Lecture 13

Lecture 13 - 5/21/2007 Outline of Next 3 Lectures Financing...

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5/21/2007 1 Outline of Next 3 Lectures • Financing a new business. –Debt – Equity • The Business Plan – Contents of a business plan 5/21/2007 Contents of a business plan – Project for class • Legal structure of a business – Sole proprietorship – Partnerships (LLPs, LLCs) – Corporations (S-Corps) • Property rights Some Things to Think About - I • Idea behind outside financing: 5/21/2007 – You have business idea and managerial ability to make it profitable. – You don’t have funds and/or are unwilling or unable to bear significant amounts of risk. Some Things to Think About - II • General types of financing: – Debt – borrow a sum of money, pay it back (plus interest) in predetermined fashion. You retain full ownership of your business. 5/21/2007 – Equity – financer gives you money in return for partial ownership of your business. • Debt is more risky from the entrepreneur’s perspective. Example.
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5/21/2007 2 Some Things to Think About - II • How risky is your business idea? – this has implications for what types of funding you want and what types of funding you can obtain. 5/21/2007 • Asymmetric information between yourself and your financers. Financing Stages - I • “Seed” – need a small amount of money to develop a product (e.g. programming), do market research, formally form the company, get 5/21/2007 management team together, create business plan. • “Start-up” – money to take the product to market, often in a limited way. Payroll, marketing and other promotions, supplies and distribution. Financing Stages - II • Second Round - If you are successful so far, product idea is probably feasible. However, scalability and long term profitability is still an issue. Funding at this point is typically used to 5/21/2007 expand the business. • Future rounds – continued expansion. • Note: riskiness tends to decrease as enter future stages.
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5/21/2007 3 Sources of Financing • Personal sources • Family and friends (debt or equity) 5/21/2007 • Bank loans (debt) • Venture capital (equity) • Angel capital (equity) Personal Sources • Personal savings often used for financing seed stage of development. • For securing future financing from outside sources
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Lecture 13 - 5/21/2007 Outline of Next 3 Lectures Financing...

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