ATHENA WEEK 2 (laatste twee chapters)

Question 1

Financial management

Answer 1

raising money and managing company’s finances in a way that achieves the highest rate of return

Question 2

the 4 financial objectives

Answer 2

profitability
liquidity
stability (overall health of the financial structure of the firm)
efficiency (how it utilizes its assets)

Question 3

The Process of Financial Management
1. preparation of HISTORIC FINANCIAL STATEMENTS
2. preparation of FORECASTS
3. preparation of PRO FORMA FINANCIAL STATEMENTS
4. ongoing analysis of FINANCIAL RESULTS

Answer 3

The Process of Financial Management
1. preparation of HISTORIC FINANCIAL STATEMENTS:
income statement
balance sheet
statement of cash flows

2. preparation of FORECASTS
   income
   expenses
   capital expenditures
3. preparation of PRO FORMA FINANCIAL STATEMENTS
   Pro forma income statement
   Pro forma balance sheet
   Pro forma statement of cash flows
4. ongoing analysis of FINANCIAL RESULTS
   Ratio analysis
   Measuring results versus plans
   Measuring results versus industry norms

Question 4

Statement of cash flows

Answer 4

Summarizes the changes in a company’s cash position for a specified period. Explains why the changes occurred.

Question 5

Three Reasons Start-Ups Need Funding

Answer 5

1. cash flow challenges
2. capital investments
3. lengthy product development cycles

Question 6

Three Reasons Start-Ups Need Funding explain them
1. cash flow challenges
2. capital investments
3. lengthy product development cycle

Answer 6

1. inventory, employees, advertising needs to be paid before generating sales
2. cost of buying real estate, building facilities, purchasing equipment
3. some product are under development for years before they generate earnings

Question 7

burn rate

Answer 7

then rate at which the company is spending its capital until it reaches profitability

Question 8

sources of personal funding:
1. personal funds
2. friends and family
3. bootstrapping

Answer 8

1. contribute personal funds and sweat equity to their venture
2. often in forms of loans or investments, reduced free rent, outright gifts, delated compensation
3. finding ways to avoid the need for external financing or funding through creativity, ingenuity, thriftiness, cost-cutting

Question 9

sweat venture, and to which of the three does it belong: friends and family, bootstrapping, personal funds

Answer 9

personal funds

Question 10

when financial needs exceed what personal funds, you as a company need to decide how are you going to finance that:

debt or equity financing

Answer 10

• determine precisely how much money is needed
• determine the most appropriate type of financing or funding
• develop a strategy for engaging potential investors or bankers

Question 11

Equity financing

Answer 11

• exchanging partial ownership in return for funding
• Angel investors, private placement, venture capital and initial public offerings
• it does NOT NEED TO BE PAID BACK, it is NOT A LOAN

Question 12

Liquidity event

Answer 12

an occurrence that converts some or all of a company’s stock into cash

Question 13

Debt financing

Answer 13

• getting a loan
• most common sources are commercial banks and small business administration guaranteed loans
• banks are NOT investors they are interested in minimizing risk

Question 14

whats the ideal candidate for a bak loan
- strong or weak cash flow
- low or high leverage
- audited or non audited financial statements
- balance sheet and management

Answer 14

• strong cash flow
• low leverage
• audited financial statements
• good management and healthy balance sheet

Question 15

equity funding

business angels and venture capital

Answer 15

business angels: individuals who invest their personal capital directly into start ups.

the person who does this is about 50 years old, has high income and wealth, well educated, has succeeded as entrepreneur and invests in companies that are in the region where he or she lives

Question 16

equity funding

venture capital

Answer 16

money invested by venture capital firms in start ups and small businesses with exceptional growth potential

Question 17

who tends to invest in the earlier stage: business angels or venture capital

Answer 17

business angels

Question 18

explain how it works for venture capital (limited and general partners)

Answer 18

limited: investors who invest in venture capital funds

general: venture capitalists who manage the funds

Question 19

what is an important process that people need to go through for venture capital

Answer 19

due diligence process: Venture capitalists are putting in a lot of money, often in high-risk businesses. So before they invest, they want to reduce their risk by making sure the company is legit and has potential.

Question 20

Corporate venture capital

Answer 20

similar to traditional venture capital except that the money comes from corporations that invest in their areas of interest

Question 21

Initial public offering (IPO)

Answer 21

the first sale of stock by a firm to the public

Question 22

Secondary market offering

Answer 22

any later public issuance of shares

Question 23

whats the downside of going public

Answer 23

it is a complicated and expensive process

Question 24

is an IPO normal for a company/nothing special?

Answer 24

no it is an important milestone

Question 25

Investment bank

Answer 25

an institution that acts as an underwriter or agent for a firm issuing securities

Question 26

what does an investment bank do

Answer 26

they act as the firm's advocate and adviser and walks it through the process of going public

Question 27

Private placement

Answer 27

the direct sale of an issue of securities to a large institutional investor

Question 28

Debt financing 1. commercial banks 2. SBA guaranteed loans 3. other sources of debt financing

Answer 28

1. commercial banks it is for them important that firms are steady, big BUT NOWADAYS ALSO MANAGAMENT AND CASH FLOWS 2. many Private lenders can give the loan, but the SBA (Small Business Administration) promises to repay part of it if the business can't — this is the guarantee. this helps smaller ventures who cannot get money 3. other sources of debt financing

Question 29

SBA guaranteed loans

Answer 29

many Private lenders can give the loan, but the SBA (Small Business Administration) promises to repay part of it if the business can't — this is the guarantee. this helps smaller ventures who cannot get money

Question 30

Peer-to-peer lenders

Answer 30

hese are ONLINE PLATFORMS (like LendingClub or Funding Circle). They don’t give you the money themselves. Instead, they CONNECT YOU (the borrower) with people or companies who want to invest or lend money. They check your CREDITWORTHINESS (underwrite you), but the actual money comes from investors, not the platform.

Question 31

Vendor credit/trade credit

Answer 31

This is when a supplier lets you buy now and pay later. For example, a clothing store orders 100 shirts from a vendor and gets 30 days to pay.

Question 32

Factoring

Answer 32

Let’s say you’re a business and customers owe you money (you have unpaid invoices). Instead of waiting weeks/months to get paid, you sell those invoices to a third party (a factor) at a lower price — and get cash immediately. You get money now, but the factor collects from your customers later.

Question 33

There are two major advantages to obtaining a loan as opposed to equity funding

Answer 33

1. None of the OWNERSHIP is surrendered 2. Interests payments are TAX DEDUCTABLE, in contract to dividends

Question 34

There are two major disadvantages

Answer 34

1. Must be repaid 2. Lenders impose strict conditions on loans and insist on ample collateral to protect the investment

Question 35

What are the creative sources of financing and funding

Answer 35

1. crowdfunding 2. leasing 3. small business innovation research and the small business technology transfer 4. strategic partners

Question 36

Crowdfunding

Answer 36

Raising money from a large group of people online to fund a project or start-up

Question 37

Rewards-based crowdfunding

Answer 37

People donate money and get a reward (like early access to the product).

Question 38

Equity-based crowdfunding

Answer 38

People invest money in exchange for ownership (shares) in the business.

Question 39

Accredited investor

Answer 39

Someone legally allowed to invest in high-risk businesses (like start-ups), usually because they have a high income or net worth.

Question 40

Leasing

Answer 40

Renting property (like equipment or a building) for a set time instead of buying it.

Question 41

Venture-leasing firms

Answer 41

These are brokers who help match businesses that want to lease with the owners of the equipment or property.

Question 42

SBIR & STTR Grants

Answer 42

SBIR (Small Business Innovation Research) = Government gives grants (free money) to start-ups doing innovative research in special fields. STTR (Small Business Technology Transfer) = Similar to SBIR, but the start-up must work together with a research institution (like a university).

Question 43

A strategic partner

Answer 43

is a company that works with your business to help both sides grow. - helpt with resources - Launch your product faster