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Raising Capital and Cash Flows

Raising Capital and Cash Flows. “Attract Investors, Inspire Trust, Encourage Commitment”. Investor Due Diligence. Investors need to be sure that the businesses they invest in will make them money In order to be sure, they ask the following questions How will the venture earn revenue?

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Raising Capital and Cash Flows

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  1. Raising Capital and Cash Flows “Attract Investors, Inspire Trust, Encourage Commitment”

  2. Investor Due Diligence • Investors need to be sure that the businesses they invest in will make them money • In order to be sure, they ask the following questions • How will the venture earn revenue? • What is the potential profit? • How long until profitable? • How much money needed? • Secured? How? • Convertible to cash? When? • Management of venture? • Any investor involvement in management?

  3. Equity Financing • Ownership in exchange for financial contribution • In other words, when you invest money into the business, you are becoming a part owner of the business • From a variety of sources – • Savings • Family • Friends • Business Partners

  4. Equity Financing • How can you divest your ownership? • Partnership • Incorporate & sell shares • Venture Capital • Business employees (stock purchase/options) • Venture Capital: • Money invested into startup/growing businesses

  5. Equity Financing Advantages +’s • Greater equity increases borrowing power • Generous supplier credit terms if lots of equity • Less individual risk • More involved and contributing owners • Investors interested in venture success Disadvantages -’s • Entrepreneur may become employee of other investors • Entrepreneur may lose independence • Investors share profit based on investment • Additional legal and audit fees

  6. Debt Financing • Money borrowed to finance a venture. • Money can be borrowed from numerous places and in numerous ways • Cost (interest) is tax deductible. • Debt to Equity Ratio of 1:1 to 4:1 • 4:1 higher risk • Higher risk may require security (collateral)

  7. Six C’s of Credit • Banks look at: • Character • Honest, trustworthy, reliable • Capital • How much does the Entrepreneur have invested? • Collateral • Security / assets pledged • Capacity • Of entrepreneur/business to manage • Circumstances • Product, Competition, Economy, Inflation • Coverage • Insurance protection

  8. Sources of FinancingBanks • Chartered Banks are financial institutions organized under Federal Legislation • Line of Credit • Floating & Interest only • Term Loan • Equipment – Time frame • Mortgage • Long term – real estate • Each form can have various repayment options

  9. Sources of FinancingCredit Unions • Provincially organized financial institutions • Usually associated with labour organizations • Many “CaissePopulaires” in Quebec and Eastern Ontario • Must be a member to obtain financing • Members may receive interest rebates if C.U. has an annual surplus

  10. Sources of FinancingGovernment Agencies • Federal and provincial • Grants, guarantees or loans • Grant not repayable • Summer jobs program • http://www.ontariocanada.com/ontcan/1medt/smallbiz/en/sb_ye_summerco_en.jsp

  11. Application to Venture Plan • Now that you have looked at the various sources of capital financing, you need to outline where you will be getting your financing • Fill out the given outline and then incorporate that information into your financial analysis plan

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