INFORMATION TECHNOLOGY ENTREPRENEURSHP Elikem Nutifafa Kuenyhia Management Consultant & Corporate Lawyer CLASS SEVEN: ACQUIRING FINANCIAL CAPITAL

Agenda For Class Seven Hand in Homework Assignment Mid-term evaluation Acquiring Financial Resources Give you opportunity to ask questions

Distinct Stages for Capital Founding Stage –Initial vision for business. –Development of strategy –May require capital for research, concept development etc –Entrepreneur & friends/family Seed Stage –Money required to start the business (‘seed’) –Typically comes from friends & family

Distinct Stages for Capital Growth stage –Where you need to fund business to enable it sustain its growth –Stage where you are likely to get the most interest from investors Harvest Stage –Where founders seek to ‘harvest’ their investment –Trade Sale, Sale to other investors, IPO etc

Considerations in seeking capital Be clear what you need money for, how much –Starting point should be b/plan cash flow statements Give consideration to Fixed Capital vs. Working Capital From whom you raise capital is more important than the terms Investors typically want to see that the entrepreneur has his ‘skin in the game’

Acquiring Financial Resources SOURCES OF CAPITAL Equity Capital –Personal Savings –Friends & Family –Angel Investors –Stock market Debt Capital

Equity v Debt Capital Equity capital is an investment in the ownership through the purchase of shares Debt capital is money that is borrowed and which must be repaid over time. Usually doesn’t include any share ownership

Sources of Funding Self funding/Bootstrapping Friends & Family Angels Venture Capital Stock market Bank Financing Lease Financing Corporate profit/Internal sources

Self funding –Cheapest Form of Capital No other associated costs other than opportunity cost –Shows your skin is in the game –More savings you have, the less equity you have to give up –Generally 'unreliable' source – takes long time to save/inflation etc –Takes away 'survival money'

Friends & Family Relying on personal relationships to fund venture Friends & Family more patient and less meddlesome than other investors Can put strain on underlying relationship –Particularly when business is not going well Maybe difficult to raise huge sums through this route Friends & Family should be able to accommodate losses. Unrealistic or misunderstood expectations –Clarify!

Angels Basically a good guy with money who can be persuaded to invest in your venture –Typically retired entrepreneurs Might be investing for reasons other than returns “Smart Money” - can add significant value to entrepreneur's business

Venture Capital Venture Capitalists: – finance new & growing businesses –Acquire equity in ailing companies with prospects –Bring smart money, contacts and active hands on management –Invest for medium term –Exist is important

Why Some Cannot Access VC funding No knowledge of what VCs offer Poor corporate governance Unwillingness to give up control Lack of transparency/honesty No business plan/corporate plan

Stock Exchange IPO provides medium to long term capital needs of company IPO = initial public offer A company is listed when its shares are approved to be bought and sold on the Stock Exchange Must appoint a licensed dealing member of GSE to sponsor application and take through listing process Both existing and new shares can be listed on exchange

Stock Exchange GSE has three official lists –First Official List –Second Official List –Third Official List Minimum capital requirements –FOL : 100M –SOL : 50M –TOL : 25M Minimum public float –Shares offered to public should not have a market value of less than 30M for FOL, 15M for SOL and 5M for TOL –25% or more of Company’s shares should be issued to public Spread of shareholders –Spread of shareholders at close of IPO should be adequate (in opinion of GSE)

Stock Exchange Minimum Period of existence –TOL – one year but can be waived Profitability –SOL/TOL – must have strong potential to be profitable Management & Directors –Evidence that management possesses requisite expertise –Character and integrity of management & directors must be acceptable to GSE

Equity Capital Shareholders acquire shares in the company For partnerships, you invest in the partnership May give investor say in the direction of company Adv for entrepreneur is that he does not have to repay Shareholders get paid dividends out of profits Involves parting with ownership –50% of something is better than 100% of nothing

Debt Capital Overdrafts Term loans Floating rate vs Fixed rate Demand vs. Fixed Maturity Secured vs. Unsecured