TIMS1301 Lecture Notes - Lecture 8: Business Model Canvas, Finance Capitalism, Airbnb
New Venture Finance – Financing
Today's Topics:
• Financing
• Understanding Value and Managing
Finances
Part 1: Financing
Key Points
Prioritize your assumptions into those that can be showstoppers and/or involve locking you
into a certain path and designing quick and cheap experiments to test those assumptions
Increase expenditure as confidence grows
Base your finance-raising on milestones and assumption testing experiments.
Do not compete on margins
Sub-Topics
• Capital Requirements
• Sources of Finance
• Bootstrapping
• Crowd-Funding
• Debt and Equity Finance
Capital Requirement
Two main issues in Financing new ventures
1. How much money will you need for startup?
2. Where will you get the money from?
Determining your Start-up Capital Requirements
Is a futio of…
1. Pre-Launch start-up costs and capital
• Everything you have to pay to get the business ready to start
• Capital you need to develop and action your value
proposition and activity system.
• Start with your key activities, resources, customer
relationships and channels in your Business Model Canvas
(BMC) (See next slide)
• Then try to think about the start-up expenditures associated with
each activity and resource (labour, electricity, connection fees,
accounting and legal fees, equipment costs, initial advertising and
marketing costs, purchase of initial inventory, etc.)
• List these expenses per activity with an estimate of the start-up
cost and capital expenditure required.
2. Working capital shortfall
find more resources at oneclass.com
find more resources at oneclass.com
• From profit negative to profit positive - Money you will need after you start the
business to cover your expenses until you start making enough profit to cover the
expenses yourself = Liquidity
Using the Sharing Economy to limit Start-up Capital requirements
• Remember that "Key Partnerships" are a valuable source of resources and could also perform
key activities (They could also assist in creating access to customers and in building customer
relations).
• Think about the sharing economy where Airbnb and Uber do not own the majority of the
resources required to action their value proposition
• The form partnerships with many suppliers of resources and services in their dual platforms
enabling them to provide a Value Proposition that would have required enormous capital
investment had they followed the traditional taxi and accommodation business models
Working Capital Shortfall
• This means you are not making enough money in your operations to cover your operating
expenses
• This is known as Working Capital Shortfall = Liquidity requirement
• Net Working Capital = Current Assets - Current Liabilities
• You need to get finance to cover your working capital shortfall until you're profit positive and
can generate adequate funding internally, thus cash positive
Maintaining Liquidity
• The failure of many start-ups can be attributed to this neglect of working capital shortfall in
initial estimations of necessary finance. "An engine cannot run without oil in the system"
• Typical fixed expenses include:
• Rent Payments
• Interest and Loan payments
• Wage and Salaries
• Insurance
• Rates
• Typical variable expenses
• Ongoing inventory purchases
• Costs of getting products/services ready for sale
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Prioritize your assumptions into those that can be showstoppers and/or involve locking you into a certain path and designing quick and cheap experiments to test those assumptions. Base your finance-raising on milestones and assumption testing experiments. Sources of finance: capital requirements, bootstrapping, crowd-funding, debt and equity finance. Is a fu(cid:374)(cid:272)tio(cid:374) of : pre-launch start-up costs and capital, everything you have to pay to get the business ready to start, capital you need to develop and action your value proposition and activity system. List these expenses per activity with an estimate of the start-up cost and capital expenditure required: working capital shortfall. From profit negative to profit positive - money you will need after you start the business to cover your expenses until you start making enough profit to cover the expenses yourself = liquidity. Maintaining liquidity: the failure of many start-ups can be attributed to this neglect of working capital shortfall in initial estimations of necessary finance.
