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Raising Capital

Bank Loans, Stock Market, Venture Capital, Business Angels, Crowd Funding
by

Louise Hall

on 17 February 2014

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Transcript of Raising Capital

Raising Capital
Stock Market
Summary
Bank Loans
Business Angels
Venture Capitalists
Table of Contents
- The Need to Raise Capital
- Methods of Raising Capital
- Bank Loans
- Stock Market
- Business Angels
- Venture Capitalists
- Crowd Funding
- Summary (5 Facts)
The Need to Raise Capital
The Need to Raise Capital
Debt and Equity Funding
Assets
Liabilities
Equity
BALANCE SHEET
pay back interest and principal
profit-sharing (neither
interest nor principal)
Source
of Funds
Application
of Funds
no shares (100% ownership)
give out shares
(just part-owner)
Liquidity for Operating
Start-Up
Corporation
Business
Loans
Investors
Returns
Shares
Interest
Rating
Traditional
Alternative
How it works
Advantages
Disadvantages
Loan
Interest
Principal
How it works
Investment
Shares
absolute control of the business
no obligation to share profits
interest payments are tax-deductible
interest and loan payments need to be made on time
credit rating may result in a high interest rate
obligation to pledge assets as collateral
Advantages
Disadvantages
no (monthly) interest payments
wide variety of possible investors
to need for collateral (e.g. personal guarantees)
no option for small businesses and start-ups
pressure for good quarterly results
no absolute control (part-ownership)
How it works
Advantages
Disadvantages
Example
How it works
Advantages
Disadvantages
Example
Crowd Funding
How it works
Advantages
Disadvantages
Example
Variation
Investment
Knowledge/
Shares
What is a
What is a
Venture Capitalist?
Business Angel?
successful
businessman
47 years old
wealthy
($750,000)
self-
employed
knowledge & experience
local
Peter Thiel and Facebook
initial investment
$ 500,000 (10.2 %)
(first outside investment)
5,000,000 shares
sold $ 1bn worth of shares
board of directors
TODAY
2004
funding as well as knowledge and advice
ideal for start-ups
no interest payments
need to find an angel and pitch one's idea
no solution for bigger firms, mostly for start-ups
give up shares (part of the business)
company
goal: high
returns
investor
investment
funds
disinvestment
(e.g. IPO)
"passive"
"active"
position in
management
knowledge
Advice
Investment
Knowledge/
Management
Shares
funding in combination with knowledge
possible in all business cycles
no interest payments
give up sole control (esp. disinvestment)
need to find - and convince - a venture capitalist
better-than-average returns are expected
What is
Crowd Funding?
managed
Sequoia Capital and Google
1999
initial investment
$ 12.5 m (10 %)
2001
CEO: Eric Schmidt
today
4,000,000 shares
sold $ 3.8bn worth of shares
(seemingly) unlimited number of investors
easier to attract small investments
no need to give out shares (sole control)
no knowledge, just capital funding
might not raise enough money
possibility of fraud
Kickstarter.com
usually
website
everyone
can invest
small
amounts
unusual
ideas
no shares
(e.g. product)
rewards
Investments
Rewards
Individual
1. Every business needs capital
2. Every funding method has advantages
and disadvantages
3. Traditional methods are bank loans and
floating shares on the stock exchange
4. Alternative methods include business
angels and venture capitalists
5. A new method is called
crowd funding
Thank you for
your attention!
Do you have any
further questions?
- looking for:
$ 15,000
- actually raised:
$ 47,665
- reward:
product sample
- looking for:
$ 1,000
- actually raised:
$ 1,090
- reward:
copy of the album
- looking for:
$ 100,000
- actually raised:
$ 10,266,845
- reward:
watches with
different features
Traditional and Alternative Methods
Discussion
1. Crowd Funding is very popular in the U.S. but has not really kicked off yet in Europe. Would you be willing to invest your own savings in a venture presented on a crowd funding website?
2. You are the owner of a small but popular café. You would like to expand your business by offering coffee-to-go. In order to realize this project, you need an additional $ 100,000 for new equipment. How would you try to raise this capital?
Full transcript