Venture Financing

• Finance


  Refers to two main activities: the actual process of attracting money and the management of these funds
• Functions of Finance


  • Analysis
  • Decision-making
• Debit


  • Assets, Liabilities (Balance sheet)
  • Revenue (Income Statement)
• Credit


  • Capital/Owner's Equity (Balance sheet)
  • Expenses (Income statement) (NET INCOME AFTER CASH)
• Liquidity


  Turning assets to cash
• Areas of Finance


  • Business or Corporate Finance
  • Personal Finance
  • Public Finance
• Financial accounting


  Tends to be more concerned with the past and income focus
• Finance


  Tends to be more interested in present and the future
• Types of Financial Decisions

  • Investment
  • Financing
  • Asset-management
• Goal of the Business/Financial Management


  Target business is to maximize shareholder's wealth, measured by the price of stocks
• Two Concepts (Comparison)


  • Profit Maximization
  • Wealth Maximization
• Classification of Finance Function

  • Long-term Finance (3 years or more)
  • Medium-term Finance (1-3 years)
  • Short-term (Below 1 year)
• Objectives of Finance Functions


  • Investment Decision
  • Financing Decision
  • Dividend Decision
  • Liquidity Decision
• Why a Business Needs the Finance Functions


  • Helps establish a business
  • Helps run a business
  • To expand, modernize, diversify – product life cycle
• Importance of Finance Function


  • Identify need of finance
  • Identify sources of finance (internal and external)
  • Comparison of various sources of finance
  • Investment
• Investment


  Covers managing your money as well as saving and investing. It encompasses budgeting banking, insurance, mortgages, investments, and retirement, tax and estate planning
• Four Basic Economic Activities of Consumer

  • Earning
  • Spending
  • Savings
  • Borrowing
• Income/Earning


  Entire amount of cash inflow that you receive and can allocate to expenses, savings, investments, and protection
• Factors Affecting Earnings

  • Career Choice
  • Ability to Find Employment
  • Ability to Advance
• Earnings > Standard of Living
• Responsible Earning


  Realizing that career choices greatly affect lifetime earnings and standard of living
• Education


  Increases income and employment, decreases unemployment
• Spending


  Outflow of cash and typically where the bulk of income goes
• Law of Scarcity


  Economic system cannot produce all goods and services that consumers want and most consumers do not have
• Trade Off


  Choosing between alternatives
• Opportunity Cost

  What is given up by choosing one alternative over another
• Responsible Spending


  Researching and planning purchases in advance and making wise choices in light of opportunity
• Saving


  Income left over after spending, putting aside money for later use
• Later Uses for Savings

  • Emergencies
  • Recurring expenses
  • Future purchases
  • Financial goals
  • Retirement
• Borrowing


  Obtaining funds or credit from a lender
• Reasons for Borrowing


  • Major purchases
  • Emergencies
  • Convenience
  • Future goals
  • Take advantage of good sales/offers
• Responsible Borrowing


  Borrowing only what can be paid back when due
• Secured vs Unsecured Borrowing

  • Secured Loans
  • Unsecured Loans
• 2 Additional Areas of Personal Finance

  • Investing
  • Protection
• Personal Finance Strategies


  • Know your income
  • Devise a budget
  • Pay yourself first
  • Limit and reduce debt
  • Only borrow what you can repay
  • Monitor your credit score
  • Plan for your future
  • Buy insurance
  • Give yourself a break
• Personal Finance Skills


  • Finance prioritization
  • Assessing the costs and benefits
  • Restraining your spending
• Shoestring Capital


  Little amount as what is in their savings account, or literally don't have money or capital but have good business ideas and the guts as well as courage to start the business using someone else's money
• Capital Requirements


  • Fixed Capital
  • Working Capital
  • Growth Capital
• Sources of Capital

  • Internal
  • External
• Formal and Informal Sources

  • Formal
  • Informal