Savings Loans
• Insurance Companies
• Credit Unions
• Private Placements

8
Five Cs of Credit

• Character
• Capacity (Cash Flow)
• Capital
• Conditions
• Collateral

9
Character

• Individual Attributes
• Passion
• Integrity
• Experience
• Staying Power

10
Capacity

• Can the business survive?
• Will someone actually purchase the product or
  service?
• Can the business produce the product or service
  economically?
• Can the business make money?

11
Capital

• What level of paid in capital are the primary
  founders contributing?
• What percent of the total capital funding needed
  is being requested?
• How is the capital being used in the business?
• Is the capital requested reasonable?

12
Conditions

• Potential growth in the market?
• Competition
• Location
• Form of Ownership
• Loan Purpose
• Payoff

13
Conditions Bankers Perspective

• Economy
• Industry
• Interest Rates
• Business Experience
• Individual(s) Experience
• Inflation Rate
• Demand for Money
• Risk