Start-up Funding: Equity vs Debt Financing and Ways to Raise Capital (90 characters), Assignments of English

An overview of different ways to raise capital for a start-up, focusing on equity vs debt financing. It discusses the advantages and disadvantages of each financing type and introduces various funding sources, such as friends and family, government grants, business incubators, crowdfunding, angel investors, and venture capital. The text also touches upon the importance of industry fit and criteria for attracting potential investors.

Typology: Assignments

2020/2021

Uploaded on 05/26/2021

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Write Up #8
Group Members:
1. Achas, Vanessa Mae A.
2. Dela Salde, Jehangrace G.
3. Lao Singuan, Mary Lie B.
4. Salutan, Riza May Y.
5. Tokong, May Ann A.
Entrepreneurial Finance
There are indeed different ways in raising money to fund your start-up. So, what are the different
ways of raising money for your start-up? Raising capital for a start-up has never been easy. At
the onset most entrepreneurs try to build their business through bootstrapping using personal
income and savings, credit cards, and even mortgaging their home. Many of today's largest
corporations like Apple, Dell, Hewlett-Packard, and Microsoft began as bootstrapped operations.
So if you can no longer finance your business out of your own pocket, you will have to approach
other people for funding. Investors are typically segmented by life cycle stage of the business.
The type of investors you will attract will depend on your start-up station development. It is
typical for seed funding to come from people who know and love you like family, and friends.
Naturally these people want to support you and help you succeed are less likely to demand a high
return on their investment. Friends and family investment are usually small and made in a very
informal way and used for early validation. When to test assumptions to their actual target
market and customers you may also seek funding from government grants, business incubators
and start-up accelerators like idea space, y combinator 500 start-ups and launch garage who not
only provide seed funding which can be anywhere between $10,000 to $250,000 but also provide
general business assistance mentoring and training to to start-up entrepreneurs. Funding from
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Write Up # Group Members:

  1. Achas, Vanessa Mae A.
  2. Dela Salde, Jehangrace G.
  3. Lao Singuan, Mary Lie B.
  4. Salutan, Riza May Y.
  5. Tokong, May Ann A. Entrepreneurial Finance There are indeed different ways in raising money to fund your start-up. So, what are the different ways of raising money for your start-up? Raising capital for a start-up has never been easy. At the onset most entrepreneurs try to build their business through bootstrapping using personal income and savings, credit cards, and even mortgaging their home. Many of today's largest corporations like Apple, Dell, Hewlett-Packard, and Microsoft began as bootstrapped operations. So if you can no longer finance your business out of your own pocket, you will have to approach other people for funding. Investors are typically segmented by life cycle stage of the business. The type of investors you will attract will depend on your start-up station development. It is typical for seed funding to come from people who know and love you like family, and friends. Naturally these people want to support you and help you succeed are less likely to demand a high return on their investment. Friends and family investment are usually small and made in a very informal way and used for early validation. When to test assumptions to their actual target market and customers you may also seek funding from government grants, business incubators and start-up accelerators like idea space, y combinator 500 start-ups and launch garage who not only provide seed funding which can be anywhere between $10,000 to $250,000 but also provide general business assistance mentoring and training to to start-up entrepreneurs. Funding from

these would normally get your business off the ground from a piece of paper to building and launching a minimum viable product or a working prototype in order to test for customer traction. You may also try to raise financing via crowdfunding which has quickly become a viable early stage funding source especially in the United States. So what is crowdfunding? Basically, it involves raising many small of money from a large number of people typically via the internet. Seed or early stage ventures can obtain financing by selling small equity portions to micro armchair investors and these are often without personal meetings or due diligence. Crowdfunding can also be rewards based wherein entrepreneurs presell a product or service to launch a business concept without incurring debt or issuing equity. Start-ups like pebbles and smartwatch and ubuntu edge successfully raised funds of over $10 million each via international crowdfunding platforms like Kickstarter and IndieGoGo, respectively. Once your start-up has shown potential and demonstrated traction data or word orders, sales, signups, web traffic, agreement, patents you may already approach angel investors for funding. Angel investors are high net worth individuals that typically invest their own funds. There are also angel groups that syndicate many angels together into single investment. Entrepreneurs and angel investors will normally meet over coffee or lunch and talk about assumptions and expansion plans, negotiate term sheets and valuation then move to doing more thorough background checks and research. The investment size of angel investors like kickstart, hatched, wireless wings range from $100,000 to less than $500,000 typically for 20% equity. Capital from angels fills the gap in start of financing between friends and family and venture capital. As most makes mistakes and week strategies which all impacts expenses. Angel investment should offer sufficient financial one way. When the start-up gains meaningful tractions such as increasing revenues, pipelines, website traffic, user signups and engagement or some other metric it may

The advantages of equity financing are:

  1. Less risky than a loan
  2. Start-ups can tap into the investors network
  3. Longer term
  4. Profits can further grow the business
  5. No requiryto pay back the investment
  6. Gives certainty of valuation for company The disadvantages of equity financing:
  7. Higher cost than debt
  8. Dilution of ownership
  9. May need to seek investor consent prior to making any decisions
  10. May have disagreement with your investors
  11. Time and effiyto find an investors
  12. More complex to structures than debt Debt financing is a loan from the bank is different from the capital you received from an investor. There is no need to give up a part of your company and the bank has no day in your decisions. The advantages of debt financing:
  13. No need to give up ownership
  14. Business relationship end once debt is paid
  15. Interest is tax deductible as an expense
  1. Can be short or long term
  2. Principal and interest payments are known figured you can plan in your budget The disadvantages of debt financing:
  3. Money must be paid back within a fixed amount of time
  4. A company with finance problem can take time paying the loan back
  5. A highly leveraged company will be considered "high risk" by investors
  6. Can leave the business vulnerable
  7. Can make the business hard to grow
  8. Lender normally requires collateral Start-ups may also choose to issue hybrid convertible debt. It is part debt, part equity. It functions as a debt but principal and interest may convert into equity at some predefined terms. Good option if you don't want the option of potentially paying back the cash. What makes a start-up attractive for potential investor funding? Angel investor and venture capital firms invest in a wide variety of industries such as technology, digital media, retail, health care, life sciences, and manufacturing. Before reaching out to any investors make sure your industry is clearly in their sweet spot and skill set. VC's typically only invest in 1% or 2% of the deals that is seen based on the following criteria:
  9. Solves a problem or a need
  10. Differentiation
  11. Huge market
  12. Proof of concept
  13. Highly scalable