AlternativeFinancing&CrowdFunding

FinancingYourBusiness!•  TraditionalFinancing•  AlternativeFinancing:WhatNottoDo…

•  CommunityLoanFunds

•  LendingClubs•  Web-basedCrowdfunding

•  DirectPublicOfferings

•  Bootstrapping

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Introductions

•  AbouttheSBDC•  AbouttheInstructor•  AboutYou

– WhyAreYouHere?– QuestionsorChallenges

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“Undercapitalization is the No. 1 reason

new businesses fail!”

Money…

Financing Small Business

BeforeYouRaiseCapital•  CreateaBusinessPlan/PitchDeck

•  UnderstandRevenuemodelandcashflow

•  Knowhowmuchcashyouneed!

– Purchase,TI.&WorkingCapital

•  Cleanupyourfinances&CreditScore

•  Exitstrategy

Basic Types of Capital

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Debt – (Loan)

o Relatively easy / quick

o Maintain control and ownership

o  Interest and other costs tax deductible

o Can be expensive o Eats your cash

Equity – (Investment)

o Unsecured, investor shares in risk

o May not need to make payments

o Can raise more o Give up part of

ownership o Give up control

VS

TraditionalLenderFinancialLoanPackage

ExistingBusiness NewBusiness2-3YearsPersonalandBusinessTaxes

2-3YearsPersonalTaxes

InterimYTDP&L/BalanceSheet

PersonalFinancialStatement

Personal&BusinessFinancialStatement

MostRecentPaystub

BusinessApplication CorporateDocs/Partnershipagreement

2-3yearsofProjections

PitchDeck/businessplan

Financial Plan :: How will you make money

•  RevenueModel

•  Variable&FixedExpenses

•  DebtRepayment

•  KnowyourCashNeeds!

–  Startingpoint–  BurnRate

–  6months

CashFlowStatement

IncomeStatement

BalanceSheet Analysis

FinancialPlan

Sources and Uses Sources of Funds Equity:

Owners Investment $20 Outside Equity $30

Debt:

Senior Debt $25 Line of Credit $15 Other Debt $10

Total Sources $ 100

Uses of Funds Capital Expenditures:

Property & Equipment $ 30 Tenant Imp. $10

Working Capital:

Inventory $45 Opening Staff $10 Launch Marketing $ 5

Total Uses $ 100

Debt to Senior Equity = 1.5

Cash Flow Projection

BeRealistic…Documentyourassumptions

…Hopeisnotastrategy

SBA Guaranteed Bank Financing

¨ SBA is not a direct lender

¨ SBA partners with banks and lenders

¨ SBA guarantees bank loans (50%-85%)

¨ Bank’s risk is offset by the SBA guaranty

¨ Applicants apply directly to the bank/lender

¨ Bank decides when to use the SBA

¨ Bank gets paid if business fails

¨ Business remains obligated to repay the loan

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AlternativeFinancing…

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Whatnottodo

WhatNOTtodo

WhatNottoDo…

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Unless…•  Itreallyisshortterm

–  Youknowyoucanrepayina1-6months

•  YouunderstandALLthehiddencosts•  Yourgainoutweighsyourpain

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TraditionalBank WebBased“payday”loan

SmallbusinessloanAPR

6-8% 20-50%

Timetocloseloan

3-6weeks 3-5days

ApprovalRate 19% 64%Source: Biz2credit

ShortTerme-loansEasy…NotCheap

Lender SimpleInterestRate

DailyPayment

AdditionalFees

TotalPayback

APR

CanCapital 15% $435 $0 $57,500 30%

OnDeck 11% $440 $1,250 $55,500 22%

IOUCentral 13% $433 $2,475+$23daily

$54,580 18%

Kabbage N/A 1/6permonth+fee

$8,250 $58,250 33%

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CommunityLoanFundsandCDBG

•  Microloanfunds(<$25k)

•  Conventionalloans

•  CDBGIncomeQualifiedLoans

•  CDFI–CommunityDevelopment

FinancingInstitutions

•  TargetedforAffordableHousing,

economicdevelopment,linesofcredit

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Amounts: $10,000 - $250,000 Terms: 12-60 months @ 7-9% Products: Term loans Eligibility: Direct business investment

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WebBasedCrowdfunding

1.  DonationBasedIndiegogo&KickstarterFundersreceive“perks”

2.  Micro0%LoansKivazipPrincipalreturned

3.  AccreditedInvestors“JOBS”ActFundersgetareturn

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CrowdfundWebsites

•  TheyONLYprovidetheplatform

•  Thehardworkisstillyours

•  Theycollecta%ofwhatyouraise

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Kickstartervs

IndieGoGo

https://www.indiegogo.com/projects/firestorm-s-new-west-asheville-bookstore/x/10004100

Barnraiser

https://www.barnraiser.us/projects/eat-beer-help-regrained-grow

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https://www.kickstarter.com/projects/1903151005/build-a-vegan-butcher-shop-with-the-herbivorous-bu

CrowdfundingSuccesses

Crowd Funding 0% Loans

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•  Non-Profitsissuingcommunitybasedloans

•  Ex:KivaZiporCommunityS.C.

•  Mustbevettedby“Trustee”

•  Needbusinessplan,cashusesanalysisandhavea

positivesocialimpact

•  Fundedbylenders,corporatesponsors,localgovernments

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Regulated Crowd Funding

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n  JOBSAct–  Investmentinexchangeforownership

–  Signedintolawin2012…stillnotcodified

–  TransactionthroughBDorplatform

–  Securitiesissuestoinvestor– Allowsunaccreditedinvestors

Dire

ctPub

licOfferings

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PreSaleshttps://bettsfit.com/

1.BuildYourList!

CrowdfundingTips

•  Clarity!•  CalltoAction•  BeaSqueakyWheel&EasytoFind•  Don’tunderestimateyourcashneed•  Don’tOver-premiumyourself!•  BecarefulwithyourIP•  BeBrief&onpoint•  MakeaGREAT(shortvideo)video

– 370%highercapitalraise32

Teameffortsraise

339%Morethansoloefforts

Campaignsvideoraise

370%Morethanwithout

Campaignsthatraise

25%Oftargetin1stweekare5xmoresuccessful

Bootstrapping

Pros •  Complete control over

business •  Lean operations & low

costs •  Creative partnerships •  Less likely to accumulate

debt •  Family & Friends

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Cons n  Slower growth n  Risk of Cash crunch &

“panic” money n  Marketing &

development constraints

n  Family & Friends

CaseStudy

•  Homebasedfamilybusiness

•  “Eat,sleepandbreatheyourbrand”

•  Learnedbusiness&ecommercebasics

•  OpenedEtsystorein2011–nowsells$65kpermonth

Bootstrapping

•  Startedwith$200in1995

•  2014Revenues>$100million

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BottomLine…

•  Bewillingtoputskininthegame

•  Knowyoubusinessplan

•  Lineupyourcashearly•  CreditScoresMatter!

•  BePatient•  BePersistent•  Network

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OtherAmazingExamples

https://www.kickstarter.com/projects/2016260772/waterdeep-double-album/description