Chapter_09 - Chapter 9 Capital, Valuation, and Exit...

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Copyright Atomic Dog Publishing, 2006 Chapter 9 Capital, Valuation, and Exit Strategies
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Copyright Atomic Dog Publishing, 2006 9-1 Introduction The entrepreneurial venture requires cash to operate and grow. In the early stages, new ventures require capital from other sources to survive. Successful entrepreneurs learn how to articulate their venture’s business model and its market potential— elevator speech. The elevator speech is just one of the important skills that the entrepreneur must possess to be a successful fund-raiser.
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Copyright Atomic Dog Publishing, 2006 Exhibit 9-1 Seed Cash Stash Source: Data from Susan Greco, “A Little Goes a Long Way,” Inc. Magazine, October 2002.
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Copyright Atomic Dog Publishing, 2006 9-1 Introduction (cont.) To raise funds, entrepreneurs must be able to provide answers to two critical questions: What is the value of the venture? - Calculated using several techniques, depending on the sophistication of the funding source. What is the exit strategy? - The pathway that the entrepreneur intends to follow to turn invested capital into cash and provide a return to the investors. - There are a number of exit strategies such as: To sell the venture to a larger company. - Entrepreneur should have an exit strategy in mind at the very beginning of the venture.
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Copyright Atomic Dog Publishing, 2006 9-2 Sources of Capital Two major sources of funds for a business are: Debt capital: Funds obtained through borrowing - Debt capital is categorized into two types: short term and long term. Equity capital: Does not require repayment - Sources of equity capital include retained earnings.
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Copyright Atomic Dog Publishing, 2006 9-2a Short-Term Debt Financing Short-term debt: Used to finance current operations, with required payback within one year Can come from several different sources: Friends and family - Such borrowed funds bring an extra risk - Money borrowed should be handled like any other loan Commercial banks - They can help with any cash flow problems and can give sound advice. - Developing a close relationship with a local banker is a good idea. - When an entrepreneur needs emergency funds, the banker will be more willing to help out.
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9-2a Short-Term Debt Financing (cont.) - Statistics from the U.S. Small Business Administration indicate that commercial banks lent out micro-loans. - Bank loans come in many different forms: Unsecured loans Secured loans backed by collateral Line of credit A revolving credit agreement Factoring Floor planning is another option in bank financing Trade credit - The credit given to a firm by the trade—that is, by the suppliers that the company deals with. -
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This note was uploaded on 10/02/2010 for the course ENTR ENTR 3310 taught by Professor A.lish during the Fall '09 term at University of Houston-Victoria.

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Chapter_09 - Chapter 9 Capital, Valuation, and Exit...

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