Week 3 - Sources of funding internal funds: retains full...

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Sources of funding internal funds: retains full control, limited growth personal cash flow external funds: requires giving up some control and to follow vision of the equity holders, in exchange for faster growth equity debt Stages of the firm pre-start-up: most risk highest rate or return usually from family, friends, personal start-up: angel early growth and rapid growth: venture capitalist, non-financial corporations, commercial banks mature growth: least risk lowest rate of return: commercial banks, equity markets exit or harvesting: Equity financing sources personal angels: individuals who invest their personal capital directly in start-ups. Valuable because their willingness to make relatively small investments employers venture capital investment Public are most common investment bankers merchant bankers strategic partners/Alliances Bootstrapping: Launching and financing your business with limited modest personal funds. Requires large amount of creativity to bring money in quickly and to run a low cost operation. only alternative if cant attract the interest of financier or investors if business is too small, does not scale, does not provide high returns, no proprietary advantage, does not have a well defined plan, lack of experience, too risk, too difficult to evaluate. techniques collect payment as soon as possible pay bills as slow as possible unless incentive to pay earlier (ie % off if paid within 10 days) control inventory levels (just in time) location, may not need expensive real estate. advice get operational quickly look for quick break-even, cash-generating products offer high value products or services that sustain direct personal selling forget about the “crack team”, hire contractors keep growth in check focus on crash (not profit or market share) cultivate banks before the business becomes creditworthy, use personal credit cards and home equity loans start business out of home, negotiate space at below-market or very low rent think before you buy, learn to barter, look for special deals on purchases, seek out best purchasing conditions with suppliers, buy used equipment instead of new, borrow or lease equipment for short term projects start small, share business premises with others, buy on consignment from suppliers, obtain trade credit from suppliers be creative, turn consulting project into commercial product
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This note was uploaded on 02/25/2012 for the course TCM 6010 taught by Professor Benjamincompaine during the Fall '11 term at Northeastern.

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Week 3 - Sources of funding internal funds: retains full...

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