1.
sources of finance for an entrepreneur
sources of finance for an entrepreneur
hiral shah
diploma in financial management, batch 15, A.M.A.

2.
sources of finance for an entrepreneur
Aim
To provide a wider perspective to young entrepreneurs for availability of
funds.
Objective
To explore and analyse different sources of funds available.
Scope
Importance of different sources of funds.
Features, advantages and disadvantages, methods of obtaining them.
Comparisons.
Limitation
Shall not be ideal for any conventional business plan.
Subject to change with respect to an individual’s business objectives.

3.
sources of finance for an entrepreneur
Economy
Growth
Higher living
standards
A business
enterprise
SME
Inputs
Land
Labour
Capital
Entrepreneur
Market
Free market
economy, full
of
competition
Entrepreneurs need a solid legal,
administrative and financial
environment to prosper.
Strengths:
Creativity
Passion and commitment
Will to succeed
Readiness to take risk
Weaknesses:
Low initial capital availability
Lack of business savvy
An entrepreneur is a one with both
an idea and the willingness to take
it to the marketplace.
Introduction
Role:
Employment generation
Local wealth creation
Develop economically backward
regions
Develop local skills and resources
Encourage growth of SMEs:
The impact of privatization
Specialization in industry
Corporate restructuring
New management theories
Exporting & International trades
SME are the ones with investment
in fixed asset, between 1cr. to 10 cr.
Constitute of about 95% in country.

4.
sources of finance for an entrepreneur
Raising funds: a challenge for an entrepreneur
“Take the money any way you can get it, and then run like the wind!”
“Always stay nine months ahead of your cash needs”
Procedure:
 Write a business plan.
 Assemble investment documents.
 Identify a target list of investors.
 Actually discuss terms of an investment.
 Settle on terms.
 Collect the money.
 Issue stock certificates.
 Report on progress.
Factors considered for selection of sources of funds :
 Stage of business
 Sector / Type of business
 Amount of finance required
 Risk involved

5.
sources of finance for an entrepreneur
Seed Capital / Pre Start-up Stage
Germination of innovative ideas into a comprehensive vision.
Start-up Stage
Business is legally established by starting production of goods / services.
Early Growth Stage
Revenues are increasing. Profits are strong. Competition is surfacing.
Sustained Growth Stage
Matured into a thriving company. Sales growth is manageable.
Expansion Stage
New period of growth into new markets and distribution channels.
Stages of Business

6.
sources of finance for an entrepreneur
S o u r c e s o f f u n d s
Long term Short term
Equity Debt Equity Debt
Primary market
 Own fund
 From family
 Incubator
 Grant funds
 Private Equity
 Angel Financing
 Venture Capital
 IPO
International market
 ADR
 GDR
Primary market
 Bank loans
 FI loans
 Debentures
International market
 FCCB
 Yankee bonds
 Zero coupon bonds
 Deep discount bonds
Primary market
 Mezzanine
financing
Primary market
 Bank loans
 Factoring
 Lease finance
 Letter of credit

7.
sources of finance for an entrepreneur
Idea
generation
Concept
development
Marketing
development
and testing
Business
analysis
Product
development
Post
commercial-
lization
Expansion
Incubator
Private equity
Venture capital
Angel finance
Bank loans
F. I. loans
Mezzanine capital
IPO
Factoring
Lease finance
Letter of credit
Grants
Exit
Own fund
From family
Free money, also include
non-financial contributions
Mainly
to
acquire
fixed
assets
Working
capital
financing
Provide
both
equity
capital
and
advice
in
management
Invest for long haul
Funding at internal stages
Sources of finance : a comparative landscape

8.
sources of finance for an entrepreneur
Government is highly supportive
for growth in technology and
knowledge based sectors.
 Media
 Retail
 Call Centers
 Back office processing
Private equity investments:
emerging trends in various
emerging sectors:
 new products
 technological advancements
 creative designs
0
100
200
300
400
500
IT
secor
Manufactur
ing
Auto
&
Garments
no. of deals investment (mn-US$)
Source
:
Venture
Intelligence
India
0
50
100
150
200
250
2004 2005
no. of deals investment (mn-US$)
Source
:
Venture
Intelligence
India

9.
sources of finance for an entrepreneur
Factors Grants Bank loans Business
angels
Venture capital
Debt -
equity
component
Equity Debt Equity Mainly equity
Stage of
business
At start-up
stage
For initiating,
expansion or
diversification
Mostly in Start-
up stage
Start-up to later
stage.
Industry Region and
industry
specific.
Any industry Industries in
which investors
have expertise
Innovative idea
driven
businesses.
Involvement
of financer
and other
covenants
Negligible, but
before
sanction,
check chance
of fulfillment of
its objectives.
Negligible, an
indirect control
on
management.
Shares no risk
of running
business.
Negligible,
equity dilution
& advice in
management.
Shares almost
equal risk as
entrepreneur.
Involvement up to
greater extent
and many
covenants. Share
risk to certain
extent.
Prevailing
risk for an
entrepreneur
Qualitative
risk
More risk Medium Medium

10.
sources of finance for an entrepreneur
Factors Grants Bank loans Business
angels
Venture capital
Repayment
period
No repayment Grace period
pay interest
pay principal
amount. Total
6–10 years.
3 – 5 years. Normally look for
value
appreciation
instead of
repayment.
Expected within 4
– 7 years.
Availability Needs long
procedures
Needs long
procedures
Difficult but
good
networking
abilities helps.
Now available in
India easily.
Tax benefit --- Tax deductible No tax benefit Tax benefit to VC
firm not business.
Return
expected
from
investors
--- Market lending
rate recently 10
– 12 %
18 – 20 %
annualized
return
20 – 30 %
annualized
return. VC firms
may follow hurdle
rate.

11.
sources of finance for an entrepreneur
thank you