Professional Documents
Culture Documents
Chap 11
Chap 11
Chap 11
Hisrich Peters
McGraw-Hill/Irwin Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Shepherd
Equity financing - Obtaining funds for the company in exchange for ownership.
Does not require collateral. Offers investor some form of ownership position.
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(cont.)
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(cont.)
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Sources of Funds:
Self Family and friends Suppliers and trade credit Commercial banks Government Loan programs R&D limited partnership Private Investor Venture Capital Private Equity Placements Public Equity offerings
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Personal Funds
Least expensive funds in terms of cost and control. Essential in attracting outside funding. Typical sources of personal funds:
Savings. Life insurance. Mortgage on a house or car.
The entrepreneurs level of commitment is reflected in the percentage of total assets that the entrepreneur has committed.
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Commercial Banks
Types of Bank Loans (Asset based)
Accounts receivable loans. Inventory loans. Equipment loans. Real-estate loans.
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Commercial Banks
(cont.)
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Commercial Banks
(cont.)
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Costs:
expending of time and money. Restrictions placed on technology can be substantial. Exit from the partnership may be too complex.
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Government Grants
The Small Business Innovation Research (SBIR) program was created as part of the Small Business Innovation Development Act.
All federal agencies with R&D budgets in excess of $100 million must award a portion of their R&D funds to small businesses through the SBIR grants program. Offers a uniform method by which each participating agency solicits, evaluates, and selects the research proposals for funding.
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Table 11.2 - Federal Agencies Participating in Small Business Innovation Research Program
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Government Grants
(cont.)
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Private Placement
Types of Investors
Investor can influence nature and direction of the business. May be involved in the business operation. Entrepreneur needs to consider degree of involvement.
Private Offerings
A formalized method for obtaining funds from private investors. Faster and less costly.
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Bootstrap Financing
Outside capital:
Usually takes between three and six months to raise. Often decreases a firms drive for sales and profits. Increases the impulse to spend. Decreases the companys flexibility. May cause disruption and problems in the venture.
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Bootstrap Financing
(cont.)
Bootstrap financing involves using any possible method for conserving cash such as:
Use of discounts for volume. Frequent customer discounts. Promotional discounts. Obsolescence money-upgrading to an enhanced product without raising cost Savings through bulk packaging. Consignment financing.
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