summary session 16-17

Summary session 16-17

Getting Financing or Funding

                Commonly,entrepreneurs discover that trying to operate their business without borrowed funds or invested capital is difficult.Because of this,entrepreneurs need to understand the different approaches available to them to gain access to the amount of capital needed to successfully support their ventures in the pursuit of organizatonal success.For three reasons cash flow challenges capital investment needs, and the reality of lengthy product development cycles most new firms need to raise money at some point during the early part of their life.Firm growth can generate cash flow problems,typically because of the lag between the need to spend capital to generate additional revenue and the time required to earn positive returns from those investment.

                Personal funds,friends and family,and bootstrapping are the three sources of personal financing available to entrepreneurs.It is very common for entrepreneurs to use their own funds to invest in their ventures while simultaneously provinding their “sweet equity” or hard work to keep the firm going.

                The three steps involved in properly preparing to raise debt or equity financing are as follows : Determine precisely how much money is needed,determine the type of financing or funding that is most appropriate and develop a strategy for angaging potential investors or bankers.Cash flow statements are helpful to efforts to detrmine the amount of capital a firm requires at a point in time.

                Business angels,venture capital,and aninitial public offering (IPO) are the three most important sources of equity funding available to entrepreneurs.Business angels are individuals who invest their personal capital directly in start-up ventures.These investors tend to be highnet-worth individuals who generally invest between $10.000 and $500.000 in a single company.Venture capital is money that is invested by venture capital firms in start-up and small businesses with exceptional growth potential.

                The sources of debt available to entrepreneurs include commercial banks,SBA guaranteed loans and other sources such as vendor credit,factoring,peer-to-peer lending and crowdfunding,histrocially,commercial banks have been reluctant to loan funds to entrepreneurial ventures,largely because they are risk averse and because lending  to smaller firms is less profitable for them compared to lend to large,established organizations.

                Leasing and SBIR and STTR grant programs,along with othher types of grant programs,are examples of creative opportunities entrepreneurs can pursue to obtain financial resources.A lease is a written agreement in which the owner of a piece of property allows an individual or business to use the property for a specified period of time in exchange for payments.The major advantage of leasing is that it enables a company to acquire the use of assets with very little or no down payment.The SBIR and STTR grant programs are important sources of grant-stage funding for technology-based ventures.

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Gabriela Hartanto (LC02/2301851471)