CHAPTER 9

Secure Funding

YOU SHOULD KNOW: • -How to secure financial resources

• -The steps you must take to determine the funding you need to raise.

•-Understand the pros and cons of using your .

•personal money • -The pros and cons of raising

money from family and friends

-why angle investors invest in unknown start-up companies

-why privet equity investors invest in small companies

-The types of debt financing ; secured and unsecured loans .

-The pros and cons of stock financing .

UNIT 1HOW TO ACCESS FUNDING

**Easy to access (sources of fund):-Your Personal saving .-Your Personal loan .-Your Personal productive assets.-Money from Relative .-Money from friends.

**Difficult to access:-Venture Capital firms .-Venture Capital funds .-Private equity firms.-Bank loans.

UNIT 1HOW TO ACCESS FUNDING

Conception to newborn seed capitalInfancy to childhood venture capitalChildhood to teenage private equityTeenage to maturity short term bank loans, stock financingMaturity long – term bank loans, bonds

SIZE OF THE INITIAL FINANCING

•First :The more money you can raise at the beginning ,the better.

•Second :The case of early financing ,less is better .

HIGH / LOW FINANCING

*Advantages

*Disadvantages

HIGH FINANCING

Advantages Disadvantages

Permits to survive Much money/ may spend it unwisely

Flexibility  

Avoid borrowing from suppliers and banks

 

Security  

LOW FINANCING

Advantages Disadvantages

Limited capitalization prevents losses

You may give up control/or a piece of the business

Keep attentions on principal objectives

 

Keep the value of your business

 

   

DEFINITIONSVenture capital firm:

a company that channels investments to new venture.

Private equity firms:Firms that direct investments into young and

promising private companies.the aim is to capture the “high-growth stage”

in young companies.

Venture capital firm:Money that assembled for the purpose of investing in new venture.

STEPS FROM START TO FINISH

What you need??

How much money you need to

start?? ?

Convincing the investor

Proving your company to the investor

What offers you can give

paying back the money

Private Companies

Your Saving Government Agencies

Your Family

Your friends and Colleagues

Banks

Venture Capitalists

Angel investors

SOURCE OF FUNDING

UNIT 2WHERE TO ACCESS FUNDING

1- Personal money.

2- Family .

3- Friends .

4- Angel investor .

5- venture capital .

DEFINITIONS

Personal MoneyExamples

• Savings• Mortgage your home.• Buy raw materials using credit card• Sell an item of value to raise cash.

PERSONAL FINANCE

Advantages Disadvantages

Easy to manage You may need more.

No need to wait long Family mat suffer 

No to convince other people High risk 

Simple accounting process   

You do not owe anybody.

DEFINITIONS

MortgageA loan based on the value of your house or your

land.

BankruptcyA declaration that the company is unable to pay

back its loans

EquityOwnership or part ownership

Angel Investor (freelance venture capitalist)A rich individual who invests in early-stage

companies in exchange for equity ownership in the business

Angel Investor

•freelance venture capitalist•A primary source of capital among early-stage companies.•Do not belong to association or trade (like bank or venture capitalist).•

Equity Capital: public and private

Private Equity: late and early stage

Venture Capital (early stage):Individual and institutional

Angel Investor:Individuals in early- stage venture capital

What kind of funding sources in your company ??

Question 2:

UNIT 3TYPES OF CAPITAL

There are two major types of capital:

Characteristics Type of capital sources of funds

They have the legal priority of getting paid a profit-sharing fee , or getting their money back if any thing goes wrong.

Bank loans Debt

Paid back after the bank fully paid.

Loans from investors

“subordinate”

They have the fixed annual dividend.

They don’t have the rights of voting.

Preferred shares

Equity

The value of the common shares can go up over time.

They have the right of voting.

Common shareholders are decision makers and members of the board.

Common shares

BANKING AND LENDING INSTITUTION

* They are not risk taker .

•They don’t like to lend money to start-up businesses .

•They classified as the most “impersonal” sources of funds .

STOCK FINANCING The pose and cons of financing with common stock :

Disadvantages Advantages

Corporate voting Don’t make dividend payment to stockholders .

Shareholders can share in the profits for many years

Improves the credit rating .

Attractive to some investors.

SELLING SHARES

Disadvantages Advantages

Its like cutting down a newly plan tree.

Raise long-term money .

Facing bad investors in directing once your company gets started.

You don’t have to pay cash dividends every year.

TA: Maha AlzailaiMGT Department