Читать книгу Entrepreneurial Finance - Robert D. Hisrich - Страница 11

One of the most difficult aspects of starting and growing a business as occurred for CEON is finding initial capital to start a company as well as capital to grow the business further. In obtaining initial financing, the entrepreneur needs to consider the source of external funds as well as the type provided. Any external funds for the venture (those funds not personally provided by the entrepreneur) will be in the form of debt or equity. The initial source of funds almost always comes from individuals—family and friends or private individual investors often called angels. These sources provide over 80% of the funds for startups in most every country and are the key to bringing innovation to the market. Family and friends invest due to their relationship with and belief in the entrepreneur and are the most common source of financing at startup. This knowledge and familiarity help overcome part of the uncertainty and risk felt by other individual investors. Usually, this is a small amount of capital reflecting the capital needed for most new ventures. Private investors other than family and friends also provide this capital. As a part of the informal risk capital market, these individuals (business angels) play a very important role in the economy of every country by providing the capital needed to take innovation to the market through the creation of a new venture, which affects the gross domestic product and employment of the country.

Chart 1.1 Schematic of Chapter 1

The capital provided by family and friends and other individual investors can be in the form of debt or equity, the two general types of financing available. Debt financing involves an interest-bearing instrument usually in the form of a loan, which carries the obligation to pay back the total amount of funds borrowed and a fee (the interest rate) for using these funds. Often, some form of collateral or asset, such as a car, house, machine, or land, is required.

Equity financing, the more common of the two, does not require this collateral, as the family, friend, or other individual invests in the entrepreneur and new venture and obtains an ownership position in the venture. The individual then shares on a pro rata basis in the profits and disposition of any assets, including the sale of the entire venture. The entrepreneurial financing need for the venture is often met by employing a combination of debt and equity financing.