Raising Capital and Cash Flows “Attract Investors, Inspire Trust, Encourage Commitment”

Investor Due Diligence Investors need to be sure that the businesses they invest in will make them money In order to be sure, they ask the following questions How will the venture earn revenue? What is the potential profit? How long until profitable? How much money needed? Secured? How? Convertible to cash? When? Management of venture? Any investor involvement in management?

Equity Financing Ownership in exchange for financial contribution In other words, when you invest money into the business, you are becoming a part owner of the business From a variety of sources – Savings Family Friends Business Partners

Equity Financing How can you divest your ownership? Venture Capital: Partnership Incorporate & sell shares Venture Capital Business employees (stock purchase/options) Venture Capital: Money invested into startup/growing businesses

Equity Financing Advantages +’s Disadvantages -’s Greater equity increases borrowing power Entrepreneur may become employee of other investors Generous supplier credit terms if lots of equity Entrepreneur may lose independence Less individual risk More involved and contributing owners Investors share profit based on investment Investors interested in venture success Additional legal and audit fees

Debt Financing Money borrowed to finance a venture. Money can be borrowed from numerous places and in numerous ways Cost (interest) is tax deductible. Debt to Equity Ratio of 1:1 to 4:1 4:1 higher risk Higher risk may require security (collateral)

Six C’s of Credit Banks look at: Character Capital Collateral Capacity Honest, trustworthy, reliable Capital How much does the Entrepreneur have invested? Collateral Security / assets pledged Capacity Of entrepreneur/business to manage Circumstances Product, Competition, Economy, Inflation Coverage Insurance protection

Sources of Financing Banks Chartered Banks are financial institutions organized under Federal Legislation Line of Credit Floating & Interest only Term Loan Equipment – Time frame Mortgage Long term – real estate Each form can have various repayment options

Sources of Financing Credit Unions Provincially organized financial institutions Usually associated with labour organizations Many “Caisse Populaires” in Quebec and Eastern Ontario Must be a member to obtain financing Members may receive interest rebates if C.U. has an annual surplus

Sources of Financing Government Agencies Federal and provincial Grants, guarantees or loans Grant not repayable Summer jobs program http://www.ontariocanada.com/on tcan/1medt/smallbiz/en/sb_ye_su mmerco_en.jsp

Application to Venture Plan Now that you have looked at the various sources of capital financing, you need to outline where you will be getting your financing Fill out the given outline and then incorporate that information into your financial analysis plan