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Lecture 6

BU121 week 6.docx

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Laura Allan

Seven Principles of Entrepreneurial Finance 1 Real human and financial capital must be rented from owners They expect a return that is comparable to what they could get somewhere else 2 Risk and expected reward go hand in hand Incredibly high risktheyll expect a return that compensates 3 While accounting is the language of business cash is the currency4 New venture financing involves search negotiation and privacyYou cant just sell stocks Constantly searching for funding 5 A ventures financial objective is to increase valueProve that theres value so that money will come and you can exit and get the value free cash flow6 Its dangerous to assume that people act against their own selfinterest7 Venture character and reputation can be assets or liabilities Financing through the Venture Life Cycle Revenue generation begins at time 0Eventually revenue levels off 1Seed financingoriginally came from the owner family friends Startup stage use angel investors and venture capitalistsAngelan individual who is a selfmade millionaire that has money to invest like the DragonsVenture capitalistmore formal and organized in a firm have a lot of people involved and a lot of ventures to spread the riskSurvival stagestill need venture capitalist may get government assistance may have to put your house up as collateral for bank loansTime cash flows to your advantage get trade credit from suppliersex 90 days to pay while get cash from customers quickly Rapidgrowth stagecashflow positive need even more funding Mezzanine financingdebt with an equity kicker need to get financing without collateral offer a portion of the company Liquidity financinginvestment bank public needs to see the value so theyll buy the stock its easier to get 5 million from 1 million people rather than just from one person 2
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