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Debt Financing
Interest based instrument
Usually a loan
Indirectly related to the sales and profits
Requires collateral security
Short term debt used for
Account receivable
Finance inventory
Operation of the business
Long term debt used for
To purchase assets like machinery,
land, building
Equity financing
Funds in exchange of ownership
No collateral security
Investor shares in the profits of the venture
Internal funds
Profits
Sale of asset
Reduction in working capital
Extended payment terms
Account receivable
External funds
Personal funds
Family & friends
Suppliers/trade credit
Commercial banks
Govt. loan programs
Operative financing
To bridge the deficit in operative financing, the
company has the following choice of available
measures:
1. To ensure that the liquidity planning has been
appropriate
2. To make the clients pay their invoices on time
by offering, for example, discounts for rapid
payments
3. To intensify the collection of sales receivables
4. To delay the payments to suppliers within their
terms of payment
5. To maximize the sales margins to cut indirect
costs
External financing
Should these measures not be sufficient, the
company has the following alternatives:
To acquire equity capital (e.g. venture
capital investors)
To borrow capital
To apply for public subsidies
Stages of Investments
Early stage companies may have proprietary
technology or intellectual property that has the
potential to be exploited on a global scale. The
technology or lead product is usually beyond
proof of principle stage
Mid-stage companies may have strong pipeline
of technologies and products, which has been
developed by research and management teams
with scientific and commercial credibility
Later stage companies have operational and
corporate finance skills ideally positioned and
company may need investments to precipitate
consolidations. Companies at this stage are within
12 to 18 months of an IPO.
Stages of VC financing
Seed stage financing
The venture is still in the idea formation stage and its
product or service is not fully developed. The usually
lone founder/inventor is given a small amount of
capital to come up with a working prototype. Money
may also be spent on marketing research,
patent application, incorporation, and legal structuring
for investors.
It's rare for a venture capital firm to fund this stage.
In most cases, the money must come from the
founder's own pocket, from the "3 Fs" (Family,
Friends, and Fools), and occasionally
from angel investors.
Stages of VC financing
Start up financing
Stages of VC financing
First -stage financing
Stages of VC financing
Second -stage financing
Stages of VC financing
Stages of VC financing