Getting Financing or Funding

The Importance of Getting Financing or Funding

• The Nature of the Funding and Financing Process

– Few people deal with the process of raising investment
capital until they need to raise capital for their own firm.
• As a result, many entrepreneurs go about the task of raising capital
haphazardly because they lack experience in this area.
• Why Most New Ventures Need Funding
– There are three reasons most new ventures need to raise
money during their early life.
Why Most New Ventures Need Financing or
Funding
Alternatives for Raising Money for a
New Venture

Personal Funds Equity Capital

Debt Financing Creative Sources

Alternatives for Raising Money for a
New Venture

Personal Funds Equity Capital

Debt Financing Creative Sources

 Sources of Personal Financing
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• Personal Funds
– The vast majority of founders contribute personal funds,
along with sweat equity, to their ventures.
• Sweat equity represents the value of the time and effort that a
founder puts into a new venture.
• Friends and Family
– Friends and family are the second source of funds for many
new ventures.
 Sources of Personal Financing
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• Bootstrapping
– A third source of seed money for a new venture is referred
to as bootstrapping.
– Bootstrapping is finding ways to avoid the need for external
financing or funding through creativity, ingenuity,
thriftiness, cost-cutting, or any means necessary.
– Many entrepreneurs bootstrap out of necessity.
 Examples of Bootstrapping Methods

Buying used instead of Coordinate purchases Leasing equipment

new equipment. with other businesses. instead of buying.

Minimizing personal Avoiding unnecessary

expenses. Expenses.

Buying items cheaply but Sharing office space or

prudently via options employees with other Hiring interns.
such as eBay. Businesses.
Preparing to Raise Debt or Equity Financing
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Preparing to Raise Debt of Equity Financing
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Two Most Common Alternatives

Equity Funding Debt Financing

Means exchanging Is getting a loan.

partial ownership in a
firm, usually in the
form of stock, for
funding.
Alternatives for Raising Money for a
New Venture

Personal Funds Equity Financing

Debt Financing Creative Sources

 Sources of Equity Funding

Business Angels Venture Capital

Firms

Initial Public
Offerings
 Business Angels
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• Business Angels
– Are individuals who invest their personal capital directly in start-
ups.
– The prototypical business angel is about 50 years old, has high
income and wealth, is well educated, has succeeded as a business
professional and is interested in the startup process.
• Business Angels
– Business angels are valuable because of their willingness to
make relatively small investments.
• Are looking for companies that have the potential to grow
between 30% to 40% per year.
– Business angels are difficult to find.
 Venture Capital Firms
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• Venture Capital - Is money that is invested by venture-

capital firms in start-ups and small
businesses with exceptional growth
potential.
• Venture Capital Firms - Venture-capital firms are
partnerships of money.
 Venture Capital Firms
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• Venture Capital
– Venture capital firms fund very few entrepreneurial firms
in comparison to business angels.
• Many entrepreneurs get discouraged when they are repeatedly
rejected for venture capital funding, even though they may have an
excellent business plan.
• Still, for the firms that qualify, venture capital is a viable
alternative for equity funding.
• An important part of obtaining venture-capital funding is going
through the due diligence process:
• Venture capitalists invest money in start-ups in “stages,” meaning
that not all the money that is invested is disbursed at the same time.
 Initial Public Offering
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• Initial Public Offering

– An initial public offering (IPO) is a company’s first sale of
stock to the public. When a company goes public, its stock
is traded stock exchanges.
– An IPO is an important milestone for a firm.
 Initial Public Offering
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Reasons that Motivate Firms to Go Public

Reason 1 Reason 2

Is a way to raise equity Raises a firm’s public

capital to fund current profile, making it easier
and future operations. to attract high-quality
customers and business
partners.
 Sources of Debt Financing

Commercial SMEDA
Banks
 Commercial Banks

• Banks
– Historically, commercial banks have not been viewed as a
practical sources of financing for start-up firms.
– This sentiment is not a knock against banks; it is just that
banks are risk adverse, and financing start-ups is a risky
business.
• Banks are interested in firms that have a strong cash flow, low
leverage, audited financials, good management, and a healthy
balance sheet.
 SMEDA
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• Small and Medium Enterprises Development Authority

(SMEDA) is an autonomous institution of the Government of
Pakistan under Ministry of Industries and Production.
• SMEDA was established in October 1998 for encouraging and
facilitating the development and growth of small and medium
enterprises in the country.

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 Other Sources of Debt Financing

• Friends and Family

• Credit Cards
– Should be used sparingly.

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Alternatives for Raising Money for a
New Venture

Personal Funds Equity Capital

Debt Financing Creative Sources

Creative Sources of Financing or Funding

Small Business
Leasing Innovation
Research Grants

Other Grant Programs Strategic Partners

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Crowd funding
 Leasing
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• Leasing
– A lease is a written agreement in which the owner of a
piece of property allows an individual or business to use
the property for a specified period of time in exchange for
payments.
– The major advantage of leasing is that it enables a
company to acquire the use of assets with very little or no
down payment.

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 Leasing
2 of 2

• Leasing (continued)
– Most leases involve a modest down payment and monthly
payments during the duration of the lease.
– At the end of an equipment lease, the new venture typically
has the option to stop using the equipment, purchase it for
fair market value, or renew the lease.
– Leasing is almost always more expensive than paying cash
for an item, so most entrepreneurs think of leasing as an
alternative to equity or debt financing.

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 Other Grant Programs

• Private Grants
– There are a limited number of grants programs available.
– Getting grants takes a little detective work.
– Granting agencies are low key, and must be sought out.
• Other Government Grants
– The federal government has grant programs.
– Prime Minister’s youth loan program (Kamyab Jawan)
– Be careful of grant-related scams.
 Strategic Partners
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• Strategic Partners
– Strategic partners are another source of capital for new
ventures.
– Many partnerships are formed to share the costs of product
or service development, to gain access to particular
resources, or to facilitate speed to market.
– Older established firms benefit by partnering with young
entrepreneurial firms by gaining access to their creative
ideas and entrepreneurial spirit.
• Rastgar & Co and Bestway Cement Strategic Business Partners
 Emerging Funding Models –
Crowd Funding
• Crowd funding is the practice of funding a project or venture
by raising small amounts of money from a large number of
people, typically via the Internet.
 Emerging Funding Models – Accelerators

• Accelerators
– Business accelerator is a program, generally run by a for-
profit organization, that provides office space, proximity to
other start – up entrepreneurs, access to investors,
mentoring and seed funding.
– Alternatively known as bootcamps and microseed fund
programs.

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 Emerging Funding Models – Mezzanine
Financing:

• Mezzanine Financing:
– It is a hybrid of debt and equity financing.
– It is a form of debt capital that gives a lender the rights to
convert to an ownership or equity investment if a loan is
not paid back in full when due.
– Mezzanine financing is usually provided to the borrower
very quickly with little due diligence on part of the lender
and little or no collateral on part of the borrower.

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Financial Tools for Entrepreneurs - Calculating Cumulative
Financial Cash Flows

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- Calculating Cumulative Financial
Cash Flows
• Bit.ly/hbsp2IWyJdJ

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 Preparing An Elevator Speech
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• An elevator speech is a brief,

carefully constructed statement
Elevator that outlines the merits of a
business opportunity.
Speech • There are many occasions when a
carefully constructed elevator
speech might come in handy.
• Most elevator speeches are 45
seconds to 2 minutes long.
 Preparing an Elevator Speech
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Step 1 Describe the opportunity or problem 20 seconds

that needs to be solved.

Step 2 Describe how your product meets the 20 seconds

opportunity or solves the problem.

Step 3 Describe your qualifications. 10 seconds

Describe your market.

Step 4 10 seconds

Total 60 seconds
 Shark tank resources
• https://www.kaltura.com/tiny/l2by1
• https://www.kaltura.com/tiny/zek3q

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Question & Answers

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Thank You

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