chapter 12

Recognize steps in working with angel networks

1)Submit formal business plan to angel network staff 2)Network staff screens for plans with potential 3)Staff works with entrepreneur to refine and improve plan and sharpen the presentation 4)Entrepreneurs present plans to angels 5)Entrepreneur and angel negotiate terms 6)Entrepreneur may be accountable directly to the angel investor or to the network staff

What are "convertible promissory notes" and why are they used in angel financing

A convertible promissory note is a debt instrument that converts to equity in the company that issues it when certain conditions outlined in the promissory note are met.

What are the five sources of equity funding discussed in chapter 12?

Angel Investors Strategic Partners Private Placement Crowd funding Small business investment company

What are some sources of grants?

Business grants are primarily for research and commercialization efforts. small business innovation research program & small business technology transfer program.

Recognize the items required in working with outside investors.

Business plan, Confidentiality agreement, Letter of Intent, Modifications of any shareholder agreements, and Communication with shareholders

Explain the difficulties with equity funding?

Dilution of ownership The risk of sharks Dynamics of adding on new partners

Recognize "accredited investors" for a private placement. How are investors found for a private placement?

Found by networking and not by promotion.

Define strategic partners

Large corporations in the same industry generally, expect lower returns, and may purchase firm if it's successful

Define private placement

Large funding from many investors Regulated by S.E.C. Must be accredited investors

Describe some ways of finding angel investors

Network with local attorneys, accountants, bankers and other professional advisors. Attend university programs for networking events.

Define crowd funding

People fund a project by donations to a firm to help them grow

What is the most common form of institutional gift financing?

Reduced taxes either from Tax abatement which means a tax break for meeting a criteria or by a tax credit which is simply given to your company.

Why is SBIC funding less costly for the entrepreneur?

SBA guarantee means less risk for the investor, lower cost for the entrepreneur

In what stages is the firm likely to use external equity funding?

Start-up & Growth

Define angel investors

Wealthy individuals who make direct investment in entrepreneurial firms.

What are the goals of angel investors.

seed and early stage financing, 50k-1million investment, payment back in roughly 5-7 years, and generally wants convertible promissory note.

What are the costs associated with institutional gifts?

time and money to obtain because accounting has to make records and informing granting agency.

Small business investment company

~300 companies that Provide a combination of equity investments and long-term loans which give less risk to investors and new businesses