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Sources of Money

Sources of Money. Company operations Loans Technology grants Investment. Company operations. Gross margin Balance sheet management Vendor terms and conditions Customer terms and conditions Stretch payment of liabilities Accounts payable Loans

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Sources of Money

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  1. Sources of Money • Company operations • Loans • Technology grants • Investment © Frank Demmler 2004

  2. Company operations • Gross margin • Balance sheet management • Vendor terms and conditions • Customer terms and conditions • Stretch payment of liabilities • Accounts payable • Loans • DO NOT PLAY AROUND WITH PAYROLL OR PAYROLL TAXES © Frank Demmler 2004

  3. Loans • Conventional bank debt • SBA • Economic development loans © Frank Demmler 2004

  4. Conventional bank debt • Rarely available for early stage businesses • Typical requirements • 12 months of profitable operations • Adequate net assets to secure the loan (typically liquidation value) • Personal guarantee • Primary workaround • Loan guarantee from high net worth individual • An asset account which secures the loan © Frank Demmler 2004

  5. SBA • Loan is from bank, with some level of SBA guarantee (60-85%) • Maximum guarantee amount is $500,000, depending on the program © Frank Demmler 2004

  6. Economic development rules of thumb • Focus on job creation and job retention • Rough calculation of dollar capacity • $30,000 per job created or retained after 3 years • Cannot exceed 40% of the total • Requires bank participation • Requires equity participation of at least 10% • Requires personal guarantees • Interest rates are pegged to prime © Frank Demmler 2004

  7. Technology grants • Federal (SBIR, STTR, ATP) • State Programs (like Ben Franklin Partnership in PA) © Frank Demmler 2004

  8. Federal Programs • Small Business Innovation Research (SBIR) Program • Technology development largely performed by the company (2/3 for Phase I and 50% for Phase II) (see below for Phases) • Small Business Technology Transfer Research (STTR) Program • Technology development largely performed under contract by universities • ATP (another flavor) © Frank Demmler 2004

  9. Three phases of federal programs • Phase I - Feasibility study - up to $100,000 • Phase II - Proof of Concept (Prototype) - up to $750,000 • Need Phase III commitment to receive Phase II grant • Some agencies have Fast Track Phase II alternatives • Phase III – commercialization © Frank Demmler 2004

  10. Federal program issues • Fee for service program (not repaid) • Key issue: alignment with company imperatives • Marketing • Respond to Requests for Proposals (RFP’s) • Grantsmanship: Work with individuals within agencies who will draft an RFP for which you are uniquely qualified. © Frank Demmler 2004

  11. Ben Franklin Program • State program • 4 centers around the state • Pittsburgh center: Innovation Works © Frank Demmler 2004

  12. Innovation Works • Technology Development • $50,000 - $100,000 • 15 - 20 per year • A single company can receive up to 3 • Pre-seed commercial development • Up to $300,000 • 5-10 per year • Seed round anchor • Up to $500,000 • 2-4 per year © Frank Demmler 2004

  13. Investment • Return expectations: 30%-plus • Essence is perceived risk vs. reward • Prospect categories by perception of risk • People who know you • People who know the business • People who know neither • Private placement through an intermediary © Frank Demmler 2004

  14. Key request for professional service providers Please give me contact information for three of my peers for whom you have provided these services.

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