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    614 - Funding Entrepreneurial Start

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    onyinyeuwa
    The document discusses various sources of funding for entrepreneurial start-ups including owner's money, family and friends, angels, seed capital, venture capital, NGOs, banks, and government programs. It covers the differences between debt financing which requires repayment and equity financing which involves giving up some ownership. Common sources of debt financing are bank loans while equity financing can come from public stock offerings or private placements.

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    614 - Funding Entrepreneurial Start

    Uploaded by

    onyinyeuwa
    4 views3 pages
    The document discusses various sources of funding for entrepreneurial start-ups including owner's money, family and friends, angels, seed capital, venture capital, NGOs, banks, and government programs. It covers the differences between debt financing which requires repayment and equity financing which involves giving up some ownership. Common sources of debt financing are bank loans while equity financing can come from public stock offerings or private placements.

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    614 - FUNDING ENTREPRENEURIAL START

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    The document discusses various sources of funding for entrepreneurial start-ups including owner's money, family and friends, angels, seed capital, venture capital, NGOs, banks, and government programs. It covers the differences between debt financing which requires repayment and equity financing which involves giving up some ownership. Common sources of debt financing are bank loans while equity financing can come from public stock offerings or private placements.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    4 views3 pages

    614 - Funding Entrepreneurial Start

    Uploaded by

    onyinyeuwa
    The document discusses various sources of funding for entrepreneurial start-ups including owner's money, family and friends, angels, seed capital, venture capital, NGOs, banks, and government programs. It covers the differences between debt financing which requires repayment and equity financing which involves giving up some ownership. Common sources of debt financing are bank loans while equity financing can come from public stock offerings or private placements.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    FUNDING ENTREPRENEURIAL START-UP

    Who is funding start-up companies?

    Every entrepreneur planning a new venture confronts the dilemma of where to find start-up

    capital. Therefore, it is important to understand not only the various sources of capital but what

    exactly are they, and what is expected of an entrepreneur applying for these funds? Studies have

    investigated that entrepreneurs sourced funds ranging from debt to equity. Depending on the type

    of financing is required by the entrepreneur, the following are possible sources of start-up

    capital:

     Owner’s money
     Family and friends
     Angels
     Seed capital
     Venture capital
     NGOs
     Banks and government programs
     Private placements
     IPOs

    Debt versus Equity

     Debt financing involves a payback of the funds plus a fee (interest) for the use of the
    money.
     Equity financing involves the sale of some of the ownership in the venture.

     Debt financing places a burden or repayment and interest on the entrepreneur.


     Equity financing forces the entrepreneur to relinquish some degree of control.

    The choice for the entrepreneur is


    (1) To take on debt without giving up ownership
    (2) Relinquish a percentage of ownership in order tom avoid having to borrow.
    (3) Or a combination of debt and equity.

    Debt Financing

    Many new ventures find that debt financing is necessary. Short term borrowing (one year or less)
    is often required for working capital and is repaid out of the proceeds from sales. Long term debt
    (one to five years) is used to finance the purchase of property or equipment, with the purchased
    asset serving as collateral for the loans. The most common sources of debt financing are
    commercial banks.

    To secure a bank loan, an entrepreneur has to consider (answer) the following issues (questions):
     What do you plan to do with the money/
     How much do you need?
     When do you need it?
     How long will you need it?
     How will you repay the loan?

    Advantages:
     No relinquishment of ownership is required.
     More borrowing allows for potentially greater return on equity.
     During period of low interest rates, the opportunity cost is justified because the cost of
    borrowing is low.

    Disadvantages
     Regular monthly interest payment is required
     Continual cash flow problems can be intensified because of payback responsibility.
     Heavy use of debt can inhibit growth and development.

     Manufacturers are also willing to provide such loan.


     Other debt financing sources:
     Trade credit. Credit given by suppliers as account payables.
     Accounts receivable financing. A short term financing that involves pledge of
    receivables as collateral (factoring) available in commercial banks.
     Factoring. Sale of accounts receivables or discounted
     Finance companies. Lends money against assets.
     Leasing companies
     Mutual savings bank
     Savings and loan associations
     Insurance companies

    Equity Financing

    Equity financing is money invested in the venture with no legal obligation for entrepreneurs to
    repay the principal amount or pay interest on it. However, it requires sharing the ownership and
    profits with the funding source. Because no repayment is required, equity capital can be much
    safer for new ventures than debt financing. However, the entrepreneur must consciously decide
    to give up part of the ownership in return for this funding.

    Equity capital can be raised in two major sources:


     Public stock offerings – sale of securities on the public markets.
     Private placements – selling stocks to private parties: friends, employees, customers,
    relatives and local professionals.
    Venture Capital Market

    Venture Capitalists are a valuable and powerful source of equity funding for new ventures. They
    provide a full range of financial services for new growing ventures.

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