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 Settle the details up front Create a written contract Treat the money as “bridge financing” Develop a payment schedule

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

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

Legal Environment: Investment Agreement Choice of Securities Control Issues Evaluation Issues & Financial Covenants Remedies for Breach of Contract Business Model

Sources of Debt Capital Commercial Banks Trade Credit Equipment Suppliers Savings & Loans Insurance Companies Credit Unions Private Placements

Five Cs of Credit Character Capacity (Cash Flow) Capital Conditions Collateral

Character Individual Attributes Passion Integrity Experience Staying Power

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?

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?

Conditions Potential growth in the market? Competition Location Form of Ownership Loan Purpose Payoff

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