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Early Stage Funding Patterns of EntrepreneurshipChapter 6Funding
Sources
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copyright 2003 Jack M. KaplanPersonal and self FundingAngel
Financing Friends and FamilyBank LoansPrograms of SBA and
Government LoansWhere to Find Funding
Early Stage Funding
copyright 2003 Jack M. Kaplan
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copyright 2003 Jack M. KaplanPersonal FundingInvesting your own
money - sweat equity for stockOffers greatest return, if
successfulInvestors and venture capital sources usually require
itYour personal funds can be treated as equity or debt
copyright 2003 Jack M. Kaplan
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copyright 2003 Jack M. KaplanMoonlighting Founder still working
a regular jobIncome used to support the entrepreneur during needed
cash flowWhen the venture begins paying as well or better-
entrepreneur leaves job
copyright 2003 Jack M. Kaplan
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copyright 2003 Jack M. KaplanBootstrappingOften applied to a
current business that can reduce costs from current
operationUsually overlooked as a source to entrepreneursThe
entrepreneur becomes more efficient and cost conscious
copyright 2003 Jack M. Kaplan
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Credit CardsEntrepreneurs should ensure that they can increase
their borrowing limit through Credit Cards.Can Be Dangerous
!copyright 2003 Jack M. Kaplan
copyright 2003 Jack M. Kaplan
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copyright 2003 Jack M. KaplanFriends And FamilyThe most popular
source of funds for startup capitalFriends and family are not as
worried about quick profits as professional investorsUsually they
do not investigate the business and are not familiar with all the
risksThe best method is to provide the same disclosure to a friend
as you would a investor
copyright 2003 Jack M. Kaplan
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copyright 2003 Jack M. KaplanWell-off individuals with money to
investGood prospects get fundedNeed good contacts - contact
Columbia Business School- Lang fund. Angel Networks. Fees range
from $150- $300garage.com assists startups.Call (800) 577-3838
(lists 20 networks nationwide)Angels
copyright 2003 Jack M. Kaplan
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copyright 2003 Jack M. KaplanSOURCES OF CAPITAL USED IN
START-UP
copyright 2003 Jack M. Kaplan
Chart3
0.73
0.31
0.18
0.16
0.1
0.04
0.02
Sheet1
Personal Savings73%
Bank Loans31%
Family18%
Mortgaged Property16%
Friends10%
State/Federal Guaranteed Loans4%
Venture Capital2%
Sheet1
Sheet2
Sheet3
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Bank Loanscopyright 2003 Jack M. KaplanMany companies take loans
from commercial banks.Secured loansUnsecured loans
copyright 2003 Jack M. Kaplan
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copyright 2003 Jack M. KaplanBank LoansPrepare a loan
ProposalSummary PageManagement team ProfilesBusiness
DescriptionFinancial ProjectionsPurpose of Loan and how spentAmount
requiredRepayment Plan
copyright 2003 Jack M. Kaplan
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copyright 2003 Jack M. KaplanHow to Apply for a Bank LoanPrepare
a loan ProposalThe four Cs of a loan requestCharacterCash
FlowCollateralContribution
copyright 2003 Jack M. Kaplan
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copyright 2003 Jack M. KaplanBuilding a Relationship with a
BankerIssues to AvoidPicking the wrong bank and banker.Being
ineffectively prepared to make loan requests.Being overly
Optimistic.Failing to recognize weaknesses.
copyright 2003 Jack M. Kaplan
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copyright 2003 Jack M. KaplanPrograms of the SBA (Government
funding)Most of the SBA loans are made by lenders( commercial
Banks, savings and loans, Insurance companies) Guaranteed by the
SBAAverage loan is $100,000 plus-with a maturity of 10 years
copyright 2003 Jack M. Kaplan
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copyright 2003 Jack M. KaplanThe program allocates in excess of
50 million annually for scientific innovationPhase 1-awards up to
$100,000 for the purpose of investigating the feasibility of an
innovationPhase 11 The report is reviewed and if feasible, an award
up to $1,000,000Phase 111- Funding for commercialization must come
from private sources
SBIR Program
copyright 2003 Jack M. Kaplan
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copyright 2003 Jack M. KaplanLicensed by the SBA - Invest
locally and have industry preferencesLimited to companies under $2
million in earnings and less than $6 million in net worthHave both
debt and equity investmentsDo not take a majority position in the
companySmall Business Investment Companies
copyright 2003 Jack M. Kaplan
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copyright 2003 Jack M. KaplanState programsMost states target
funds: Penn. Ben Franklin Technology Centers make grants up to
$100,00N.J. New Jersey Economic Development Agency, loans and
royalty agreementsAdvantages: No repayment unless the project
succeeds and no equity requirementsDisadvantages:Pay royalties on
salesState Development programs
copyright 2003 Jack M. Kaplan
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