CLASS 7 DORIS HOLT LECTURER HOW TO GET MONEY

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Class 7

Class 7

Doris Holt lecturer


How to get money via debt or equity

1. Friends and family

borrowing

giving a share of future profits

2. Self funded

employment

2nd mortgage

do it before you become self employed

credit cards-most common

3. Sweat equity

4. Angels and arch-angles

good for 5-50 thousand dollars

they want to see an outline of your business plan

5. Venture capitalists

take ownership of a business

currently-a lot of venture capital available

Timing – vc’s want to come in after friends and family and angels

Vc’s want 35-45% return

Vc's want out in 3-5 years

Need an exit strategy-to go public

Vc’s are looking for high risk ventures

Vc's want you to be indebted to them so you will be motivated to perform

Vc's want - 45-80% in ownership

6. Banks

don't care about return

must be low risk business

early stage loan not likely

hard to obtain without collateral

sba has loans-still must be guaranteed

7. Customers may finance you

8. Strategic alliance with successful company-like Microsoft

Executive summary

needs financial data

cash flows for 5 years forward

cash receipts - grants, sales, investments, loans

expenses

cash balances

financial projections should be realistic

monthly for first year

every 6 months for next year

annually after that

Cash flows

  1. Do not show investors what they want to see

  2. Instead show best, worst, most likely projections and expected values

3. Show letters of intent for potential sales (very convincing)


Example:


IF “a” happens = 10,000 10% likelihood of a happening

IF “b” happens = 500,000 50% likelihood of b happening

IF “c” happens = -100,000 40% likelihood of c happening


Expected value=.1*10000+.5*500000-.4*100000=211,000

Most likely and best case values=500,000

Worst case=-100,000


Stockholders agreement



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