Secure Funding How to secure financial resources The

Secure Funding

- 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.

**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.

Conception to newborn Infancy to childhood Childhood to teenage Teenage to maturity Maturity seed capital venture capital private equity short term bank loans, stock financing long – term bank loans, bonds

• First : The more money you can raise at the beginning , the better. • Second : The case of early financing , less is better.

*Advantages *Disadvantages

Advantages Disadvantages Permits to survive Much money/ may spend it unwisely Flexibility Avoid borrowing from suppliers and banks Security

Advantages Limited capitalization prevents losses Keep attentions on principal objectives Keep the value of your business Disadvantages You may give up control/or a piece of the business

Venture 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.

What you need? ?

What offers you can give Proving your company to the investor Convincing the investor How much money you need to start ? ? ? paying back the money

Private Companies Your Saving Government Agencies Your Family Angel investors Your friends and Colleagues Venture Capitalists Banks

1 - Personal money. 2 - Family. 3 - Friends. 4 - Angel investor. 5 - venture capital.

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

Advantages Easy to manage Disadvantages 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.

Mortgage A loan based on the value of your house or your land. Bankruptcy A declaration that the company is unable to pay back its loans Equity Ownership 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

Question 2: What kind of funding sources in your company ? ?

There are two major types of capital: sources of funds Type of capital Debt Bank loans Loans from investors “subordinate” Characteristics They have the legal priority of getting paid a profit-sharing fee , or getting their money back if any thing goes wrong. Paid back after the bank fully paid.

Equity Preferred shares They have the fixed annual dividend. They don’t have the rights of voting. Common shares 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.

* They are not risk taker. • They don’t like to lend money to startup businesses. • They classified as the most “impersonal” sources of funds.

The pose and cons of financing with common stock : Advantages Don’t make dividend payment to stockholders. Improves the credit rating. Attractive to some investors. Disadvantages Corporate voting Shareholders can share in the profits for many years

Advantages Disadvantages Raise long-term money. Its like cutting down a newly plan tree. You don’t have to pay cash dividends every year. Facing bad investors in directing once your company gets started. TA: Maha Alzailai MGT Department