The document discusses financing options for startups in Aruba. It notes that most startups lack financial track records and have uncertain business concepts, making it difficult to obtain funding. The main sources of startup financing are discussed as equity (personal funds, angel investors, venture capital), debt (bank loans), and other options like crowdfunding and government grants. The document provides an overview of different financing structures and considerations for startups seeking funding.

1. LOGO
Edward M Erasmus, MA
September 10, 2013
Finance for Generation X & Y

2. The future of startup funding in Aruba
Roadmap
Sources of financing
5 things to consider before seeking financing
Getting funded: what lenders look at
Creative funding alternatives
Finance: the science and the practice
Key takeaways

3. Startup Challenges
• No financial track record
• Lack of evidence of success
• Unknown/unconvincing business concept
• Scope of risk
• Doubtful financial projections

4. Finance: the science
• Funding of assets: own capital or borrowing
from third parties
• Debt can increase a company’s return on
equity
• But too much debt can take a company into
bankruptcy
• How much debt can a company carry? Debt to
equity ratio

5. Finance: the science
Golden rule in financing:
• Current assets should be financed with short-
term debt
• Fixed (non-current) assets should be financed
with long-term debt

6. Finance…

7. Finance is way more than just
“showing me the money”
Investment
budgeting
Financing
structure
Day-to-day
operations
Scope of Corporate
Finance

8. Three key questions in financing
1. What investments should the firm undertake?
Capital budgeting decision
2. What is the best way to finance these long-
term investments? Debt or equity?
Capital structure decision
3. How should the firm manage its short-term
assets and liabilities, such as cash?
Working capital management

9. Finance: the practice
• It takes money to make money!
• Next to choosing the right products/services
(the ‘BIG’ idea), getting the right funding
might be the most important decision you’ll
ever make for your business venture
• Its a daunting task
• Risky business (high failure rate)

10. Startups in Aruba
1 2 3 4 5 6 7 8 9 10 11
total company registrations 1181 1267 1216 1450 1390 1390 1245 1297 1088 1143 1124
1000
1050
1100
1150
1200
1250
1300
1350
1400
1450
1500
amount of companies registered
Total Company registrations
Source: PriceWaterhouseCoopers Aruba (2012)
Entry Patterns of businesses in Aruba 2001-2011

11. Startups in Aruba
Source: PriceWaterhouseCoopers Aruba (2012)
Year of
establishment Percentage of companies that still exists after
0 year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 9 year 10 year
2001 93% 84% 76% 69% 61% 55% 49% 46% 42% 39% 37%
2002 94% 83% 73% 66% 59% 52% 49% 43% 41% 39%
2003 91% 79% 69% 63% 56% 52% 47% 44% 41% - -
2004 94% 82% 73% 64% 59% 53% 50% 48% - - -
2005 94% 81% 72% 66% 61% 56% 54% - - - -
2006 95% 82% 75% 68% 64% 61% - - - - -
2007 92% 82% 73% 66% 61% - - - - - -
2008 95% 84% 75% 70% - - - - - - -
2009 93% 80% 74% - - - - - - - -
2010 94% 88% - - - - - - - - -
2011 95% - - - - - - - - - -
Average 94% 83% 73% 66% 60% 55% 50% 45% 41% 39% 37%

12. Startups in Aruba
Source: PriceWaterhouseCoopers Aruba (2012)
Year of
establishment Percentage of companies that still exists after
0 year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 9 year 10 year
2001 93% 84% 76% 69% 61% 55% 49% 46% 42% 39% 37%
2002 94% 83% 73% 66% 59% 52% 49% 43% 41% 39%
2003 91% 79% 69% 63% 56% 52% 47% 44% 41% - -
2004 94% 82% 73% 64% 59% 53% 50% 48% - - -
2005 94% 81% 72% 66% 61% 56% 54% - - - -
2006 95% 82% 75% 68% 64% 61% - - - - -
2007 92% 82% 73% 66% 61% - - - - - -
2008 95% 84% 75% 70% - - - - - - -
2009 93% 80% 74% - - - - - - - -
2010 94% 88% - - - - - - - - -
2011 95% - - - - - - - - - -
Average 94% 83% 73% 66% 60% 55% 50% 45% 41% 39% 37%
On average: seven out of ten new firms
survive at least 2 years, half of the
companies survive at least 5 years, a
third at least 10 years.

13. Finance: generally two sources…
Capital/Equity Debt
Company
Sources of funds

14. Types of early stage financing
• Capital/Equity:
– Own funds (savings)
– Angel investors
– Venture capital funds
– Private equity funds
• Debt (loans):
– Bank / financial institution

15. Angel investors, VC’s, PEF’s
• Wealthy
individuals
• Includes: FFF’s
• Small investment
amounts
• Little
involvement in
day-to-day
operations
• Corporate entities
that use funds
from other
investors
• Large investments
• Require seat in the
board
• Control in
operations
• Large stake in
company
• Usually family-
owned firms
• Small & large
investment
amounts
• Networks
• Some
involvement in
operations

16. Debt: available in all ‘shapes’ and
‘sizes’
• Short-term:
– Working-capital loans (credit lines)
– Credit Cards
– Etc.
• Long-term:
– Non-revolving loans (asset-backed)
– Mortgage loans (property & building)

17. A third source…?
Capital/Equity Debt
Company
Sources of funds
Grants/Sponsors

18. Grants/sponsors
• Crowdfunding (donations/sponsors)
• Crowdsourcing (free knowledge/
expertise/resources)
• Government grants

19. Crowdfunding

20. Crowdfunding

21. Crowdsourcing

23. Alternative funding options
• Personal credit/Microfinance (VKB Aruba)
• Suppliers credit
• Franchise advances/loans
• Barter
• Business plan competition and other contests
• …..

24. 5 things to consider before
seeking financing
• Create a business plan
• Do your homework
• Shop around
• Seek advice
• Have a Plan B

25. Startups funding in the U.S.
Source: U.S. Census Bureau (2012)

26. The future of startup funding in
Aruba
• Most startups do not have enough funds to
launch their ideas.
• Possible funding aids:
– Innovation fund
– Venture capital funds
– Academic (venture) funds
– Crowdfunding (donation-based/investment-based)

28. A win-win for the capital market
(lenders)
Initial funding (Zuckerberg & Saverin):
around $20,000
Angel investor (Peter Thiel): $500,000
VC (Accel Partners): $13 million
2nd round VC’s: $28 million
Microsoft: $240 million
IPO: $16 billion

29. A win-win for the capital market
(lenders)
• Enough financial track record is built
• Success of business is proven
• Established reputation
• Better understanding of operational structure
• Banks are more comfortable in providing
lending

30. Key takeaways
• Know your business
• Proper funding is key to success
• Consider the broad perspective of finance
• Explore all avenues
• Additional platforms for funding is
recommended

31. LOGO

32. Edward M. Erasmus, MA
e.erasmus@fzanv.com
erasmus.bpas@gmail.com
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Blog: http://edwardmerasmus.wordpress.com