Reading: Sources of Equity Capital
Capital
Needs Planning
•Projection
of required capital for running a business.
- Working Capital
- Human Capital
- Working Capital
- Human Capital
•Should
be an ongoing part of running a business.
•Critical
in:
- Start up
- During periods of growth
- During succession planning
- Start up
- During periods of growth
- During succession planning
Sources
of Equity Financing
Selling Stock
•Initial
Public Offering
- When a corporation sells common stock to the general public for the first time
- When a corporation sells common stock to the general public for the first time
•Advantages
of selling stock
- Firm does not have to repay money received from the sale of stock.
- Firm does not have to pay dividends to stockholders unless it decides to.
- Firm does not have to repay money received from the sale of stock.
- Firm does not have to pay dividends to stockholders unless it decides to.
Personal
Savings
•Least
expensive source of funds available.
•Entrepreneur
keeps ownership
•70%
of Entrepreneurs utilize as primary source of financing start ups.
•Provides
an estimated 35% of average initial capital requirement.
•Assuming
risk is good for potential investors/lenders
Sources
of Equity Financing
Friends and Family
•More
willing to invest due to relationship.
•Typically
small investment amounts.
•Can
get start up running.
•Possibilities
of ruining friendships and relationships with family.
•Be
honest and treat friends and family like any outside investor.
Partners
•Partner(s)
allow for additional or sharing of capital toward the business.
•Ownership
is split up among partners.
•Partners
share liability and risk, although can be unequal.
•Control
and profits are shared
•Essential
documents should be in place to outline specifics of the partnership
Sources
of Equity Financing
Angels
•Private
investors who invest their own money in business startups for equity stakes.
•Usually
experienced, sophisticated entrepreneurs.
•Investing
knowledge, experience, and energy.
•Invest
in earliest stages of the start up.
•Fill
gaps between around $100,000 to $5 million.
•Bring
advice, experience, and network of contracts
Venture Capital
•Private
for profit organizations.
•Pool
large amounts of capital to invest in businesses.
•Look
for younger companies with considerable potential for growth.
•80%
invest in the expansion stage of the business.
•Seek
high return rates.
•Take
a large portion of control in company.
Company Stage Investment Comparison
Last modified: Tuesday, August 14, 2018, 8:29 AM