CHAPTER 10: GETTING FUNDING OR FINANCING
THE IMPORTANCE OF GETTING FINANCING/FUNDING
Why Most New Ventures Need Funding
Sources of personal financing (3):
• Personal Funds: The vast majority of founders contribute personal funds, along with sweat
equity, to their ventures. (Sweat equity represents the value of the time and effort that a
founder puts into a new venture.)
• Friends and Family: second source of funds for many new ventures.
• Bootstrapping: Finding ways to avoid the need for external financing or funding through
creativity, ingenuity, thriftiness, cost cutting, or any means necessary. EXAMPLES:
Preparing to raise debt or equity financing
Step 1: Constructing and analysing documented cash flow statements and projection for
capital expenditures. Knowing exactly how much money to ask is important because:
o A. Don’t want to be caught short & don’t want to pay capital if not needed
o B. Poor impression if uncertain
o Equity financing: Exchanging partial ownership in a firm, usually in the form of
stock, for funding
o Debt financing: Getting a loan
1 Step 3: Elevator speech (pitch) is a brief, carefully constructed statement that outlines the
merits of a business opportunity. 45 seconds to 2 mins
Sources of Equity Funding (3):
Business Angels: Are individuals who invest their personal capital directly in start-ups.
The prototypical business angel is about 50 years old, has high income and wealth, is well
educated, has succeeded as an entrepreneur, and is interested in the start-up process.
The number of angel investors in the U.S. has increased dramatically over the past decade.
Business angels are valuable because of their willingness to make relatively small investments.
These investors generally invest between $10,000 and $500,000 in a single company.
Are looking for companies that have the potential to grow between 30% to 40% per year.
Business angels are difficult to find.
Venture Capital: Is money that is invested by venture capital firms in start-ups and small
businesses with exceptional growth potential.
There are about 800 venture capital firms in the U.S.
Venture capital firms are limited partnerships of money managers who raise money in “funds” to
invest in start-ups and growing firms.
The funds, or pool of money, are raised from wealthy individuals, pension plans, university
endowments, foreign investors, and similar sources.
The investors who invest in venture capital funds are called limited partners. The venture