This course is for aspiring or active entrepreneurs who wants to understand how to secure funding for their company. This course will demystify key financing concepts to give entrepreneurs and aspiring entrepreneurs a guide to secure funding. Examine the many financing options available to get your new venture funded. Learn the basics of finance, valuations, dilution and non-dilutive funding sources. Understand capital structure for new ventures, term sheets and how to negotiate them, and the differences between early-stage versus later-stage financing. Develop an understanding of how to develop winning investor pitches, who and when to pitch, how to avoid common mistakes that limit the effectiveness of the pitch, and how to ‘get to the close’. Key questions answered within the course include: * When to raise outside capital? * What kind of investors invest by stage and where to find them? * What are your fundraising options? * What are the key components of the term sheet? * How to perform company valuations? * How to pitch to investors? * What techniques help the entrepreneur ‘get to the close’? With this course, students experience a sampling of the ideas and techniques explored in the University of Maryland's master's degree in technology entrepreneurship, an innovative 100% online program. Learn more at http://mte.umd.edu/landing.
Sources of capital
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Del curso dictado por University of Maryland, College Park
New Venture Finance: Startup Funding for Entrepreneurs
214 calificaciones
University of Maryland, College Park
214 calificaciones
Curso 3 de 4 en SpecializationEntrepreneurship: Launching an Innovative Business
De la lección
Sources of Capital for the Early Stage Company
This session examines the options that entrepreneurs face in where to raise their financial capital from in the early stages of their venture. From friends and family, to angel investors and venture capitalists, the pros and cons of each source of capital are explored.
Conoce a los instructores
Michael R. PrattLecturer of Technology Entrepreneurship
Maryland Technology Enterprise Institute (Mtech)
Okay. Now let's talk about,
where do you find capital?
What are the various sources of capital?
When you're starting to look for investments,.where do you look?
So this is module two, two of the course.
And we're going to be going through a number of different topics.
First, where do you find your investors?
Should you consider doing a friends and family round?
Can you bootstrap, and what's that really mean?
How about incubators and accelerators?
Do you want to get, take a look and see if you can get entry into one of those?
What's an angel investor all about?
When should you start looking for venture capital?
And when would you be ready for later stage capital?
So there are two primary,
two primary sources of capital, categories I should say.
Debt, which is money you borrow and have to pay back over time.
And equity, which is money that people invest in your company and expect to get,
they get ownership for that and they expect eventually to have an exit.
And get their money back with this, you know,
hopefully a fairly large return based upon the risk they, they took.
It, I would say early-stage companies generally do not, rarely ever,
raise money through debt.
Although there are convertible notes which one may argue is debt.
I consider it to be really a hybrid instrument,
which is essentially let's say an option to buy capital in the future.
So, when you're looking for
early-stage money you're probably looking mostly for, for equity capital.
So where do you find equity capital?
Okay? First you have private investors,
the Angel Groups.
There's, there's a lot of angel groups in this country.
There's a lot of angel groups outside of the country, all of the world now.
They're having these angel groups start up or even bands of angels.
It is a rapidly growing part of the market.
One of my early lectures,
we talked about how angel investing has increased over the last ten years.
If you remember that graph, it's been a significant increase in angel investment.
In fact, angel investors invest, they,
they estimate, twice as much today as venture capital investors do.
Then you have institutional investors.
That's basically the traditional VC firms, or pooled groups of limited partners.
They do very few deals per year,
relatively speaking, to the total deals on the market.
But they are generally a little bit later stage than,
than, than when you're first starting out.
Then you have a really interesting group of investors that I
call strategic investors, or corporate venture money.
Almost every major large, you know, typically technology company or
company involved in kind of technology businesses,
will have an internal group of people that's like their corporate venture group.
They will be looking to invest in companies that,
that support their core business, both financially and strategically.
And that could be a very good source of capital for your company if you,
if your technology helps to further the strategic plan of a larger company.
And according to a CB Insights,
corporate VC investments spiked in the first quarter of 2014.
Up to nearly $3 billion from 600 million in the first quarter of 2011.
So there's been a big increase in the growth of that type of equity capital.
You also have people that are outside the country.
And in respect to this particular slide, I'm talking about outside the US.
But if you're, based in Europe, there's a lot of investors in the US who
are interested in investing in European countries as well.
So there are out, there are foreign sources of capital that you should,
that you can look into.
Some of the bigger ones today are China, Germany and Saudi Arabia.
The issues around foreign capital are,
that there's big cultural differences between the countries normally.
And you have to make, you have to understand those differences in
order to make sure that it's an effective partnership.
And there's also tax considerations that you should take into account.
If you're looking at getting foreign capital,
you need to get your lawyers involved.
And then there is intermediary companies that are kind of growth capitol companies.
Private equity firms that kind of thing, investment bankers.
Normally they all come attached to a,
there's a fee attached to these types of raises.
You need to be aware of that before you go down too far the path with
an investment banker.
Generally speaking, those fees can start out anywhere from like two to
three percent of the total equity raise, up to maybe 7 or 8%.
So it's something to keep in mind when you're raising capital from a,
from a let's say a, an investment banker or a private equity fund.
And then finally mergers and acquisitions.
People sometimes say well, that's not really a form of capital.
But it really is.
It essentially is, enables you know,
you to associate yourself with a large company.
Hopefully, well obviously if, if they're going to acquire the company,
there's a reason, a strategic reason for that.
And if they have a lot of cash and a lot of distribution, that can,
that can actually help your company grow significantly.
Whether they just, just kind of, dissolve you into their overall organization or
they keep you as a separate unit.
That's something you have to consider when you're con, deciding whether or
not you want to agree to or negotiate a, an M&A transaction.
But it is a very large source of capital for small companies, and
eventually it generates exit value for your investors.
That is, you know, the ultimate, their ultimate goal is to generate liquidity, so
they can get a return on their investment.
So, I thought I would show you an interesting slide that shows you,
how did Facebook raise its money over time?
And if you look at what they've done since they started the company,
they've engaged in almost every form of, of capital raise that we've talked about.
They started out with an angel investment, a half a million dollars.
Two very well known angels, Reid Hoffman and Peter Thiel.
And then they di, they raised the, their first series, they,
their first institutional round was raised about a year later.
And, you'll notice one of the Angel investors participated in that.
A new Angel investor called Mark Pincus came into the, into the fray.
And then Accel Partners, a very well known venture capital firm in California also,
was, was the lead investor on that deal.
About a year after that, they raised to B round of money.
That was a completely different set of investors, led by SV Angels,
the Founder's Fund, Greylock Partners and other variable and
non-venture capital fund.
Then a few, about 18 months later they raised their first series A investment.
That was a strategic investment by Microsoft, 240 million,
pretty large amount of money.
They did a second series C.
It was $60 million from a couple of ventures in November of 2007.
They did a third series C about a year later through the European Founders Fund.
So there's the foreign investment group we talked about earlier.
Then they did another Series C tranche.
So they did on, they did four different Series C investments.
All that were either completely different investors or
at least a new investor each time.
Then they actually raised debt financing.
They got $100 million of debt from a company called Triple Point Capital.
And then about a year later, they started out with a Series D investment.
Digital Sky Technologies raised $200 million.
Then they went to the private equity fund.
They got out of the venture groups, they went to private equity.
They raised $210 million from a company,
a private equity firm called Elevation Partners.
And then they raised more private equity money through Goldman Sachs and
Digital Sky.
Most of you know that Facebook eventually did an IPO, fairly recently.
But this is a good example of the various stages of capital that a,
that an early-stage company will start out with.
And as you grow the company, and
Facebook is obviously a company that's grown tremendously.
You can access all these various sources of capital along the way.
So, sources of capital,
understanding the source is very important to your ability to fund the company.
Remember, every investor invests for a different reason and at a different stage.
So if you're not aligning yourself at the time you're talking to
an investor with their requirements, you won't be successful.
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