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Small Business Finance…

Small Business Finance…. Spring 2010 URG MBA Program Chapters 6-8. Financing the Venture. Financing in Stages Successful or not? Milestones Build and maintain product R & D dimension On going or up-start? Management Team Reliable and sound business professionals Market Penetration

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Small Business Finance…

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  1. Small Business Finance… Spring 2010 URG MBA Program Chapters 6-8

  2. Financing the Venture • Financing in Stages • Successful or not? • Milestones • Build and maintain product • R & D dimension • On going or up-start? • Management Team • Reliable and sound business professionals • Market Penetration • Actual revenue

  3. Raising Capital • Based on past experience • Management team • Competition • Currency of product/technology • Maturity of product • Need for product • Market conditions • Market penetration/saturation • Capital markets

  4. Raising Venture Capital • Pre-seed Financing • Seed Financing • First State financing • Second and third stage financing • Pre-IPO Financing • Condition of the company • Sources of financing • Use of the financed dollar

  5. Sources of Capital • Institutional Investors • Banks • Credit Unions • High Net Worth Individuals (Angels) • Locating requires neteworking • Corporations • Foundations (Kellog, etc.) • Public Markets • Financing with Debt

  6. Practical Capital Raising Aspects • Selling shares to stakeholders/shareholders • Share price • Basic value for calculating value of company • Fully diluted • Includes equity options and assumption of sales • Pre-money value • Prior to calculating the value of the share • Post-money value • Original total of shares, plus new issues

  7. Venture Capital Pro’s and Con’s • Management expectations • Large market possibilities • Potential long-term “edge” • Synergisim of investors • Anticipated exit • Disadvantage

  8. Next Steps • Deciding on the best investment strategy • Contacting and communicating with investors • Due Diligence • Investigation • Legal examination • Auditor examination • SEC rules and reporting regulations

  9. Legal and Contractual Responsibilities • Restrictions for raising private capital • Issuance in accordance with Rule 504 • Exemption of 1 mil in sale over 12 months • Issuance in accordance with Rule 505 • Restricts sales exempt up to 5 mil but maintains regulations on banks, institutional investors, etc. • Issuance in accordance with Rule 506 • Restricts accredited investor sales of stocks • Example: Impax Labs

  10. Meeting Regulations • Number and identity of offerees and buyers • Investments are offered to people willing to “bare the rist” • Offering document • Outlines (PPM) company information • Personal negotiations • Corporate investors should be diligent with public offerings • Investment contract

  11. Terms • Term sheet • Investment Agreements • Financial Matters • Valuation • Employee Stock Options • Options for future investments • Liquidation • Right to control and right of information • Founders and Managers rights • Registration rights

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