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FINANCING FOR YOUR START-UP BUSINESS

FINANCING FOR YOUR START-UP BUSINESS. SABS Idea to Product Seminar Alexandra Fraser - June 2010. CONTENTS. What is entrepreneurship? What stage is my business at? What kind of funding is available? How does early stage funding work? What do funders want? What will I get in return?

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FINANCING FOR YOUR START-UP BUSINESS

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  1. FINANCING FOR YOUR START-UP BUSINESS SABS Idea to Product Seminar Alexandra Fraser - June 2010

  2. CONTENTS • What is entrepreneurship? • What stage is my business at? • What kind of funding is available? • How does early stage funding work? • What do funders want? • What will I get in return? • Where can I get support? • Where can I get more information? • Questions?

  3. GREAT INVENTORS OR ENTREPRENEURS?

  4. GREAT INVENTORS OR ENTREPRENEURS?

  5. GREAT INVENTORS OR ENTREPRENEURS?

  6. WHAT IS ENTREPRENEURSHIP?

  7. 1. ENTREPRENEURSHIP • Being an entrepreneur is substantially different from being an inventor: • “Invention: something which has never been made before, or the process of creating something which has never been made before” • Cambridge Dictionary

  8. 1. ENTREPRENEURSHIP Entrepreneurship: • Entrepreneurship is the act of being an entrepreneur, a French word meaning one who undertakes an endeavor. • “Entrepreneur: someone who starts their own business, especially when this involves seeing a new opportunity to economic goods” • Cambridge Dictionary

  9. Entrepreneurs assemble resources including innovations, finance and business acumen in an effort to transform innovations into viable businesses. 10

  10. WHAT STAGE IS MY BUSINESS AT?

  11. 2. BUSINESS START-UP PHASES Pure Research – No market testing & little dev - University or Research Organisation Licensing Executive Society of South Africa Development, Industrialisation & Commercialisation Process – Seed Stage Business Research Market Ready – Start-Up Business Positive Cash Flow Development Application Testing Pilot Project Negative Cash Flow Commercialisation Market Entry of Product

  12. R&D Seed Stage Start-up Stage Growth Stage Mature Stage 2. BUSINESS START-UP PHASES Growth Funding Sources (relatively large investment amounts): Commercial Banks; Capital Markets, Later Stage VC & Private Equity Available sources of Funding Risk Funding Sources (relatively small investment amounts): Private Individuals/ Angel Investors; Seed Funding; Early Stage VC & Government Grants Time

  13. WHAT IS KIND OF FUNDING IS AVAILABLE?

  14. 3. FUNDING SOURCES

  15. 3. FUNDING SOURCES – ANGEL INVESTORS Angel investor: usually an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or equity. - Friends, Fools & Family

  16. 3. FUNDING SOURCES – GOVERNMENT Government Grants: Can be debt or equity based.

  17. 3. FUNDING SOURCES – SEED FUNDING Seed Funding: Funding for research, evaluation and development of a concept post proof of concept

  18. 3. FUNDING SOURCES – VENTURE CAPITAL Venture Capital: Equity financing for often high risk businesses in different growth stages.

  19. 3. FUNDING SOURCES – VENTURE CAPITAL “Funding (predominantly equity funding) of high growth potential businesses,whose growth potential is typically achieved through radical global scaling, and which normally have technological or other innovative conceptsat their core.” South African Venture Capital Association (SAVCA), 2008

  20. 3. FUNDING SOURCES – PRIVATE EQUITY Private Equity: Equity financing for growth and development, buy-out, buy-in or replacement capital

  21. 3. FUNDING SOURCES – BANKS Commercial Banks: Provide debt financing, often secured against capital equipment or other tangible assets.

  22. 3. FUNDING SOURCES – CAPITAL MARKETS Capital Markets: Funding is raised through an IPO (Initial Public Offering) on stock markets in exchange for equity shares.

  23. HOW DOES EARLY STAGE FUNDING WORK?

  24. 4. EARLY STAGE FUNDING Investments are typically: • High Risk • Uncertain future • Information asymmetry • Soft Assets Exit Incubation, Growth & Maturation Investment in Start-up

  25. 4. EARLY STAGE FUNDING • Milestone based investment • Significant minority shareholding – 26-49% of equity often required • Potential of significant return on investment ( to compensate for the high risk) YES/NO YES/NO YES/NO YES/NO YES/NO Funding on meeting milestones & Business Support

  26. WHAT DO FUNDERS WANT?

  27. 5. REQUIREMENTS

  28. 5. REQUIREMENTS Check Criteria • Introduction • Proof that your idea works – find a way to bootstrap your business idea • Check Criteria - Does your idea fit their investment plan? • Experienced entrepreneur – Past Experience • A unique offering • Actionable Business Plan - Focus • Identify Risks • Know your metrics – Be real!

  29. WHAT DO I GET IN RETURN?

  30. 6. THE PARTNERSHIP • Money • Strategic Advice • Networks & Market Entry • Focus & Support • Credibility • Management Expertise • Attracting Additional Investment • Financial Advice & Controls • Governance

  31. WHERE DO I GET SUPPORT?

  32. 7. SUPPORT • Business Incubators • People with Complementary Skills • Industry “Experts” or Mentors • Local & Provincial Government • Parastatals • Internet • Entrepreneurial Networks

  33. WHERE DO I GET MORE INFORMATION?

  34. 8. LINKS • Associations: • South African Venture Capital Association (SAVCA) (www.savca.co.za) • Silicon Cape (www.siliconcape.com) • Entrepreneur.co.za (www.entrepreneur.co.za) • 60 Seconds (www.60secs.biz) • South African Investor Network (www.investmentnetwork.co.za) • Crowd Funding (www.crowdfunding.co.za) • Department of Science & Technology (DST) (www.dst.gov.za ) • Department of Trade & Industry (DTI) (www.dti.gov.za) • Innovation Fund (www.innovationfund.ac.za) • Business Partners (www.businesspartners.co.za) • SEDA (www.seda.org.za) • Blue Catalyst (www.bluecatalyst.co.za)

  35. 8. LINKS • Intellectual Property Information & Assistance: • My Patent (www.mypatent.co.za) • Companies & Intellectual Property Registration Office (www.cipro.gov.za) • Patent Incentive Fund (www.innovationfund.ac.za) • Government Grants: • NRF (www.nrf.ac.za) • SPII (www.spii.co.za ) • Thrip (www.nrf.ac.za/thrip/ ) • Innovation Fund (www.innovationfund.ac.za) • Technology Innovation Agency (www.tia.org.za)

  36. QUESTIONS?

  37. Crazy Ideas can still make it big! Top 10 most unlikely business ideas which made it big: • Million Dollar Homepage • Online flea market • SantaMail • Doggles • Online Bookshop • LaserMonks • FitDeck • PositiveDating.com • Lucky Wishbone Co. • Silly Putty

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