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1、Part IV Initiating Entrepreneurial Ventures,Chapter 11 Assessment and Evaluation of Entrepreneurial Opportunities Chapter 12 Legal Structures for New Business Ventures Chapter 13 Legal Issues Related to Emerging Ventures Chapter 14 Sources of Capital for Entrepreneurs,Copyright (c) 2004 by South-Wes
2、tern, a division of Thomson Learning. All rights reserved.,Chapter 14 Sources of Capital For Entrepreneurs,Debt Versus Equity,The use of debt to finance a new venture involves a payback of the funds plus a fee (interest for the use of the money. Equity financing involves the sale of some of the owne
3、rship in the venture.,Debt Financing,Commercial Banks Other Debt-Financing Sources: Trade Credit Accounts Receivable Financing Factoring Finance Companies,Source of Finance Throughout the Evolution of the Entrepreneurial Firm,Level of Investment Risk Assumed by Investor,High,Low,Seed,Start-Up,Early
4、Growth,Established,Stage of Development of the Entrepreneurial Firm,Equity Financing,Public Offerings,“Going public” is a term used to refer to a corporations raising capital through the sale of securities on the public markets. Here are some of the advantages to this approach: Size of capital amoun
5、t Liquidity Value Image (new issues, referred to as initial public offerings IPOs),Public Offerings,Disadvantages of going public: Costs Disclosure Requirements Shareholder pressure,Private Placements,The SEC provides Regulation D, which eases the regulations for the reports and statements required
6、for selling stock to private parties friends, employees, customers, relatives, and local professionals. Regulation D defines four separate exemptions, which are based on the amount of money being raised: Rule 504a placements of less than $500,000 Rule 504 placements up to $1,000,000 Rule 505 placeme
7、nts of up to $5 million Rule 506 placements in excess of $5 million,Accredited Purchaser,As noted in Rules 505 and 506, Regulation D uses the term “accredited purchaser”. Included in this category are the following: Institutional investors such as banks, insurance companies, venture capital firms. A
8、ny person who buys at least $150,000 of the offered security and whose net worth, including that of his or her spouse, is at least 5 times the purchase price. Any person who, together with his or her spouse, has a net worth in excess of $1 million at the time of purchase.,“Sophisticated” Investors,“
9、Sophisticated” investors are wealthy individuals who invest more or less regularly in new and early- and late-stage ventures. They are knowledgeable about the technical and commercial opportunities and risks of the business in which they invest.,The Venture Capital Market,Venture Capital Investments
10、,Year,Number of Companies,Amount Invested (in billions),2001,4,932,42.9,2000,8,404,108.8,1999,5,824,56.5,1998,4,345,22.2,1997,3,336,16.7,Venture Capital Investments by Stages of Development,Stage of Development,Start-up/Seed,Early Stage,Expansion,Later Stage,Amount (in billions),Companies,Amount (in
11、 billions),Companies,2001,2002,540.6,4,682.9,1,911.1,229.4,193,642,291,41,2,311.6,16,499.5,9,654.7,718.5,537,1,872,853,77,Dispelling Venture Capital Myths,Myth 1: Venture capital firms want to own control of your company and tell you how to run the business. Myth 2: Venture capitalists are satisfied
12、 with a reasonable return on investment. Myth 3: Venture capitalists are quick to invest Myth 4: Venture capitalists are interested in backing new ideas or high-technology inventions management is a secondary consideration. Myth 5: Venture capitalists need only basic summary information before they
13、make an investment.,Criteria for Evaluating New-Venture Proposals,Returns on Investment Typically South by Venture Capitalists,Stage of Business,Expected Annual Return on Investment,Expected Increase on Initial Investment,Start-up business (idea stage),60%,10-15 x investment,First-stage financing (n
14、ew business),40%-60%,Second-stage financing (development stage),30%-50%,Third-stage financing (expansion stage),25%-40%,Turnaround situation,50%,6-12 x investment,4-8 x investment,3-6 x investment,8-15 x investment,Venture Capitalist Screening Criteria,Venture Capital Firm Requirements Nature of the
15、 Proposed Business Economic Environment of Proposed Industry Proposed Business Strategy Financial Information on the Proposed Business Proposal Characteristics Entrepreneur/Team Characteristics,Informal Risk Capital “Angel” Financing,Many wealthy people in the United States are looking for investmen
16、t opportunities. They are referred to as “business angels” or informal risk capitalists.,Informal Risk Capital “Angel” Financing,One newly created source is the Angel Capital Electronic Network (ACE-Net). This Internet-based service provides information to institutional and individual accredited investors about small, dynamic, growing businesses seeking $250,000 to $5 million in equity financing.,
