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Report Training PDF
Report Training PDF
Report Training PDF
SUBMITTED TO
Guide : Student:
Mr. Harshit Gautam Benjamin Djartey
(Ass. Professor) (180240500005)
MBA-3RD SEM.
SUMMER TRAINING PROJECT REPORT- FINANCIAL COST AND BENEFITS ANALYSIS FOR THE VARIOUS SOURCES OF FUNDS FOR START - UPS (LOGOSYS TECHNOLOGIES) 1
PREFACE
This project report came about as a result of my internship with LOGOSYS TECHNOLOGIES .
The report was developed to identify the various finance sources for the company and the cost and
benefit associated with these various funds options. I did this report purely to identify the best way
to help startups to get funds for their businesses and ideas development . Most startups fail in
ascertaining funds for their business and even if they do, analysing the various funds was a
problem.
This report also give a light on the kind of startups investors are interested and ready to invest in. In
most cases not all finds sources are good for the various stages of the business life cycle and the
report has shared much insight on that. Since startups have become a thing of national interest, I
made a critical analysis on government support to startups using Ghana as a case study and then
looked at the other fund sources like ; angel investor, self-funding, banks, venture capital. The
finance department of LOGOSYS TECHNOLOGIES gave me maximum support especially Mr.
Andrew Boateng.
SUMMER TRAINING PROJECT REPORT- FINANCIAL COST AND BENEFITS ANALYSIS FOR THE VARIOUS SOURCES OF FUNDS FOR START - UPS (LOGOSYS TECHNOLOGIES) 2
ACKNOWLEDGEMENT
I have taken efforts in this project. However, it would not have been possible without the kind
support and help of many individuals and the organisation I took my internship with. I would like
to extend my sincere thanks to all of them.
I am highly indebted to LOGOSYS TECHNOLOGIES for their guidance and constant supervision
as well as for providing necessary information regarding the project and also for their support in
completing the project.
I would like to express my gratitude towards my immediate supervisor Mr Andrew Boateng and
Mr Kingsley Labi ,member of the finance department of LOGOSYS TECHNOLOGY for their
kind co-operation and encouragement which help me in completion of this project.
I would like to express my special gratitude and thanks to my college supervisor , Mr. Harshit
Gautam for giving me such attention and time.
My thanks and appreciations also go to my colleagues and everyone who have willingly helped me
out with their abilities.
………………………..
BENJAMIN DJARTEY
MBA 3RD SEMESTER
SUMMER TRAINING PROJECT REPORT- FINANCIAL COST AND BENEFITS ANALYSIS FOR THE VARIOUS SOURCES OF FUNDS FOR START - UPS (LOGOSYS TECHNOLOGIES) 3
EXECUTIVE SUMMARY
Startup financing has become very necessary for young and up coming entrepreneurs
in Ghana. Upon study of the funds sources for startups in Ghana , it was clear that,
the main sources of funds for startups are;
❖ Self financing
❖ Government financing
❖ Angel capital
❖ Venture capital
❖ Bank loan.
In the course of the study , it was clear that , not all funds sources are available for all
projects undertaken by the young entrepreneurs. In this report I have spelt our the
major funds sources and the kind of business that attracts.
After this the providers of the funds were careful and stipulated that funds are equally
made available depending on the growth stage of business. Base on this I had the
interest to dive deep into finding the cost and benefit of the various fund sources,
made my personal recommendation base on the analysis.
It was also clear during the personal interview with the young entrepreneurs that,
they have no idea about crowdfunding so I made a careful study on that and
recommended it to them.
The project report was made in case study of LOGOSYS TECHNOLOGIES which
was the company I did my internship with.
SUMMER TRAINING PROJECT REPORT- FINANCIAL COST AND BENEFITS ANALYSIS FOR THE VARIOUS SOURCES OF FUNDS FOR START - UPS (LOGOSYS TECHNOLOGIES) 4
DECLARATION
Training Coordinator
…………………….
SUMMER TRAINING PROJECT REPORT- FINANCIAL COST AND BENEFITS ANALYSIS FOR THE VARIOUS SOURCES OF FUNDS FOR START - UPS (LOGOSYS TECHNOLOGIES) 5
1.0 Introduction of the topic 8
1.1.0 COSTS AND BENEFITS ANALYSIS OF STARTUPS FINANCING IN GHANA
WITH A CASE FROM LOGOSYS TECHNOLOGIES. 8
4.I.1.0 PROS 19
4.1.1.1 CONS 20
4.3.1 BENEFITS 33
4.3.2 COST 34
5.2.0 CONCLUSION 63
5.3.0 LIMITATIONS 64
SUMMER TRAINING PROJECT REPORT- FINANCIAL COST AND BENEFITS ANALYSIS FOR THE VARIOUS SOURCES OF FUNDS FOR START - UPS (LOGOSYS TECHNOLOGIES) 6
5.4.0 FINDINGS 64
5.5.0 SUGGESTIONS 65
5.6.0 BIBLIOGRAPHY 68
SUMMER TRAINING PROJECT REPORT- FINANCIAL COST AND BENEFITS ANALYSIS FOR THE VARIOUS SOURCES OF FUNDS FOR START - UPS (LOGOSYS TECHNOLOGIES) 7
CHAPTER 1
Although there are no clear definitions to define startups, however various criteria’s like number of
employees, annual sale, or net profit are some of the dimensions that could help differentiate
between the definition for large and small startup firms. There are mostly two types of startup
firms. The first type of startup is explained in the scenario of “Entrepreneur”, “Where an individual
who thinks, reasons and acts to convert the ideas into commercial opportunities and to create
value” (Leach & Melicher, 2012). This phenomenon refers to the stage even before the Birth or
startup stage of the firm lifecycle. Describing it in a nutshell, this type is just before setting the
foundations of the firm, where the owner (Entrepreneur) plans to convert an idea into a profitable
opportunity, by planning to start a firm. On the other side, the second type explains the startup firms
which are already carrying their operations and are in their working phase; however they are yet to
achieve the status of a small developed and operating firm. These startups
are usually in the Birth or startup stage of the firm life cycle. (Aurelian, 2008) defines the first type
of startups as firms where the initial business concept is formed. With the initial products and
services that are to be offered are observed. The founder (entrepreneur) and some key personnel are
the main employees, and the funding requirements are small as main funding sources are owner’s
capital, family, friends & colleagues. The risk of failing to deliver is very high. However the
definition of the 2nd type of startup firms is explained by (Dilger, 2012) using different criteria’s in
European and American context. According to the author, European version of definition refers to a
small startup firm of having less than 50 employees and annual turnover of not more than 10
million Euros, whereas on the other hand American version of definition for small size startup firm
is one with not more than 250 employees and annual sales of not more than 1$ million.
Another definition can be discussed here as well. According to (Beck, Kunt & Maksimovis, 2008),
small firm is defined as startup firm if it has between 5 to 50 employees. Hence different definitions
of the startups can be observed. However this paper will address the sources of finance for both
SUMMER TRAINING PROJECT REPORT- FINANCIAL COST AND BENEFITS ANALYSIS FOR THE VARIOUS SOURCES OF FUNDS FOR START - UPS (LOGOSYS TECHNOLOGIES) 8
types of the Start-up firms and how these sources of finance are made available at various stages of
the firm’s growth cycle by taking the cost and benefit analysis of each on of them.
Access to finance for startup firms has always been an issue of debate within the circle of
Economists and Researchers. Issues related to the capital structure decision have attracted lot of
attention, because of the reason that these issues are primarily dominant in small size and young
firms. This paper will therefore address the financing options that are available to these startup
firms along with their pattern and duration of availability. Furthermore with the emphasis over
possible alternatives the startup firms can adopt in order to make sure the smooth availability of
finance in crucial times. The main small size of firms that are addressed in this paper refer to
“Start-ups” and not the ones that are already operating. Since the financial options and preferences
differ for both of them. During the period of the startup firms applying for finance, many
constraints are encountered as well. These constraints will be addressed along with the relevant
options.The main concern for these startup firms is not only limited up to the fact that how these
sources of finance are successfully acquired but also how these sources are effectively implemented
once they are made available, since the startup firms lack both the experience and expertise in
dealing with the core business operations. Hence the paper will also address the influencing factors
of these financial sources over their lenders (Small firms) and the way in which the two parties
proceed through thick and thin. The first section will explain the “Financing options” for the
startups which is the main aim of this paper along with the influencing factors. The next section
will discuss their cost and benefit analysis.The methodology deployed to answer these research
questions is literature review. The literature is rich with explaining various sources of finance along
with their preferences and trends across various countries. Major part of the paper encompasses
over the prominent sources of finance for these “Start-ups” firms, where the financing options are
available during the different stages of the firm growth cycle. The paper will conclude with
answering the research question of the cost and benefit analysis of each and how can startups
SUMMER TRAINING PROJECT REPORT- FINANCIAL COST AND BENEFITS ANALYSIS FOR THE VARIOUS SOURCES OF FUNDS FOR START - UPS (LOGOSYS TECHNOLOGIES) 9
decide their choice of a particular financing option. The study choice was from Ghana with one of
the up coming Startup company called the LOGOSYS TECHNOLOGIES. During the vacation
training the manager was vey open to me and showed me the various capital sources for his
business at every stage of the company’s life cycle .
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CAPTER 2
The company has a total of 20 employees out of which 75% of them are from IT background
including the general manager. The finance department has very vibrant young accountant and
financial analyst . Others departments are the stores , installation , networking and finally the
marketing team.
Mr Philip Padi Ologo , is the general manager who got his vision by trying to solve the needs of the
people who were living in a newly developed area in Ghana called Akatamanso. The neighbours
needed internet connectivity, repairs and servicing of computer and technological machines. There
was also the need for installation of fire protection system and these prompted him as a young
entrepreneur to great a business from his solution to the people. The overall services provided are
listed below , not in any particular other ;
❖ INSTALLATION
❖ SALES AND SERVICING OF :
• INTRUDER AND FIRE PROTECTION SYSTEMS
• CCTV SYSTEMS
• ACCESS CONTROL SYSTEMS
• ASSET AND QUEUE MANAGEMENT SYSTEMS
• ELECTRIC FENCING
• COMPUTER AND NETWORKING EQUIPMENT
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Working in close contact with the finance team was very much helpful as a finance student. Base
on the company growth scale I got the interest to find out the major sources of funds for the
business and I realised that , startups have diverse finance sources not limited to the ones we are
only aware from our books. Though those sources would be listed in my later chapters and a deep
analysis would be done on each to know which particular source would be beneficial to what
particular startup and at what stage of the business should we ask for a particular finance source .
Basically the cost and benefit analysis on each would be a form of recommendations to young
entrepreneurs .
Finance is one of the best aspect of every business if not the very best of all and if this department
is not meticulously handled, the business would not live to see its growth standards and expansion
desires. LOGOSYS TECHNOLOGIES have understood this particular philosophy and have made
it and extra vision to see a strong finance department. During my stay the few analysis I did showed
that most of the technological business ideas and startups have unlimited finance sources and
LOGOSYS TECHNOLOGIES wasn’t exceptional. From it finance finance history and trends as a
business I realised that , more business and stakeholders sought for partnership and they have to do
their research and financial analysis both technical and fundamental in oder to agree on association
and even allow for investment. Though growth is eminent , they are much particular on their
growth scale.
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CHAPTER 3
The main objective of the studying the costs and benefits analysis for startups in
Ghana choosing LOGOSYS TECHNOLOGIES is to look into ;
❖ The pros and cons of the finance source for his company and a tech business
❖ Make a careful study on the various outlook of the investors
❖ What particular type of fund sources type is beneficial to what business with
respect to stages in the business growth cycle
❖ Get a bit of history of start-ups funding in Ghana from 1998 till date
❖ Make an accurate recommendation to LOGOSYS TECHNOLOGIES the fuss
courses required at the current stage of his business.
❖ Also studying other forms of start-up funds was very eminent as a policy
recommendation to up coming startups .
❖ Looking at sources like , self-financing , government, venture capital, angel
investor
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3.2.0 RESEARCH METHODOLOGY
This report was basically put together after a month and two weeks internship with LOGOSYS
TECHNOLOGIES. It was done to ascertain the sources of finance for the company as a startup and
also tried to work on the costs and benefits of those funds sources. The basic data needed to
complete the report was both primary and secondary data. The sources of the primary data was the
personal interview conducted among the finance department members of the company. I made
four , true or force questions and five questions which demands a little bit of explanation but it
wasn’t difficult or boring to answer. Basically out of the 8- member finance team 6 were available
to give their vivid answers to the question and the remaining two had reply to my questions on a
telephone call which was by far also successful .
Startups, all over the world have similar features mostly when it comes to funding so I equally did
and extensive online study on some startups and the basic fund sources. This approach helped me
to identify one major and trending and funds sources for startups which is not known in Ghana and
also LOGOSYS TECHNOLOGIES was not aware of , and that is CROWDFUNDING. I really
had a major interest in knowing more about this type of fund sources to make it a recommendation
for the company.
All the major online sites I had the information from had been dully acknowledged and
appreciated. Because the report was mainly for LOGOSYS TECHNOLOGIES , every step in the
methodology was directly in relation to the company to make sure they have the full benefit of the
report. Nonetheless , it can be applied to other startups as a model or a case for deciding funds
sources and also deciding at what stage of my business do I require that fund sources.
Basically, the gathered data was analyse in terms of their advantages and disadvantages. I added
figures to explain the stand of the major 5 funds source for the startups and this helped me to
understanding which type of idea or business attract what type of investor or funding sources .
My methodology could be describes as structured and that the findings made in this report can be
used to make a general statement since it is much of both practical and theoretical study.
SUMMER TRAINING PROJECT REPORT- FINANCIAL COST AND BENEFITS ANALYSIS FOR THE VARIOUS SOURCES OF FUNDS FOR START - UPS (LOGOSYS TECHNOLOGIES)
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CHAPTER 4
Though the sources of funds are a lot but for the sake of this study and taking into consideration the
company I had my training with I will stick to the 5 sources mentioned above and have an in-depth
cost analysis and benefit as well, so that the company and any young entrepreneur who chance on
this will make quality decisions when it comes to choosing finance sources for their business at
every stage of the business life cycle .
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4.0.1 MAJOR SOURCES OF FUNDS FOR STARTUPS IN GHANA FROM
1998 - 2002
Ghana is one of the developing country form the Sub-Saharan African region. The main emphasis
will be to understand the primary source(s) of finance for the startup Ghanaian firms. Results from
the observation of 25 unlisted firms between 1998 and 2002 showed that for the small size firms,
17.7% of the retained earnings are used as a further source of finance, whereas 67.8% is supported
by the external debt and 2.4% by issuing new equities. Internal finance is second most important
source of finance after external debt. As a result of heavily dependence of Ghanaian firms on the
external debt, the debt equity ratios are relatively higher for them and the growth is mostly financed
by the short term debts in the form of bank loans. Despite of the fact that the short term debt is
cheaper as compared to the long term debt, still the risk to the startups is very high (Yartey, 2011).
A similar trend has been explained by (Buatsi, 2002) where description about the cost of credit has
been made by explaining the fact that startup firms in Ghana mainly consider banks as the first
resort to obtain working capital which is followed by the bank overdraft facility. Owner’s inner
circle or the members of the startup team are considered just a source since they are mainly
dependent on the banks for short term debt financing. A very different perception is drawn by the
Ghanaian firms while applying for the finance from the banks, the firms do not consider that they
would able to acquire finance from any other source other than the banks, however on the other
hand it has been observed that firms while applying for the long term finance from the banks
usually don’t expect to be successful in gaining the required debt. Eventually the researchers have
emphasised over the government backed financing schemes and to enable government to improve
education quality that will motivate by generating confidence in business dealings along with better
understanding of various financing options present other than the banks and owner’s capital. The
literature review has unveiled the unawareness of other financing options like venture capitalists
and angel investors for the Ghanaian firms. The startup firms are either just a business opportunity
yet to be availed or are firms already operating but are in their initial phase of operation. Hence the
factor of “Age” is the main drawback in their access to finance. The older and large the firm is the
more it depends upon the banking finance, thereby restricting the access to finance for the new
startup firms. The same argument is further supported by (Abor & Biekpe, 2007) that have
explained the need for SMEs in Ghana in building stronger relationships with the banks and other
sources in order to gain adequate collateral requirements and making their access to finance easy
SUMMER TRAINING PROJECT REPORT- FINANCIAL COST AND BENEFITS ANALYSIS FOR THE VARIOUS SOURCES OF FUNDS FOR START - UPS (LOGOSYS TECHNOLOGIES)
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and secure. In recent years there has been other sources which most entrepreneurs are finding it
more rewarding. I would like to share a light on that. The government of Ghana in the past years
have taken youth and women in entrepreneurship and providing divers support for them.
The initiative, National Entrepreneurship and Innovation Plan (NIEP), is a multi-pronged approach
aimed at creating the conducive and business-friendly environment to stimulate enterprise activities
and provide integrated national support for start-ups and small businesses that would in turn
generate employment for the teeming youth of Ghana.
Launching the flagship programme in Accra, President Nana Addo Dankwa Akufo-Addo noted that
countries that had encouraged high levels of investment in entrepreneurship development were the
ones that had made rapid economic strides in the past 20 years.
He pointed out that establishing a strong economy and generating improved living standards for the
people of Ghana was the most important task he had had to accomplish as a President.
The President said the NEIP would be government’s primary vehicle for supporting start-ups and
small businesses.
He said the Plan would enable new businesses to emerge and give them the space to grow, receive
financing and business development services, secure markets during the critical formative years,
and to tap into a wide supply chain and network during their growth years, helping to create jobs at
a widely distributed, national level.
Announcing a US$10 million seed money for the Plan, President Akufo-Addo said “It is the
intention that this seed money should be leveraged to raise money from private sources and public
organisations to the tune of US$100 million to fund its programmes.”
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He said the Plan was in fulfilment of his goal to build the most business-friendly economy in
Africa, and create jobs and prosperity for all Ghanaians.
Acknowledging that the greatest problem of the country was unemployment, the President said "I
am determined that we change the economic conditions in our country for the better, to ensure that
young people see it as a place of opportunities, instead of the place from which they flee at the peril
of their lives.
"We need to do all within our power to create an entrepreneurial climate, to enable our young
people come up with creative ideas that can be developed into businesses," he said.
President Akufo-Addo was confident the Plan would stimulate private sector growth to accelerate
job creation and provide the Ghanaian youth with the critical alternative to salaried employment.
Apart from the plan enabling start-up businesses grow and competing domestically, tax incentives
that would be provided under the initiative would incentivise and help private sector investors to set
up business incubator hubs and industrial Parks for youth-owned businesses nationally.
The President said the NIEP would establish a Youth Enterprise Fund which would be leveraged to
attract private capital to fund start-up and also provide a ready market for the products and services
of start-ups through the reservation of a percentage of the proposed 70% of local content public
procurement contracts.
He indicated further that NEIP would implement a Buy-Local policy for ICT services from youth-
owned businesses, as well as set up an Industrial Sub-Contracting Exchange to link large industries
with small businesses and start-ups as a supply chain for goods and services.
“I am confident that this Plan will be made to work to provide young people with what it promises.
Young people, who take the risk of entrepreneurship, will find that they have support through the
difficult, early stages,” he said.
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“I am passionate about the Plan working. I am investing a lot in it, and I have confidence in the
Minister for Business Development, Ibrahim Awal Mohammed, who has devised the Plan, and will
be in charge of seeing it to fruition.”
Source: GNA
4.I.1.0 PROS
Free money:
Enough said. “In principle, it’s an amazing thing,” says Yuri Navarro CEO and executive director at
the National Angel Capital Organisation. There is free money in the sense that , every business
person can access if you meet the requirement and it is seen as a national asset in principle.
Though, LOGOSYS TECHNOLOGIES benefited from this , it came as a form of import rebate and
logistics import protocol waiver.
Less pressure:
Unlike money you might get from your parents, friends or big-name investors, the government
isn’t looking for a return on their money – at least not on paper. It can take some pressure off of
your business, while still knowing someone is willing to make a bet on your success.
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4.1.1.1 CONS
Narrow focus:
Most government grants have very specific criteria. So while there may be a lot of them out there
to choose from, your startup may not qualify either because of where you’re based or your product
or services. You may be too early stage, or even too far along in your business to qualify for a
grant.
Strings attached.
Just because you have the money doesn’t mean you can spend it however you want. Some grants
and other incentives are specifically for R&D or to hire employees. Startups may also be forced to
pay back the money, or could lose a tax incentive under certain circumstance. Take a grant for
example: “Technically, a grant is a sum of money conditionally given to your business that you
don’t have to repay,” BDC says. “However, you’re bound legally to use it under the terms of the
grant, or otherwise you may be asked to repay it.”
Takeaway
Government grants are a great way to get money to grow your business. However, be strategic
about which grants to apply for, how much time you’ll spend on the process (and outside of your
daily operations) and what the consequences might be if your business backfires, changes course or
even if becomes wildly successful.
Government tech innovative funding landscape across major African countries . Ghana
recorded the least due to the policy initiatives of the then government in power but as at
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date the figure is much improved . There is even a whole ministry in charge of innovation
200
150
100
50
0
commerce others tech agric
4th quarter
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The government of Ghana support for startups through the Ministry of Entrepreneurship
and development . Major areas were commerce ,tech, agric. , and others from the 1st to
Due to the government policy regarding youth in agriculture , the sector received much
attention and was made much lucrative to other others . The fund allocation was design to
see the success of the youth who venture in the sector from the time of planting to the
time of harvesting planning for ready market for the and other who goes in the livestock
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4.2.0 SELF-FINANCING OF STARTUP
For the start-up firms in the initial stage, Owner’s capital is seen as “Seed financing” when the
options for external financing are limited. It is considered to be the primary option as a source of
finance for the startups. Owner capital is a part of insider financing and is the largest sources of
informal finance for the startups including owner’s equity, loans and credit card. Insider finance
channels mostly include finance from the family members, friends and affiliates of the firm (Robb
& Robinson, 2012). Insider finance comprises of funds from the startup team that consist of
owner’s family, friends, relatives and colleagues. With the startups insider finance is an important
option since these firms have no collateral or track records. Startups have difficulty in obtaining
external finance because of the vague future prospects and find difficulty in signaling their
creditworthiness. However the question might arise about the amount of owner’s capital, this could
be argued by the fact that the owner might use some of the retained earnings, as finance for their
startups expedition. But in most of the cases, especially for the startups, which are relatively young
and are therefore unable to harvest any profits, so they turn towards the insider finance. (Berger &
Udell, 1998). Furthermore the outside sources are restricted in providing finance in the early stages
of startup developments until or unless the entrepreneur successfully demonstrates the existence of
a profitable opportunity to the investors (Scholtens, 1998). Once the opportunity is spotted and
utilised opens the door for finance for the startups. In the United States statistical results of national
survey (Berger & Udell 2002) for small business finance conducted in 1993 show that the biggest
category in providing finance for the small size firms is the Principal, or in other words the
Owner’s capital. Results show that 31.33% of the financing patterns lead to the Owner’s capital,
similarly in another survey similar trend is seen by Kauffman Firm Survey (KFS) in the United
States from 2004 to 2011 where a sample of 4928 firms (Small) were used. Results showed that
over 75% of the firms have at least some sort of owner’s capital. On contrary owner’s debt in the
form of loans play a less significant role. According to (Berger & Udell, 1998) in the initial startup
stage, the primary source of finance consists of “Startup team”, beside owner, other members of
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this startup team includes friends, family members and colleagues. They act as a financing source
in the form of interest free loans, or even donations to the startups with no formal requirements.
Therefore this sort of financing is informal and insider since the there are no strict requirements for
the availability of credit.
The main advantage of owner’s capital in terms of startup team is that family, friends and
colleagues that make the availability of finance in the early stage of the financing cycle do not get
involved in the financial monitoring, with or without the formal measures and ratios (Leach &
Melicher, 2012). On the contrary for the startup team with no controlling over the finance provided,
there might be the chance for the misuse or high risk taking by the owner. Therefore despite of all
the fact, Owner’s capital remains the first primary source of financing option for the startups.
Stay in control.
Similarly, when you offer equity in exchange for investment, you can give up full control of your
company. This might happen under pressure from investors to change the direction of your
company, or quite literally, as you cede board seats or voting rights.
Financial focus.
This might seem a little pie-in-the-sky, but it’s a lot easier to spend money when it’s not your own.
Understanding that every business decision you make has a direct line back to your personal
bottom line often means tighter spending and more financial discipline.
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If you’re bootstrapping, you don’t have to pay interest payments to a lender or show balance sheet
to investors. It’s nice not worrying about falling behind on loan payments or losing the confidence
of your backers during a down month
Before we go ahead, let’s go back to that point about your separate finances that we mentioned in
the last section. Opening up a business bank account, or establishing a business entity, is often easy
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to overlook in nascent days of starting up. Especially if you didn’t consciously start your business
with a capital S, so to speak—maybe it was a freelance project that got bigger or a hobby that
began to net you some cash that you took full time.
Every business owner, self-financed or not, needs to have a separate business and personal bank
account. Keeping your personal dealings and company dealings separate is essential come tax time.
But it also could have legal implications later down the line if you get in trouble with your
company. If there’s no distinct line where personal ends and business begins, you could put all of
your personal assets in jeopardy.
You don’t need quick market penetration to make your product or service successful.
If you’re not working on a fast-developing technology that you need to get to market fast, consider
growing at your own pace with your own money. This is particularly relevant for consumer goods
that don’t need to gain traction with speed to scale.
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You know you can work lean.
Don’t hire just to hire! If you can get things done on a shoestring, do it. You don’t have to get
everything done at once—sometimes, just building a minimum viable product (MVP) is all you
need to get to the next level.
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Home Equity Loan
If you own a home with a sufficient amount of equity from paying your mortgage, think about
taking out a home equity loan or home equity line of credit, also known as a HELOC. Home equity
loans provide a one lump-sum payment, while a HELOC works similarly to a credit card, where
you only pay interest on the outstanding balance. Both carry a low interest rate as compared to
other forms of financing. However, putting up the family home as collateral certainly raises the
stakes for the business. You must ensure you will have sufficient cash flow to make your payments
or you may lose the home.
Life Insurance
Borrowing against life insurance offers another valid financing option, but it does come with some
risks. You can typically borrow up to the cash value you’ve accumulated at a reasonable interest
rate. Unlike a conventional loan, you won’t need to pay the loan back. Instead, any money you take
out will be deducted from the amount your beneficiaries receive when you die. However, life
insurance loans are subject to some tricky taxation and compound interest. If you pay your loan
interest out of your policy, the IRS views it as income and will tax it accordingly. You’ll also be
subject to compound interest. Take these disadvantages into consideration before withdrawing your
total cash value.
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in your investments to avoid margin calls. If your stock drops and you don’t have enough equity to
maintain the margin limit, you’ll need to supply more money within a certain time frame. If you
don’t have enough cash within that time, your brokerage may liquidate your other securities to
satisfy the call.
Credit Cards
If you have a stellar credit rating, you may be able to fund your business by solely relying on credit
cards. It may be one of the most expensive ways to self-finance your business, but many successful
business owners have made it work. To avoid the slippery slope of credit card debt, shop for a good
interest rate, and avoid zero percent interest cards that shoot up to astronomical rates after 60 days.
Create a payment plan to stay on top of your debt.
Personal Savings
Saving up the money to fund your business ahead of time saves you money (i.e., no interest) and
security, though it does involve risking your life savings. If you need to ramp up your savings
quickly, consider picking up a side job at nights or on the weekends. You can also sell some of your
possessions to add to your savings. If you have old boxes of collectibles accumulating dust, sell
them for fast cash.
Bootstrapping your business successfully requires a clever combination of assets, cash flow, and
penny-pinching. The road to success may be a long one, but in the end, it may be worth it because
you won’t have a bank, venture capitalist, or small business loan to hold you down.
0peration cap.
penetration cap
development cap
11%
30%
59%
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The total personal funds that LOGOSYS TECHNOLOGIES invested into his startup business is
given in the pie chart above in terms of the percentages and the actual figures are in the
table below
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4.3.0 STARTUP FINANCING THROUGH BANKS
As a source of finance for the startup firms, Banks are the most well know sources of finance
after owner’s capital. Banks are financial institutes that provided finance to all type of firms
irrespective of their size. In any bank-based system, major role is played by the banks in
facilitating the flow of money between various investors and organisations along with the
surplus cash that require them. Countries where bank based financial system have very
strong banks, with major purpose of monitoring corporations and are involved in the
strategic decision making of that market. Banking finance is important for startup firms
since they rarely obtain long term debt or equity, as they must rely on the bank credit as a
major source of finance, since they obtain much of the external capital from the
entrepreneur’s own funds, and informal investors like family members, friends and
colleagues (Walker, 1989). The decision for startup firms to opt for banking finance
depends upon different criteria’s like time frame, amount of credit availability, level of
interference and supervision and they vary across firms.
For the startup firms it is vital to rely on the finance from the banks since the financial
situation of the startup firms appear to be very opaque for the investors, therefore without
the presence
of a financial intermediary firm like the banks it becomes too costly for the investors to gain
information in order to grant credit to the startup firms. Hence bank plays an important role
of classic financial intermediaries, solving the problem for the startup firms by generating
the information about them, by setting terms of the loan contract to improve the incentives
of the startup firms. For any startup firm, acquiring bank finance opens up many ways to
gain access to finance as banks provide different types of financing options that include
Credit trade, low interest loans, interest free loans, reduction transaction cost, protection
against credit crunches, and credit risk insurance (Boot, 1999).
Banks provide assistance in terms of renegotiating the contract whenever the startup firms
are facing financial difficulty, and by diversifying the risks across many small business
credits. Banks act to form long term relations with the startup firms and with the passage of
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time, as the working relationship matures between the two, it results in lowered interest
rates and less collateral requirements in terms of further financial assistance, however the
banks on the hand could impose “migration restrictions” on these startups as well in order to
avoid them to opt for other sources of finance. (Meyer, 1998). Furthermore banks make sure
the fluent availability of finance to the startup firms without any disruptions or
discontinuities. Another advantage of using banking finance is that they demand less
monitoring and the controlling rights as compared to other options for finance. They are not
interested in the ownership of the firms. They mostly monitor the contract violations,
worsening performances, or failing the quality of the contract that could endanger their loan
(Yerramilli & Winton, 2008). However as far as the question regarding the ease of banking
finance for the startup firms is concerned, (Florin, Dino, & Huvaj, 2013) hold a different
point of view, according to them even after the entrepreneurs ran out of their capital in the
initial stages of the startup, they still consider the option for banking finance to be still too
risky for the banks to consider for providing capital or not. Even if the entrepreneur could
somehow manage to obtain financial resources from the banks, the terms of providing those
resources are themselves unaffordable for the startups. Furthermore banks are in a
continuous need for funds, especially the liquidity funds in their course of business. Such
needs might include demanding additional loans, loan commitments, and increased
demands for the repayment from the startups. Failure to meet the liquidity needs have a
negative impact over the banks, hence creating costs for the banks (Boot, 1999). Another
issue that might come across the startup firms includes the aspect of projects with the
positive future Net Present Value (NPV) to restrain from further borrowing from the banks,
hence derailing the long term commitments with the banks. The worst scenario could be
encountered as a result of this backing off from their commitments by the startup firms,
banks that hold the information about the startups are no longer bound to keep the
information secretly. Hence information can be leaked which would make the condition
worst.
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4.3.1 BENEFITS
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By taking out and paying back a smaller loan amount first, owners increase the chance of their
business being approved for a bigger loan in the future. It may also help secure lower interest rates.
4.3.2 COST
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A business loan is no guarantee that personal finances are protected. Given the extra risk of lending
to small businesses, many financial institutions may require a personal guarantee, which means
banks can come after you for repayment if the business defaults. This means that even your
personal credit score and assets may be impacted.
If you’re concerned about how your personal credit might be affected, we suggest waiting a few
months until your business is more established. That way, you can be more confident that you’ll be
able to repay your loan on time. In turn, you can be sure that your personal credit will remain in-
tact.
You Might Not Know How to Best Utilise the Loan Yet
When experienced business owners receive a loan, they’ve had ample time to understand their
operations and know how the loan can benefit them. However, as a new business owner, you’re
probably still identifying the ebbs and flows of your company. Currently, you’re simply trying to
attract new customers and ensure that you can afford necessary expenses. But in a few months, you
might decide that you want to invest in a certain type of inventory that’s selling out, or that you
need to hire more employees.
By waiting a few months to apply for a business loan, you can make sure that you’re using the
financing for the right areas.
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From the finance team , taking bank loan was much of a burden . This was because tech business
have very narrow business plan and their IRR could take a longer period of time so even though
some banks were approached for assistance they couldn’t land any actual support. Having said that,
he, Mr. Andrew Boabeng was much clear on the fact that as the business received public notices
and having done an accurate postulation of their finance growth for 10years the banks now
approached them to assist them with some funds. Upon careful analysis and their already set
financial growth plan they rejected their request. Though partnership was necessary at this stage ,
they were rather looking at production and franchising partnership instead . Having , a strong
financial position landed then a partnership with StarTimes. This partnership further brought a lot
of growth in the major departments of the business.
The financial growth projection of LOGOSYS TECHNOLOGIES that landed then the
partnership with the StarTime company.
2018 6% 9% 3%
2020 8.5 9% 3%
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The 10 year growth Growth % Revenue % Cost %
stipulation
For a start-up firm it is important to look for the sources of finance that are easily available.
Different from the mainstream environment of financial market, Angel finance is an informal
market for the direct finance where the individuals can invest directly in the small companies or
start-ups through an equity contract. Angel investors are wealthy individuals that operate as
informal or private investors that provide venture financing for the small startup firms (Leach &
Melicher, 2012). As the name suggests, angel investors are individuals of high net worth and
therefore the amount they wish to invest in the small size firms is mostly the same as it is required
by the firm on the other hand (Berger & Udell, 1998). The amount of finance provided by the angel
investors vary across individual and depends on the firm’s perspective for need.
Business angels mostly draft the contracts between them and the entrepreneurs in terms of
prioritizing the safety of their investment. It is the contract that specifies the right and the
obligations of both parties about what will be done by whom and when. The main objective is to
align the incentives of the owner and the investors on the basis of performance and control
measure.
Referring to the National survey for small firm finance in 1993, an estimated 3.59% of the small
size firms across the United States were financed by the angel investors. Though it seems less but
angel investors are high net worth individuals that provide direct funding to the start-up firms in
their initial starting phase (Berger & Udell, 2002). The interaction between angel investors and the
small start-up firms is an interesting phenomenon. Qualified angels can search through the data of
startup firms to search the company of their interests. After which the angels and entrepreneur are
put together on a table to enable them discuss the opportunities of investments and terms and
policies of engagement. Business angels not only provide finance to the start-up firms but also with
the “human capital” in the form of skills and competencies they hold to assist the
newly start-ups as well as already operating small size firms during the different scenarios.
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Another benefit of business angels is that they provide “social capital” used to enhance contacts of
the newly established firm. “Business Angel Networks provide the channel of communication
between private capital investors (angel investors) and the entrepreneurs seeking risk capital”.
Business angel networks (BAN’s) facilitate small start-up businesses especially in their early
stages, with very small amount of finance in order to raise the equity capital (Mason & Harrison,
1997) Furthermore if everything goes well, business angels help increase the financial support for
the firms (Macht & Robinson, 2008). The main reason why angel investors are a good source of
finance for the start-ups is that they demand less control. The existing informal nature of angel
market could be the best solution to reduce the problems related to information in the early stage of
the new start-up financing needs. (Berger & Udell, 1998). Another advantage of angel finance is
that angel investors invest their own money as compared to the venture capitalists that have a legal
duty of care for how they invest. In addition to that business angels make quick investment
decisions and the business angels require less specialist financial and legal due carefulness, as a
result they incur low costs for investments (Mason). One of the key findings in literature revealed a
surprising fact that most of the business angels prefer investing in the startup firms when they are in
their growth stage, rather than the startup or birth stage or even before the firm is setup. This comes
up with a diversified view of financing preferences for the business angels. However still business
angels play a key role in providing financial support to the startup firms in their initial stage as
well. (Freear, Sohl & Wetzel, 1994).
On the other hand there are problems encountered as well for selecting angel finance, since the
market is invisible and uneven, which is the main reason why angel market is overlooked. Similarly
while the business angels may be seen as informal investors, the main drawback is that they face
difficulties in maintaining continuous financing.(Leach & Melicher, 2012) and the problem arises
during the follow-on funding, especially the individual business angels who lack this capacity.
Hence this creates the danger of ultimate cease of startup operations. Also another drawback is that
they bring less financial expertise to the newly established firm as compared to the other sources.
Since there exists no directories of the angel investors and no financial records of the investments
they undertook, it becomes even more difficult to find the most appropriate angel investor.
Concluding to the fact that the market invisibility factor of these business angels and the limited
financial scope are the main drawbacks of business angels. There exists a contact gap between the
entrepreneurs and the business angels, which as a result tends the entrepreneurs to look for
unscientific and passive approaches of finance, diverting their interest towards their family, friends,
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colleagues and business associates. The development of Business angel networks (BANs) could
help overcome this potential problem of contact gap by bringing the donor and the recipient on one
platform. (Mason). However a survey conducted in England between 1975 and 1986 showed that
angel investors dominated venture capitals in the category for financing small size firms and start-
ups, since they have informal consulting relationship with the owners (Fenn & Liang, 1998).
Despite all of these unsolved issues, start-up firms look towards angle investors as one of the most
important sources of finance. Angel investors have had much influence in the LOGOSYS
TECHNOLOGIES because of most of the consultancy services that they sort to take from most
formal tech business men and women in the country. I would like to share the general pros and cons
of Angel Investor financing and also infuse what Mr. Andrew Boabeng shared with me . I was
amazed to find out some of the things I personally thought it was great to have these people around
but it was actually not so.
Angel investors often invest amounts ranging from $25,000 to $50,000 in small businesses. For the
second round of small business funding, this is much more rational than going the venture capital
route. Venture capitalists prefer to make very large investments - in the millions of dollars. Due to
the very high failure rate of small businesses, angel investors and venture capitalists require an
exceedingly high return on their investments; often, they require as much as 10 times to 30 times
the amount they invest. Three of the most famous companies that got their starts with angel
investing are Amazon.com, Starbucks, Inc., and Apple.
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You can find your angel online or close to home. If you want to start your research online, you can
take a look at an Angelsoft, an angel investor network. For a fee, you can make a pitch online. It's
also a good site just to look through and find out what you need to do to make a pitch.
Many financial analysts, however, recommend that you try to find angel funding close to home. Try
your local Chamber of Commerce. Local attorneys, accountants, and banks may know of angels in
your area. Some angel investors like to be involved in the company in which they invest. They may,
for example, want a seat on the Board of Directors. As a small business owner, you could use the
expertise on your board and the access to another potential round of funding. One way to find local
angel funding is to start at the website for the Angel Capital Association, which lists angel investors
by state.
Securing funding from angel investors is a difficult process. The odds are long that you will be
successful. However, you may make excellent contacts for getting funding in the future. You may
meet people who can give you valuable business advice. Even going through the process of giving
multiple presentations is invaluable for the future. You may just secure that angel funding that you
need.
There are certain types of small businesses that angel investors prefer to invest in. They are
typically the hot, high growth industries of the moment and change from time to time as the
economy and economic needs change.
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person (the one who can refer you to the angel investor you’re looking for), which means
immersing yourself in your local business and social community.
Focus on business owners – as these are the people who might be or become angel investors
themselves or know an angel investor. Join business and trade organizations and regularly attend
the meetings. Joining civic and community organizations are also great for networking. Attend
trade fairs and events. Get your face and your name out there and meet as many people as possible.
Know Who You’re Looking For
Your chances of connecting with the angel investor you need will be much better if you keep this
profile of the “typical” angel investor in mind. According to Ralph Kroman of WeirFoulds LLP and
Mr. Andrew Boabeng amazingly shared the same view, the typical angel investor:
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lot ,i was informed was actually the father of the business CEO. So in most cases family people
want to get into our businesses as Angel investors than any other form that will either limit their
influence or make them have restrictive say in the business growth, and most important share their
experiences which will positive affect the business and must be accepted in that light of an investor
not just a relative idea which can easily be ignored.
No Collateral or Guarantee
Another advantage is that angel investor does not require any collateral or guarantee from the
owners of the company which is the case when funds are raised through banks or financial
institutions and hence for owners who have not solid financial background to provide collateral to
banks and financial institutions investment by angel investors is good way of obtaining initial
capital for their startup.
Knowledge Sharing
Angle investors not only give capital but also have a vast knowledge of business which can be of
great help to new entrepreneurs who are doing business for the first time. Hence owners can make
use of their knowledge to avoid mistakes which they committed which ultimately benefits their
business as lesser the mistakes higher the chances of making profits by the company.
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they trust. You’ll find angels could be your next door neighbour, a friend of a friend, or within your
professional network already.
Angel investments can happen at any stage of the business evolution cycle.
If you’re a start-up business, then an angel investor might be willing to put down GHS25,000,00 to
help you build your identity. If you have a late-stage venture that is on the brink of success, you
might find an investment of GHS1 million or more headed your way. Because of the flexibility of
this type of agreement, angels are often ready to negotiate with you so that both parties can get the
best deal possible.
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Angel investors get involved with businesses because they expect to see a return on their
investment. They are going to set the bar high for your success. If they make a large investment,
then they’re going to expect your business to perform. Most angels will give you 5-7 years to hand
out a return and they will put pressure on you every moment of every day to make that happen.
That stress can cause some entrepreneurs to fold the first time they experience it because it can be
so unexpectedly overwhelming.
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Angel investors are typically going to make one investment only. They don’t want to be seen as a
bank that allows you to withdrawal funds whenever you feel it may be necessary. Angels want you
to make your business work for you and for them. Even though they’re willing to take on more
risks than others, they’re not going to keep investing into high-risk scenarios.
Some angels invest into companies that are outside their expertise.
Everyone wants to have a diversified portfolio in order to protect their best interests. Angels are no
different. They will often look at industries outside of their regular experience to help diversify
their finances. When an angel with limited knowledge comes into your arena, it can put you at a
disadvantage even though you’ve got the investment you wanted.
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ANGEL INVESTORS STILL INVEST MORE IN THE ICT SECTOR THAN ANY OTHER
SECTOR IRRESPECTIVE OF THE GROWTH STATGE OF THE BUSINESS. THAT WAS
WAHY LOGOSYS TECHNOLOGIES HAD A LOT OF THEM ON BOARD.
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4.5.0 STARTUP FINANCE THROUGH VENTURE CAPITAL
Proceeding towards other sources of finance, the option of Venture capital is another considerable
factor in this category. Venture capital is the main source of finance for the high technology firms
(both small and large). Venture capital is a type of financial capital made available by the venture
capitalists in the early-stage of the firm that often involves ample risk of total loss or failure for the
startups. Venture Capitalists on the other hand are individuals that join informal and organized
firms (startups) in order to raise and distribute the venture capital to new and rapidly growing new
ventures and business opportunities (Leach & Melicher, 2012).
Venture capitalists mostly preferred to invest in the startups in order to make them compensate for
the initial negative cash flows and to finance their growth ambitions. Since the startup firms require
additional finance in the initial stages of their development with increase in scale of production and
turnover (Dimov & De Clercq, 2006). Discussing about the types of industries in the financing
categories of venture capitalists, literature provides a look at the financing preferences for VCs.
Though venture capital is available for the startup firms in the form of funds that consist of pension
funds, investments, private investors, joint ventures between small and large firms, venture
capitalists mostly invests in small firms. There are more chances for the startups to acquire venture
capital once they are established as compared to the pre-startup phase where owner’s capital and
banks are the key sources of finance (Maier & Walker,1987).
Venture capital is a formal kind to financing strategy made available to the startups, however
making sure the availability of venture capital is now on the policy agenda in many of the advanced
countries. Since venture capital is a key source of finance in the startup stage as well as growth and
maturity stage of start-up firms, Venture capitalists typically invest in the portfolio companies once
they began preparing for their initial public offerings (IPO) (Tan, Huang & Lu, 2013). However
there also lies a time frame for the duration of venture capital, For the Venture capitalist the time
frame lies between five to ten years and often they receive not any real or meaningful returns
during this period (Maier & Walker,1987).
Venture capitalists carry many advantages with them. VCs are generally interested in the growth as
well as increase of their venture value when making their investments, therefore the growth
potential of the entrepreneur and the capability of management team of the startup firm to realize
the growth are dominant to Venture capitalists. The venture capital funds add a lot to the startup
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firm in the form of the experience and skills they hold as compared to the banks. Venture capitalists
add to the startups by making sure that the entrepreneur stays motivated, since they don’t aim to run
the business themselves meaning that they are not interested in the having the ownership of the
startups. In addition to that VCs provide the startup firms with the social capital, where
entrepreneurs get to know more about new venture capitalists, hence broadening the platform of
venture networking (Alexy, Block, Sandner & Ter Wal, 2012). Besides providing financial and
motivational support to the startups, the specialised expertise of the VCs helps reduce the failure
rate of the startups. Specialised expertise in the form of controls over the management enables them
to implement the corrective actions. Furthermore through the expertise provides by the VCs in the
later stage help understand and deal with the complexities of the firm hence increasing the learning
ability of the startups. (Dimov & De Clercq, 2006).
On the other hand Venture Capitalists hold some drawbacks as well in their way of financing
startup firms. The venture
capitalists to some extent do insist on having the control of the board of directors, and corporate
decisions regarding future equity dilution to be in their hand as well. With such preferences VCs
aim to represent a fair deal for all (De Clercq, Fried, Lehtonen & Sapiensa, 2006). Venture capitals
can reduce the size of investment every time, if there still exists uncertainty. With the
internationalisation of business operations lead them to exposure of economic and political risks,
and may increase the uncertainty at least, which increases the need for information exchange for the
venture capitalists. In addition to this, venture capitalists implement new organisational structures,
procedures, and processes for the administrative requirements which might be considered as
interference in the operations of the startup firms. Since the VCs mostly invest in the startup firms
already established, and in working phase the issue of agency problem might occur where VCs and
their assistances might be in a conflict with the Entrepreneur’s or managers interests. Therefore in
this scenario VCs might prefer increased monitoring over a span of time that might result increase
their agency risk. This is found out to be true with other reasons including lack of sufficient
information, decision making skills and insufficient efforts towards expense reduction (Berger &
Udell, 1998) (LiPuma, & Park, 2013). In a nutshell for the small size firms to make sure that
venture capital is the primary source of funding the strategic planning should be highly
opportunistic and firm should represent the capacity for growth and promise high return on
investments.
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4.5.1Who Venture Capital Is Right For
Founders use venture capital funding for scaling a company. Founders who don’t have experience
scaling or need specific advice and contacts in a new industry to scale can benefit from venture
capital funding. Also, if the startup requires multiple rounds of funding in the millions of dollars for
growth or is in an untapped growing market, venture capital can be a great source of funding.
Venture capital funding is right for:
• Founders with no experience scaling a startup: Venture capital partners have scaled
dozens of startups in the past, making them a great source of knowledge and expertise.
Founders with little experience scaling can take advantage of this resource in addition to the
capital.
• Startups experiencing high growth needing to scale: If your startup is already growing
quickly, getting venture capital funding can help build out your operations. By doing so,
you can reduce the number of pain points within the startup and keep up with demand while
maintaining or improving your product quality.
• Founders needing several multimillion dollar rounds of funding: Venture capital is one
of the few sources of funding that can offer several million dollars over the course of
several years. Some startups require large amounts of capital, especially if they delay
profitability to continue to acquire users.
• Startups in rapidly growing untapped markets: Startups often find themselves as one of
the few competitors in a booming market. Traditional lenders won’t lend based on a trend to
startups, but venture capital firms will. This funding can help startups scale and attempt to
capture a large share of a growing market.
• Founders needing specific industry expertise and connections: If your startup is entering
a new market you have limited experience with, the right venture capital firm can make a
huge difference. By leveraging their experience and connections, the startup has a much
higher chance of succeeding by avoiding mistakes.
Seed Stage
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At the seed stage, the company is only an idea for a product or service, and the entrepreneur must
convince the venture capitalist that their idea is a viable investment opportunity. If the business
shows potential for growth, the investor will provide funding to finance early product or service
development, market research, business plan development, and setting up a management team.
Seed-stage venture capitalists participate in other investment rounds alongside other investors.
Startup Stage
Startup stage requires a significant cash infusion to help in advertising and marketing of new
product or services to new customers. At this stage, the company has completed market research,
has a business plan in place, and a prototype of their products to show investors. The company
brings in other investors at this stage to provide additional financing.
First Stage
The company is now ready to go into actual manufacturing and sales, and this requires a higher
amount of capital than the previous stages. Most first-stage businesses are generally young and
have a commercially viable product or service.
Expansion Stage
The business has already started selling its products or services and needs additional capital to
support the demand. It requires this funding to support market expansion and start another line of
business. The funding may also be used for product improvement and plant expansion.
Bridge Stage
The bridge stage represents the transition to a public company. The business has reached maturity,
and it requires financing to support acquisitions, mergers, and IPOs. The venture capitalist can exit
the company at this stage, sell off his shares, and earn a huge return on his investments in the
company. The exit of the venture capitalist allows other investors to come in, hoping to gain from
the IPO.
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Help Raising Subsequent Rounds of Funding Is Available
Venture capital firms are interested in seeing your company raise additional funding at a higher
valuation. They can introduce you to additional venture capital firms that can better assist you at
later stages and provide additional funding. Venture capital firms often reserve the right to invest in
future rounds of funding and often contribute additional capital as the startup grows.
Collaboration Opportunities With Industry Experts & Other Startups Are Available
When you get venture capital funding, you are getting what is often referred to as smart money.
This means the money you get comes with the added benefit of the expertise the venture capital
firm can offer. You will often work with partners from the firm, other startup founders who have
received funding, and experts from both of their networks to get your company on the right path to
growth and success.
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Large Amounts of Capital Can Be Raised
Many small business loans for startups are limited to $5 million and qualifying can be difficult.
However, venture capital is available in amounts as small as $100,000 for a seed stage and more
than $25 million for more mature startups in large markets. There is also a tendency for startups to
raise venture capital several times, allowing companies to access a large amount of capital that
would otherwise be impossible.
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4.5.4 COST OF VENTURE CAPITAL TO A STARTUP
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VCs are all about high risk, high reward. But due to risk, they also may take a long time to decide
to invest.
The process of raising VC money is a notoriously grueling one, with some startup founders having
to tap out before they’re able to raise the funds. While venture capital is a great source of funding
for startups, that long period of time before getting funding can be a serious disadvantage to
venture capital.
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CHAPTER 5
At this stage I considered 5 major analysis through the use of tables and graphs to explain the
below listed findings.
A. The trend highest support for startups from the five sources of finance considering ventures like
commerce , tech, agriculture and others
B. Support from the various finance sources to the ventures mentions at the initial stage of the
business
C. At the growth stage
D. At the maturity stage
E. The rank for LOGOSYS TECHNOLOGIES in terms of financing its business from the various
sources mentioned
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The trend of highest support for startups from the five sources of finance
considering ventures like commerce , tech, agriculture and others
The tables and graphs below will given an explanation to why startups can target a
fund sources base on the category of their venture, being it technology, agriculture ,
commerce and others .
Business ventures from the table get much support from the banks due to the fact that
such ventures promote the banking activities and in most cases the business plan
from these group look more achievable in the shortest possible run.
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It is quite obvious that venture capital support for technological ventures are huge . Most venture
capital firms take the highest form of risk and stand to gain more from the startups when there
success.
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Other business which in most cases we find it very difficult to group then under the 3 headings are
classified as others and in most case the major investment sources is from the initiators own capital
and also get people on board who act as angel investors. Example of such ventures could be retail
business which needs capital to make profit out of that.
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Agriculture has been the bed rock of every developing nation for which Ghana can also be related
to. The apex of government funds to startups in agriculture is not a surprise due to government
policies for the sector to making sure that it reduces the level of unemployment through and
initiative called youth in agriculture. Though LOGOSYS TECHNOLOGIES didn’t have a direct
benefit from this , I included it to help the young entrepreneurs to also look at such a venture
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Support from the various finance sources to the ventures mentions at the initial
stage of the business
It could be seen from the graph that the initial stage of business, LOGOSYS TECHNOLOGIES
company had to be finance in a greater percentage from the owner’s own capital. In most studies
done it was much obvious that the early stage of most startups do not get it easy to have external
funds and this is due to several reasons , one of which is the fact that most investors do not get the
clarity of the business idea and therefore fail to commit any funds. The other was that most astute
entrepreneurs of today are more focus on customers seeking than investor seeking and this has
really turn out to be positive on the stories of the major startups making great impact in our various
nations.
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As the graph depicts when the business matures and the banks want to have funds flow from the
company and also get affiliations they try to extend their support in so many ways but the common
one identify was through longterm loans. But payment terms were very much diverse .
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5.1.1Return on capital employed ;
We saw earlier that LOGOSYS TECHNOLOGIES had major fund support from investors due to
the positive future look of his business in terms of revenue gained and cost incurred . So I
employed the ‘return on capital employed ratio to confirm the decisions of the investors ‘.
This ratio is the most appropriate indicator of the earning power of the capital employed in the
business. It also acts as a pointer to the management showing the progress or deterioration in the
earning capacity and efficiency of the business.
The ideal Ratio : 15%
If the actual ratio is equal or above 15% , it indicates higher productivity of the capital
employed and vice versa.
From our previous chapters we saw that LOGOSYS TECHNOLOGIES had a very positive return
on investment for its future projections and this attracted most of the investors . This ratio clearly
explains why most investor committed their funds to the business till 2026 and even beyond . On
average the projected future return was : this figures are in percentages
8.5+13+20+18+21+20+25
= 17.9285714
7
Approximately 18% which gives a positive indication of return on capital employed.
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5.2.0 CONCLUSION
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5.3.0 LIMITATIONS
5.4.0 FINDINGS
A. I had a prime objective to ascertain the fund sources for startups and possibly do a cost and
benefit analysis on them but I find out that the fund sources are segregated in terms of business
type and stage of the business in it life cycle.
B. Most strat-ups actually have to fund major portion of their idea of business initially
C. Government do finance startups but it must be in line with the government’s policies for that
year.
D. LOGOSYS TECHNOLOGIES owner started business with his personal capital but due to a
highly positive future outlook had supports from some angel investors across the city of Accra
E. I also noticed that crowdfunding is not common in Ghana and startups have no idea about it and
how to access funds from this new way of funds source for startups.
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5.5.0 SUGGESTIONS
From this report the suggestions I have are many but the major one I would like to talk about is that
, the finance department of LOGOSYS TECHNOLOGIES must look at one major finance source
taking over the system and that is CROWDFUNDING .
I would take more about this crowdfunding in this suggestions section of the report. Aside this , I
believe venture capital companies invest more in technological related companies and I would
recommend that LOGOSYS TECHNOLOGIES must consider such a fund source fo see major
expansion.
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to the caprices of individual angel investors or bank loan officers. Now it is possible to pitch a
business plan to the masses.
A successful crowdfunding round not only provides your business with needed cash, but creates a
base of customers who feel as though they have a stake in the business' success.If you don't have an
engaging story to tell, then your crowdfunding bid could be a flop. Sites such as Kickstarter don't
collect money until a fundraising goal is reached, so that's still a lot of wasted time that could have
been spent doing other things to grow the business.
It could be even worse if you meet your goal but then realise you underestimated how much money
you needed. A business risks getting sued if it promises customers products or perks in return for
donations, and then fails to deliver.
There is also an argument to be made that angel investors and even bank officers provide more than
just money. They provide entrepreneurs with needed advice. Business owners miss out on such
mentorship when they ignore traditional investors and turn to the crowd.
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5.6.0 BIBLIOGRAPHY
Personal interviews
• Mr . Padi Ologo (general manager ; LOGOSYS TECHNOLOGIES) , 8th Aug. 2019
• Mr. Andrew Boateng (head of finance; LOGOSYS TECHNOLOGY), 3rd Aug.2019
• Chief Kwabena Akuamoah( An angel investor; LOGOSYS TECHNOLOGIES) 28 Jul.2019
Books
• Alexy, T, O; Block, H, J; Sandner, P; & Ter Wal, J, L, A, (2012), “Social capital of venture
capitalists and start-up funding”, journal of Small Business Economics, 39:835–851
• Chavis, W, L; Klapper, F, L; & Love, I; (2011), “The Impact of the Business Environment on
Young Firm Financing”, The world bank economic review ,vol. 25, no. 3, pp. 486–507
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