Financing Your Venture It is not as hard as you think!

Who Needs Money?  Money is an essential ingredient of an enterprise at every level. Whether it is a life style business or entrepreneurial  Money is needed at every stage of business development  Start–up businesses  Mature businesses – need financing to stay on the cutting edge --- growth  Debt financing vs. equity financing

Where Do I Find The Money?

What Type of Money do I Need for a Merger and Acquisition  Debt Financing?  Equity Financing?  Employees

Debt Financing  Financing for a business which must be repaid when due  The debt is paid out of the businesses cash flow  Both interest and principal are paid over time  While debt is outstanding it bears interest at a rate called the stated rate, it can be either variable or fixed.  Debt has no ownership in the business or participate in its earnings  Interest is deducted as a business expense  KEY: the owner keeps their ownership and rights to the earnings

Various Types of Debt Financing  Home equity loans  Bank Loans – commercial and SBA  Veteran Loans  Export Express  504 Loan  Five C’s of credit have a lot to do with business’s success in obtaining debt financing.  Character – borrowers reputation  Capacity – cash flow  Capital – “skin in the game”  Collateral – assets  Condition – interest rate, amount of loan

Common Elements of Debt Financing  Debt financing governed by a loan agreement – promissory note  A fixed credit limit or a formula that sets available borrowings based on a percentage of receivables, inventory, etc.  Statement on how the funds will be used  Collateral description – UCC filings  Personal guarantees  Initial interest rate, an adjustment formula  Fees charged by the lender  Time period of the loan  Reporting requirements  Representations and warranties  Mezzanine

Equity Financing  Equity is ownership in your business  Equity represents ownership and the right to participate in earnings  Equity is typically  Common stock or  Preferred stock  Valuation – what is the business worth Convertibility Board Seats Voting

Businesses Which Most Attract VC’s  Risky ones with proven management  Substantial growth potential  First rate person with a good idea  And a good management and support team  High risk with high potential payoffs  Venture Capitalists are always looking for the next Staples, FedEx, Amgen, Peets.  Can they take the company and merge it into one of their portfolio companies

Development Stage  Equity is usually all one can get in the development stage  No cash flow  Equity Investors at early stage  The business founders  “Friends and Family”  Angel Investors  Venture Capital Firms  Private equity groups  Early stage IPO’s – example  Key: exit strategy!

Angel Investors & Venture Capital Groups and Hedge Funds  Angels Invest from $10,000 to $ 2 million  Venture funds much higher limits of investment dollars  Time horizons  Specific Industries they want to invest in  Annual return targets  Board participation  Contract terms which increase their control over business if financial goals are not realized  Preferred stock – conversion, mandatory redemption rights, antidilution

Strategic Partner  Companies that are in your industry  Or a related industry  Examples ebay buying pay pal  Computer software company that invests in a hardware company  Hardware company invests in software  Similar type of business in same industry  Roll up  Geographically placed  Management team - expertise

Timing

DebtEquity Summary  SBA loan -  Perimeters are stated  Keep ownership  Can come in many forms  Linked in to experts  Bringing in partners, advisors or board members  Strategic placement

Nobody gives you power, you just take it! Turn your company into a dynamic center of excellence, where amazing things are always being initiated!

Questions?