1. Financing Your Venture
Presented by
Jeffrey A. Robinson, Ph.D.
Assistant Professor of Management & Entrepreneurship
NYU Stern School of Business

2. Agenda The Business Plan Two more financial consideration
Review of the financial aspects of the plan
Two more financial consideration
Start-up Budgets and Operating Budgets
Ways to Finance your Venture

3. Capital What is a good framework for entrepreneurship? Innovation
Opportunity
Innovation
Networks

4. Capital can be acquired, exchanged & converted Five forms of capital
Financial (debt, equity, etc.)
Human (skills, education)
Social (networks of people)
Cultural (social resources, family background and knowledge of cultural nuances)
Intellectual (IP in firms, transferable)

5. The structures around an opportunity or context
The identification, evaluation, exploration, and exploitation of a venture opportunity
The structures around an opportunity or context

6. The cultivation and management of innovation and innovative practices
The innovation of business models
The protection of innovations
Innovation

7. Networks connect people within organizations and between organization
Networks connect entrepreneurs to capital, innovation, opportunities
Networks tie everything together
Personal Networks/Professional Networks/ Entrepreneurial Networks
Networks

8. Entrepreneurship Capital Innovation Networks Opportunity
The success or failure of your venture depends upon how your put these pieces together.

9. Why is this important?
… because good entrepreneurs leverage capital, opportunities, innovation and networks to create viable ventures
… because good business plans demonstrate how an entrepreneurial team will leverage capital, opportunities, innovation and networks to create a new venture

10. Two important statements …
CFIMITYM
EENASWASI

11. Detailing the Financial Picture for your Venture
Financial Statements
Detailing the Financial Picture for your Venture

12. Financing Requirements and Opportunity
Target financings (equity and debt)
Current Offering
Capitalization
Use of Proceeds

13. Financial Projections
5 year summary projections
3 year detailed, quarterly projections
Balance Sheet
Income Statement
Cash Flow Operational
Break-even Analysis

14. The Start-up Budget & The Operating Budget
What will it take to get this venture started?

15. What’s the Difference? Start-Up Budget Operating Budget
How much will you need to get this venture started?
Includes one time capital purchases and typically 3-6 months of operations
Operating Budget
How much will you need to remain in business?
Includes the monthly expenses to run your business

16. Financing Your Venture
Sources of Funding

17. Traditional Ventures: Types of Firms
Lifestyle firms
generally < $1M in revenues
founders have no desire to expand
Forged out of something you are passionate about
Growth Firms
$1 M to 20 M revenues, 10-20% growth
$20M + revenues, >20% growth {gazelles}
Founders want to expand and grow the firm

18. Opportunity Recognition
There are far more good ideas than there are good business opportunities
Many businesses run out of money before they find enough customers for their good ideas

19. How Much Money They Had 2004 Inc. Magazine 500
In terms of start-up capital, including personal assets, Inc. 500 companies started with little.*
23% (B)
14% (G)
13% (A)
13% (D)
13% (F)
12% (C)
12% (E)
(A) Less than $1,000 (E) $50,001 to $100,000
(B) $1,000 to $10,000 (F) $100,001 to $300,000
2004 Inc. Magazine 500
(C) $10,001 to $20,000 (G) More than $300,000
(D) $20,001 to $50,000
*”Start-up capital” refers to funds raised before any product or service was delivered. “Personal assets” includes savings, mortgage or other personal loans, credit cards, 401(k), etc.

20. Where the Money Came From
The following sources of funds provided Inc. 500 start-up capital.
2% (G)
4% (F)
4% (E)
2% (H)
8% (D)
SOURCE OF FUNDS
53% (A)
10% (C)
17% (B)
(A) Personal assets
(B) Other founders’ personal assets
(C) Assets of family or friends (other than co-founders)
(D) Commercial bank loan or line of credit
(E) Private equity investment
(F) Financing from a supplier, customer, or other business entity
(G) SBA loan or funds from other government program
2004 Inc. Magazine 500
(H) Formal venture capital

21. of companies have raised private equity.
Since Start-up
17%
of companies have raised private equity.
2004 Inc. Magazine 500

22. 12% Since Start-up of companies have raised venture capital.
2004 Inc. Magazine 500

23. Stages Seed Idea Startup Identifying Customers
Growth Working Capital Generally Needed
Expansion Need Capital for WC as well as for equipment and infrastructure
Harvest Always think how investors and entrepreneurs get their money out

24. Bootstrap Capital Self Business Partners Friends and Family
Personal Savings
Credit Cards
Loans against property
Bank Loans
Equity Investments by friends and family

25. Bootstrap Finance (Bhide)
Get operational quickly
Look for quick break-even, cash-generating projects
Offer high-value products or services that can sustain direct personal selling
Forget about the crack team
Keep growth in check
Focus on cash, not on profits, market share, or anything else
Cultivate banks before the business becomes creditworthy

26. More bootstrapping tips …
Do not buy new what you can buy used.
Do not buy used what you can lease.
Do not lease what you can borrow.
Do not borrow when you can barter.
Do not barter when you can beg.
Do not beg what you can scavenge.
Do not scavenge what you can get free.
Do not take for free what someone will pay you for.
Do not take payment for something that people will bid for.
From “10 Principles of Entrepreneurial Creation” by S. Venkataraman

27. Debt or Equity
Equity will help your grow quicker but will result in sharing of wealth and control with other investors
Debt is less expensive than equity
Quicker and easier to find
Requires regular payments of principle and equity

28. Debt VS Equity Always a consideration
Debt usually less expensive than equity but hard to get
If you do use debt -- generally you will have to pledge assets that are personal
In a small business the owner personally pledges assets

29. Sources of Capital Government
SBA - Small Business Administration 7 (A) Program
SBIC - Small Business Investment Corporation/ MESBIC
no more than 20 percent of SBIC assets in 1 company
MESBIC – Minority Enterprise SBIC
51 percent owned by socially or economically disadvantaged minority
SBIR – Small Business Innovation Research Grants

30. The Capital Markets Food Chain for Entrepreneurial Ventures
Text Exhibit 14.1

31. Sources of Capital Banks
Amount available to entrepreneurs is highly depended on where in the business cycle the economy happens to be
Business loans are different than commercial real estate loans
Consider Community Development Banks if Social Enterprise
Small Business Services at local bank – i.e. Line of Credit
Factoring -- Selling Accounts Receivables for Cash

32. Sources of Capital Corporations
We do not really talk much about in this course
It is not uncommon for a former employee to get funding from her old company if the business would be complimentary
Corporation may be able to use the technology

33. Sources of Capital Angel Investors Venture Capitalist
Private investors (often family and friends -- but can be established member of a community)
return percent annually
Venture Capitalist
Generally don’t finance seed or startup phase
return 30 to 60 percent annually

34. Rate of Return Sought by Venture Capital Investors
Text Exhibit 15.1

35. Informal Investors
What kind of ventures lend themselves to the use of informal investors?
Ventures with capital requirements of $50 K - $500 K
Ventures with sales potential of $2 M - $20 M over 5 to 10 years
Small established, privately held venture with sales and profit growth of 10% to 20% per year
Some R&D deals
Companies with high levels of FCF within 3 or 5 years
Source: Timmons, Chapter 14

36. Characteristics of Business Angels
Bill Wetzel found that business angels are mainly American self-made entrepreneur millionaires who:
Have made it on their own, have substantial business and financial experience, and are likely to be in their 40s or 50s.
Are well educated: 95% hold college degrees and 51% have graduate degrees.
Have technical or business education—of those who have graduate degrees, 44% were in a technical field and 35% in business or economics.
Are predominantly male—over 96% are men.

37. Sources of Capital
IPO
Usually when Angels, Venture Capitalists and sometimes entrepreneur try to “cash out”
Expensive
Time Consuming
Highly dependent on where the business cycle is

38. Finding Money Less than 1 percent from SBA Angels -- Informal Capital
Require an average of 26%/yr
Usually local
Accept about 30% of deals
Banks
Will lend but usually require collateral
Easier to get a personal loan than a commercial loan

39. Resources and Sources www.sba.gov
Angel Investor Networks/Venture Exhibitions or Venture Fairs
Your Business School (Entrepreneurship Center, Alumni Network)
Business Plan Competitions ($25 K - $100 K)
City, State and Regional Economic Development agencies/departments

40. Contact information
Jeffrey A. Robinson, Ph.D.
African American Women Entrepreneurs Research Project
The Ph.D. Project – Ph.D. in Business School
Venture Plan Document