Lecture#11 Getting Finance and Prepare Elevator Pitch PDF

Lecture#11 Getting Finance or Funding Preparing Elevator Pitch  Importance of Getting Financing & Funding ▪ The Nature of the Funding and Financing Process – Few people deal with the process of raising investment capital until they need to raise capital for their own...

Lecture#11 Getting Finance or Funding Preparing Elevator Pitch  Importance of Getting Financing & Funding ▪ The Nature of the Funding and Financing Process – Few people deal with the process of raising investment capital until they need to raise capital for their own firm. As a result, many entrepreneurs go about the task of raising capital haphazardly because they lack experience in this area. ▪ Why Most New Ventures Need Funding – There are three reasons most new ventures need to raise money during their early life. The three reasons are shown on the following slide. 1-2 Why Most New Ventures Need Financing or Funding Alternatives for Raising Money for a New Venture  Sources of Personal Financing ▪ Personal Funds – The vast majority of founders contribute personal funds, along with sweat equity, to their ventures. Sweat equity represents the value of the time and effort that a founder puts into a new venture. ▪ Friends and Family – Friends and family are the second source of funds for many new ventures. 1-5  Sources of Personal Financing ▪ Bootstrapping – A third source of seed money for a new venture is referred to as bootstrapping. – Bootstrapping is finding ways to avoid the need for external financing or funding through creativity, ingenuity, thriftiness, cost-cutting, or any means necessary. – Many entrepreneurs bootstrap out of necessity. 1-6 Examples of Bootstrapping Methods Preparing to Raise Debt or Equity Financing Preparing to Raise Debt of Equity Financing Two Most Common Alternatives 1-9 Preparing to Raise Debt of Equity Financing Matching a New Venture’s Characteristics with the Appropriate Form of Financing or Funding 1-10 Sources of Equity Funding  Venture Capital – Is money that is invested by venture-capital firms in start-ups and small businesses with exceptional growth potential. – There are about 650 venture-capital firms in the U.S. that provide funding to about 2,600 firms per year. Venture-capital firms are limited partnerships of money managers who raise money in “funds” to invest in start-ups and growing firms. The funds, or pool of money, are raised from wealthy individuals, pension plans, university endowments, foreign investors, and similar sources. A typical fund is $75 million to $200 million and invests in 20 to 30 companies over a three- to five- year period. 1-12  Venture Capital – Venture capital firms fund very few entrepreneurial firms in comparison to business angels. Many entrepreneurs get discouraged when they are repeatedly rejected for venture capital funding, even though they may have an excellent business plan. Venture capitalists are looking for the “home run” and so reject the majority of the proposals they consider. Still, for the firms that qualify, venture capital is a viable alternative for equity funding. 1-13  Venture Capital – An important part of obtaining venture- capital funding is going through the due diligence process: – Venture capitalists invest money in start- ups in “stages,” meaning that not all the money that is invested is disbursed at the same time. – – Some venture capitalists also specialize in certain “stages” of funding. 1-14  Business Angels – Are individuals who invest their personal capital directly in start-ups. – The prototypical business angel is about 50 years old, has high income and wealth, is well educated, has succeeded as an entrepreneur, and is interested in the startup process. – The number of angel investors in the U.S. has increased dramatically over the past decade. 1-15  Business Angels – Business angels are valuable because of their willingness to make relatively small investments. These investors generally invest between $10,000 and $500,000 in a single company. Are looking for companies that have the potential to grow between 30% to 40% per year. – Business angels are difficult to find. 1-16 Initial Public Offering (IPO) Reasons that Motivate Firms to Go Public 1-17 Initial Public Offering (IPO) Reasons that Motivate Firms to Go Public 1-18 Sources of Debt Financing 1-19  Other Sources of Debt Financing ▪ Friends and Family ▪ Credit Cards – Should be used sparingly. ▪ Peer-to-Peer Lending Networks – Examples include Propser.com and Zopa.com. ▪ Organizations that Lend Money to Specific Groups – An example is Count Me In, an organization that provides loans of $500 to $10,000 to women starting or growing a business. 1-20 Creative Sources of Financing or Funding 1-21  Preparing An Elevator Speech ▪ An elevator speech is a brief, carefully constructed statement that outlines the merits of a business opportunity. ▪ There are many occasions when a carefully constructed elevator speech might come in handy. ▪ Most elevator speeches are 45 seconds to 2 minutes long. 1-23 Preparing an Elevator Speech 1-24 1-25