Chapter 9- start up

effects of bootstrapping

- Effective bootstrapping allows founders to retain more of their ownership • Often the ONLY way to grow a company • The entrepreneur becomes more efficient and cost conscious which is attractive to investors • Attractive because you bootstrap, when you find equity investors, your company won't be a diluted as if you do not bootstrap

bootstrapping

- building value to a company without outside investors or bank loans - essentially just finding cheap ways to do things without bank loans or investors

moonlighting

- founder still works regular job and income from that jobs supports growing business - when the venture begins paying as well or better (entrepreneur leaves job)

effects of self funding

- offers greatest return, if successful - investors and venture capital sources usually require it - your personal funds can be treated equity or debt

personal funding

- protect investment -document every source money and the terms

use of personal assets

- second mortgage, credit cards, or sell your car - get an investor to use a bank deposit or stock holdings as collateral for a loan

Protect your investment

- specify in writing if it is a loan to the company, how the loan is payable, conversion rights or equity - specify if the loan is payable in full upon the company receiving venture funding - get into the habit of documenting all finical transactions from the start to avoid later problems

examples of bootstrapping

1. No or low rent 2. Bartering 3. Renting equipment 4. Used equipment 5. Outsourcing 6. Trading intellectual property rights 7. Suppliers' and Customers' help 8. Credit Cards 9. Cooperative Purchases

micro equity

Groups give Micro loans for about 4% of your common stock will provide you enough cash to live for a few months near their offices

super angels

Private Investors that fund early stage companies at a HIGHER LEVEL than most angel investors. Super Angels invest their personal wealth and may compete with institutional venture capitalist partnerships

programs of the small business administration

The Federal Government has a number of loan support programs Ø The rules change often so check the SBA web-site Ø Most of the SBA loans are made by lenders (commercial Banks, savings and loans, Insurance companies) Ø Guaranteed by the SBA Ø Average loan is $100,000 plus with a maturity of 10 years

micro loans

Very small loans made to entrepreneurs often without any security. These loans may be from special banks such as Grameen, formed to help people in developing countries, or between individuals via social networks such as Kiva to promote entrepreneurship.

self-funding

investing your own money (aka sweat equity) for stock

suppliers

may delay invoicing or receiving payment from a small company so they can keep the business going and help through the early stages.

factors

provide credit to companies that are unable to access a conventional bank loan.

the virtual company

uses the internet and allows new company to develop without large overhead costs - company that builds through networks

Angels

Ø Well-off individuals with money to invest Ø Good prospects get funded Ø Need good contacts found via networking Ø Seek local Angel Networks. Fees range from $150-$300 Ø Internet Angel Support Networks such a Ycombinator, DreamIt Ventures Ø List on Angelsoft.com

friends and family

• The most popular source of funds for startup capital • Friends and family are not as worried about quick profits as professional investors • Usually they do not investigate the business and are not familiar with all the risks • The best advice is to provide the same full disclosure to a friend as you would a professional investor • Document the transaction