I need a reply to my classmate below: What factors will be most important in det
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I need a reply to my classmate below:
What factors will be most important in determining if you want to fund your venture through equity or take a loan for the $500,000?
In approaching the capital structure, sufficiently addressing the ability to survive a recession will be a priority. As the startup will be new, the second factor is getting the proper guidance and experience to better the chances of success with the $150,000 projection (Hecht, 2016; JWI EOP, 7)). A reasonable consideration with Angel Investors is that they will settle for minority ownership (Bragg,2020), thus still allowing the founder to remain responsible for execution. According to Nicole Torres (2015) and Richard Harroch (2020), Angel investors are motivated by the founders’ drive because it informs them about the founders’ willingness to see the business through and successful. Another advantage with Angel Investors is that they will take the time to understand your business/idea through engaging with you, which offers an opportunity to sell the proposition over a series of engagements. On the other hand, venture capital (VC) firms are significant in enabling exposure and incubation (Kawasaki, 2015), which are crucial for a new startup. Costs like renting office space, stationery, utilities, legal services, or even salaries can be part of the package from a VC, which means the funding gets directed toward getting the business off the ground or pilot and prototype costs.
If you meet all your projections, will you be happier in five years that you used equity to fund the venture or debt? Why?
There is a quote that says, “Success breeds success” by Mia Hamm, so five years later will represent these words. To have met all projections will confirm that the projection ratios around D/E and WACC were correct therefore able to project for the next phase, perhaps readiness of an IPO or M&A (Investopedia, 2021; Harroch,2020).
If the company goes bankrupt in five years, would you have a different answer? Why?
No. Many invaluable lessons would have been learned throughout the five years, and many strategic relationships formed in the process. With either Angel Investor or VC, the bankruptcy will have been anticipated well in advance, and many mitigation efforts trialed such that the dissolution is amicable at bankruptcy.
Steven M. Bragg. 2020. The CFO Guidebook, fourth edition.
Guy Kawasaki. 2015. The art of the start 2.0
Richard Harroch. December 13, 2020. What Angel Investors Want To Know Before Investing In Your Startup. https://www.forbes.com/sites/allbusiness/2020/12/13/what-angel-investors-want-to-know-before-investing-in-your-startup/?sh=2ca90d6a1a11
Nicole Torres. August 06, 2015. What Angel Investors Value Most When Choosing What to Fund. https://hbr.org/2015/08/what-angel-investors-value-most-when-choosing-what-to-fund
Investopedia. September 04, 2021. Capital Structure By Alicia Tuovila. https://www.investopedia.com/terms/c/capitalstructure.asp
Jared Hecht. July 19, 2016. Debt vs. Equity Financing: Which Way Should Your Business Go? https://www.entrepreneur.com/article/278430
JWI 531. 2021. Experts of Practice. Donald Gogel – Business Growth