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INFORMATION TECHNOLOGY ENTREPRENEURSHP

INFORMATION TECHNOLOGY ENTREPRENEURSHP. CLASS SEVEN: ACQUIRING FINANCIAL CAPITAL. Elikem Nutifafa Kuenyhia Management Consultant & Corporate Lawyer. Agenda For Class Seven. Hand in Homework Assignment Mid-term evaluation Acquiring Financial Resources Give you opportunity to ask questions.

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INFORMATION TECHNOLOGY ENTREPRENEURSHP

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  1. INFORMATION TECHNOLOGY ENTREPRENEURSHP CLASS SEVEN: ACQUIRING FINANCIAL CAPITAL Elikem Nutifafa Kuenyhia Management Consultant & Corporate Lawyer

  2. Agenda For Class Seven • Hand in Homework Assignment • Mid-term evaluation • Acquiring Financial Resources • Give you opportunity to ask questions

  3. Distinct Stages for Capital • Founding Stage • Initial vision for business. • Development of strategy • May require capital for research, concept development etc • Entrepreneur & friends/family • Seed Stage • Money required to start the business (‘seed’) • Typically comes from friends & family

  4. Distinct Stages for Capital • Growth stage • Where you need to fund business to enable it sustain its growth • Stage where you are likely to get the most interest from investors • Harvest Stage • Where founders seek to ‘harvest’ their investment • Trade Sale, Sale to other investors, IPO etc

  5. Considerations in seeking capital • Be clear what you need money for, how much • Starting point should be b/plan cash flow statements • Give consideration to Fixed Capital vs. Working Capital • From whom you raise capital is more important than the terms • Investors typically want to see that the entrepreneur has his ‘skin in the game’

  6. Acquiring Financial Resources SOURCES OF CAPITAL • Equity Capital • Personal Savings • Friends & Family • Angel Investors • Stock market • Debt Capital

  7. Equity v Debt Capital • Equity capital is an investment in the ownership through the purchase of shares • Debt capital is money that is borrowed and which must be repaid over time. Usually doesn’t include any share ownership

  8. Sources of Funding • Self funding/Bootstrapping • Friends & Family • Angels • Venture Capital • Stock market • Bank Financing • Lease Financing • Corporate profit/Internal sources

  9. Self funding • Self funding • Cheapest Form of Capital • No other associated costs other than opportunity cost • Shows your skin is in the game • More savings you have, the less equity you have to give up • Generally 'unreliable' source – takes long time to save/inflation etc • Takes away 'survival money'

  10. Friends & Family • Relying on personal relationships to fund venture • Friends & Family more patient and less meddlesome than other investors • Can put strain on underlying relationship • Particularly when business is not going well • Maybe difficult to raise huge sums through this route • Friends & Family should be able to accommodate losses. • Unrealistic or misunderstood expectations • Clarify!

  11. Angels • Basically a good guy with money who can be persuaded to invest in your venture • Typically retired entrepreneurs • Might be investing for reasons other than returns • “Smart Money” - can add significant value to entrepreneur's business

  12. Venture Capital • Venture Capitalists: • finance new & growing businesses • Acquire equity in ailing companies with prospects • Bring smart money, contacts and active hands on management • Invest for medium term • Exist is important

  13. Why Some Cannot Access VC funding • No knowledge of what VCs offer • Poor corporate governance • Unwillingness to give up control • Lack of transparency/honesty • No business plan/corporate plan

  14. Stock Exchange • IPO provides medium to long term capital needs of company • IPO = initial public offer • A company is listed when its shares are approved to be bought and sold on the Stock Exchange • Must appoint a licensed dealing member of GSE to sponsor application and take through listing process • Both existing and new shares can be listed on exchange

  15. Stock Exchange • GSE has three official lists • First Official List • Second Official List • Third Official List • Minimum capital requirements • FOL : 100M • SOL : 50M • TOL : 25M • Minimum public float • Shares offered to public should not have a market value of less than 30M for FOL, 15M for SOL and 5M for TOL • 25% or more of Company’s shares should be issued to public • Spread of shareholders • Spread of shareholders at close of IPO should be adequate (in opinion of GSE)

  16. Stock Exchange • Minimum Period of existence • TOL – one year but can be waived • Profitability • SOL/TOL – must have strong potential to be profitable • Management & Directors • Evidence that management possesses requisite expertise • Character and integrity of management & directors must be acceptable to GSE

  17. Equity Capital • Shareholders acquire shares in the company • For partnerships, you invest in the partnership • May give investor say in the direction of company • Adv for entrepreneur is that he does not have to repay • Shareholders get paid dividends out of profits • Involves parting with ownership • 50% of something is better than 100% of nothing

  18. Debt Capital • Overdrafts • Term loans • Floating rate vs Fixed rate • Demand vs. Fixed Maturity • Secured vs. Unsecured

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