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Sources of Capital

Sources of Capital. Equity Versus Debt Capital. Source of Equity Capital. Personal Savings Friends and Relatives Angels Corporations Venture Capitalists (VCs) Going Public (IPOs). Family & Friends Financing. Consider the impact of the Investment Keep it strictly business

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Sources of Capital

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

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