Finance for entrepreneurs
Consideration of Profit and loss to run vs cash flow
Entrepreneurship - venture to exploit market opp to make it a reality
Corp Finance > Financing - get money to invest in business
Corp Finance - Increase shareholder value
Entrepreneurial Finance - Challenge of getting first funding to test opportunity
Diff - historical information for forecasting, assumption of positive NPV for all investments
Implication - cannot rely on existing models, diff profile investor
Stages of Venture Dev & Funding
- Seed
- Idea validation and prototype
- Typical source: Founder savings (bootstrapping), 3F, accelerator, grants, crowdfunding
- Startup
- Sales to breakeven → Proof of demand
- Improvement of product
- Growth of customer base
- Efficiency and scaling
- Key: CAC, CLV or LTV
- Typical: Business Angel, Venture Capital
- Growth Expansion
- New lines & markets
- New initiatives outside core
- Maturity
- Slowdown of growth
- Competition
- Risk of disruption
VC = Professionals that invest large amounts of capital (>$10m) in high risk high return early stage ventures
Some Funding forms
- Venture debt, asset-based lending - loans available at startup phase
- Trade credit - spontaneous funding by defering payment of goods
- Factoring - sell AR for discount to get immediate cash and reduce risk
- Mezzanine capital - hybrid debt & equity, typically high interest rate and used for growth
- Private Equity - large amounts of capital (>$100m) for controlling stake
- Public Debt - IPO and Stock Issuance in public markets