Glossary straightforward definitions of words used in

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Unformatted text preview: t approaching potential sources of finance. GLOSSARY Straightforward definitions of words used in the booklet and other terms which you are likely to come across in the fund raising process. All words in italics in the text are explained in the glossary. Fundamentals of Finance Nature Of Your Business Objective Your reason for being in business is the single most important factor in determining what type of finance is suitable for your business. You may be in business to provide for your family, to be your own boss, because you cannot find another job, to realise wealth or for some other reason. Your reason will have an impact on your attitude to risk and to giving up some control of your business. When you've considered the fundamentals listed below use the flowchart at the end of this section to decide whether your business is entrepreneurial, in which case venture capital may be appropriate, or whether your business is proprietorial - in which case venture capital is unlikely to be appropriate. Where Is The Business Going? All businesses change and develop throughout their lives. It is not a smooth process but a series of steps, associated each time with crucial management decisions. Before rushing into raising funds, consider whether you actually want the business to take the next step up. Remember that business growth will require changes in areas such as management skills. Always obtain impartial advice before taking a decision to embark on major expansion. Each time operations reach capacity, management is faced with a decision: whether demand should be restricted (for example, by raising prices) or whether business should be expanded to meet it. In the latter case, it is likely that, at each step, the business will require a capital injection and that the type of finance needed will be different. There are three broad types of venture capital investment: Seed capital Start-up funding Development funding Seed capital - finance for the development of ideas into products - is particularly difficult to raise from financiers. One of the most useful options may be to develop the project to a stage at which its feasibility can be demonstrated (using personal funds) and bring in a major industrial organisation for any further development. At this stage the options might include: collaboration entering into a joint venture with the major organisation 3 Sources of Venture Capital under £250,000 the sale of a license (to sell and/or manufacture) a complete buy out by a major organisation Although many financiers will look at startups, most prefer to deal with an established business with a proven track record. The lower risk attached to this type of investment should be reflected in the terms of the funding. Remember that as the certainty of success increases, the risks reduce and the price at which you can sell equity increases. Form Of Business Businesses are either unincorporated (like sole traders and partnerships) or they are incorporated (companies). This distinction affects t...
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