Greetings and welcome to Session 2 of 5093, forming funding and launching a technology startup company. In this session, we're going to talk about funding sources. Where do we get the money? Just a quick overview of what we'll cover in this session, basic funding concepts and where the money comes from, and then the notion of debt versus equity, some of the pros and cons of each, and the different types of funding that are available. What we think of as angel funding, those very first ones in the early stage of the company and venture funding, which is a more professional investment capital source. Then there are other alternative options like crowdfunding and what we might think of as bootstrapping, which basically means getting buys best we can. Then there are a wide range of different types of government grants and partnerships and other types of resources available, we'll touch on those and point to some of the potential sources of capital for early stage technology startup companies. But in this video, we're going to focus on some basic concepts, initially around funding, and just to get a general understanding of what it means to fund a company and what is needed, what is expected. Well, in the most basic sense, it's very important to take care and do due diligence within your own set of information. That is your financial analysis, your market research, your product plans, your strategies, your anticipated sales and forecast, all of this, it's important that you really have your rationale clearly defined, and coherently aligned to be mutually supporting. This will support you then to go forward and be able to present your ideas to seek out funding. But it's important that you do that homework first. You don't want to be in front of a funding source and have a fundamental issue of pointed out about something that leaves a gaping hole in that particular moment and maybe misses an opportunity for funding source. But nonetheless, start early and by that we mean stop before there's a hard need in place. Because if you can avoid making quick decisions, you're in a much better position to really think through the options, consider the consequences, and gain access to any supporting information that you might need or perhaps mentors others that could advise you to strive to make the best decisions possible. Generally, that comes when it's not in haste. Now, having said that, there are times when we do need to respond quickly and make decisions and that will just be adjusting to the circumstance. But to the extent that we can really get started early and do our homework, then we'll be well prepared when those opportunities present themselves. It's important to understand the pros and cons of the different options that are available. They're going to be unique. Although there are some characteristics that are relative to one option, for example over another, whether it's a pro or con, may be related to your personal situation. It may be related to the circumstance of your company or the stage of the funding that you're in, or the stage of the product development cycle. What is important is that you have comprehensive financial planning as a baseline to support your rationale, and that you continuously review and update that on a regular basis as you have access to new information and as things change. As much as possible, strive to avoid rookie mistakes. Rookie mistake serve in a very basic sense. Oftentimes it's so easy to underestimate how much money is actually needed and to overestimate sales. Not just overestimate sales, but overestimate profits on sales. It's important to really drill down in our analyses and on our key assumptions to meet sure that they are set sound and they'll support in a little interrogation by potential investors who are going to ask questions about how we arrived at certain decisions or how we anticipate certain sales or changes to happen within the company. What's really important when it comes to seeking out funding and looking for funding sources. Is asking, this the right amount for the right reasons at the right time. Now that's a certain amount of alignment, if you will, if things really coming together. But with careful planning and if you're not in a position that gets pushed into a corner financially because you've taken exceptional risks in your early-stage startup, then the endurance of time will allow these things to come together so that when you are well-prepared. It's very clear what the funding source would be used for, and what you anticipate the returns to be and you're clear about how to communicate that and the timing is right, the market is right, and that's when everything seems to be in alignment and you go forward. Conceptually that's broad and general, but it's something to consider and think about. Sometimes it's easy to get into a position of anxiousness and eagerness and yet that could drive us perhaps over a threshold of any one of these considerations about right amount, right reason, or right time. We know when the alignment is there and when they're mutually supporting and that's when the magic happens. What are the funding sources? Where could we, in a broad sense, consider accessing capital for early-stage startup company? Well the personal funds of friends and family obviously, this is just a bridge or just something to give us an initial starting place to the extent that there's some stability or capacity with your personal funds to get oriented with regard to other funding options that is most desirable. Because again, you don't want to be forced into a situation of needing to make decisions too quickly and if you're compromise, access to money too long, you might find yourself suddenly getting anxious or running low, and then maybe making decisions that later turned out not to be the best in terms of your long-term strategy. These are initial introduction here. This initial overview is just a cover like in a broad range what are the different types of funding sources we might think of? Obviously personal and then there's debt and debt funding from banks or even private individuals. Oftentimes they are a private lenders, will work either individually or have an attorney, and they have a high interest rate, but that's one way to access capital, but they're going to want something pretty secure behind it. You may have a real estate mortgage that you're able to put up some part of to support your business. But be careful with debt, especially in the early stage companies and we'll talk more about this later, but debt needs to be serviced and so the capacity of the business to generate revenues during that period is critical. Then there's the sale of equity. We could for example convert loans into equity, ie, ownership or shares of stock. Maybe there are angel investors which are name that we will talk more about what that is. But these early-stage high risk investors willing to put money in before anything is very mature and then venture capital. We'll talk a lot about venture capital and what they're looking for. Then there's a range of other alternative sources. The R&D partnerships for example or grants, and various different types of crowdfunding online has become more and more popular lately. These are just some of the broad different possibilities and we'll go into a little bit more depth in the next video and what is important to recognize here, and I'm going to underscore, there's probably a couple of times and this is the voice of experience here. Please do not drain your retirement funds. It's very tempting. Sometimes that early-stage you just get lit on fire, you're so excited, just need to get going. Just like all you need is gas in the tank and it's there. Don't do it. Do your best to access funds from some of these other sources to lead you strategically through a secure funding round and strive not to touch your personal retirement funds. That's something that can be very costly and you generally don't really recover from in terms of that account. Just again, the voice of experience here, please do not do that. That brings us to the end of Video 1 of seven for Session 2. I'll see you in awhile for Video 2.
