1. Patterns of Entrepreneurship
Funding Sources
Early Stage Funding
Patterns of Entrepreneurship
Chapter 6

2. copyright 2003 Jack M. Kaplan
Early Stage Funding
Personal and self Funding
Angel Financing
Friends and Family
Bank Loans
Programs of SBA and Government Loans
Where to Find Funding
copyright 2003 Jack M. Kaplan

3. copyright 2003 Jack M. Kaplan
Personal Funding
Investing your own money - sweat equity for stock
Offers greatest return, if successful
Investors and venture capital sources usually require it
Your personal funds can be treated as equity or debt
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4. copyright 2003 Jack M. Kaplan
Moonlighting
Founder still working a regular job
Income used to support the entrepreneur during needed cash flow
When the venture begins paying as well or better- entrepreneur leaves job
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5. copyright 2003 Jack M. Kaplan
Bootstrapping
Often applied to a current business that can reduce costs from current operation
Usually overlooked as a source to entrepreneurs
The entrepreneur becomes more efficient and cost conscious
copyright 2003 Jack M. Kaplan

6. copyright 2003 Jack M. Kaplan
Personal Funds
Protect your Investment
Specify in writing if it is a loan to the company, how the loan is payable, conversion rights or equity
Specify if the loan is payable in full upon the company receiving venture funding
copyright 2003 Jack M. Kaplan

7. copyright 2003 Jack M. Kaplan
Use of Personal Assets
Second mortgage, credit cards or sell your car OR
Get an investor to use a bank deposit or stock holdings as collateral
copyright 2003 Jack M. Kaplan

8. copyright 2003 Jack M. Kaplan
Angels
Well-off individuals with money to invest
Good prospects get funded
Need good contacts - contact Columbia Business School- Lang fund.
Angel Networks. Fees range from $150- $300
garage.com assists startups.Call (800) (lists 20 networks nationwide)
copyright 2003 Jack M. Kaplan

9. copyright 2003 Jack M. Kaplan
Friends And Family
The most popular source of funds for startup capital
Friends and family are not as worried about quick profits as professional investors
Usually they do not investigate the business and are not familiar with all the risks
The best method is to provide the same disclosure to a friend as you would a investor
copyright 2003 Jack M. Kaplan

10. SOURCES OF CAPITAL USED IN START-UP
copyright 2003 Jack M. Kaplan

11. copyright 2003 Jack M. Kaplan
Accredited Investors
Accredited investor is defined as having income in excess of $200,000 in each of the two most recent years or joint income of $300,000 or
Individual net worth or joint worth exceeds $1,000,000
copyright 2003 Jack M. Kaplan

12. copyright 2003 Jack M. Kaplan
Equity Investments
Common Stock - Purest form of equity
No fixed or guaranteed return
Greatest risk and greatest return
Voting stock versus non-voting stock
Preferred Stock
Guaranteed dividends
Rights are prior to common stock rights
copyright 2003 Jack M. Kaplan

13. copyright 2003 Jack M. Kaplan
Investor Networks and Contacts
New York Venture Group nyvg
Mid-Atlantic Investment Network
See Stanley Pratt’s Directory for lists of Venture Capital firms - $300
Contact Venture Economics
Wellesley Hills, Massachusetts
(617) OR
Contact National Venture Capital Corp. Arlington, Virginia
(703)
copyright 2003 Jack M. Kaplan

14. copyright 2003 Jack M. Kaplan
Bank Loans
Prepare a loan Proposal
Summary Page
Management team Profiles
Business Description
Financial Projections
Purpose of Loan and how spent
Amount required
Repayment Plan
copyright 2003 Jack M. Kaplan

15. How to Apply for a Bank Loan
Prepare a loan Proposal
The four “C”s of a loan request
Character
Cash Flow
Collateral
Contribution
copyright 2003 Jack M. Kaplan

16. copyright 2003 Jack M. Kaplan
Programs of the SBA
Most of the SBA loans are made by lenders( commercial Banks, savings and loans, Insurance companies)
Guaranteed by the SBA
Average loan is $100,000 plus-with a maturity of 10 years
copyright 2003 Jack M. Kaplan

17. copyright 2003 Jack M. Kaplan
SBIR Program
The program allocates in excess of 50 million annually for scientific innovation
Phase 1-awards up to $100,000 for the purpose of investigating the feasibility of an innovation
Phase 11 –The report is reviewed and if feasible, an award up to $1,000,000
Phase 111- Funding for commercialization must come from private sources
copyright 2003 Jack M. Kaplan

18. copyright 2003 Jack M. Kaplan
Small Business Investment Companies
Licensed by the SBA - Invest locally and have industry preferences
Limited to companies under $2 million in earnings and less than $6 million in net worth
Have both debt and equity investments
Do not take a majority position in the company
copyright 2003 Jack M. Kaplan

19. copyright 2003 Jack M. Kaplan
State Development programs
State programs
Most states target funds:
Penn. Ben Franklin Technology Centers make grants up to $100,00
N.J. New Jersey Economic Development Agency, loans and royalty agreements
Advantages:
No repayment unless the project succeeds and no equity requirements
Disadvantages:
Pay royalties on sales
copyright 2003 Jack M. Kaplan