Chapter 14 Develop the Right Capital Structure Flashcards
(18 cards)
What can influence whether you succeed and control your venture?
Your capital structure, which includes sources, instruments, and amounts by stage.
Capital structure is critical for wealth creation and control.
What should entrepreneurs evaluate to grow with control?
Evaluate and develop the business holistically by linking business and finance strategies.
This involves understanding how business skills influence strategy and finance.
What is a capital-efficient structure used by billion-dollar entrepreneurs?
A finance-smart backbone and strategies to grow with control.
This includes optimizing the financial footprint of the business.
What is the relationship between business stage and uncertainty?
The earlier the business stage, the higher the uncertainty.
Start-up business plans serve as road maps but rarely lead directly to success.
Why is it important to structure for control?
Once you lose control of your venture, the direction and created wealth are also out of your control.
Delaying controlling capital helps maintain oversight.
What strategies can be used to self-fund working capital?
Get paid by customers before paying vendors, reduce or eliminate inventory and accounts receivable, and avoid losses.
This may require redesigning the business model.
Why should entrepreneurs avoid owning fixed assets?
Fixed assets are easier to fund from external, non-controlling sources but may incur monthly payments.
The cost of fixed-asset financing is generally lower than equity.
What factors do financiers consider when evaluating financial needs?
Each type of use has its own risk profile and is often financed differently, including:
* Losses
* Inventory and receivables
* Equipment
* Real estate
Different financial needs require tailored financing strategies.
What is the significance of proven potential in financing?
The greater the proven potential to create wealth, the higher the VC interest.
This is a key factor in attracting venture capital.
What are the stages of financing according to entrepreneurs?
Pre-Aha, pre-leadership Aha, and post-leadership Aha.
Each stage has different financing options and control implications.
What should the financing process include?
Evaluate a new business idea, develop strategy and projections, write a business plan, and assess financial needs.
This structured approach helps in obtaining the right financing.
What is the risk associated with high growth and capital?
High growth needs huge amounts of capital, but most billion-dollar entrepreneurs grew with positive cash flow.
Capital efficiency plays a crucial role.
True or False: VC funding is essential for all entrepreneurs.
False
Many entrepreneurs do not qualify for VC and must find alternative growth strategies.
What is the recommended strategy regarding VC in emerging industries?
Seek VC if competitors have it, but delay until after gaining business momentum.
This ensures better negotiation power and control.
What is the target return for investors in early high-risk financing rounds?
As high as 80 percent to 100 percent per year.
This cost typically falls as the venture progresses.
What criteria should be matched to obtain the right financing?
Financiers’ criteria with your own needs, including equity, debt, and hybrid instruments.
This alignment helps secure favorable funding terms.
What is a common misconception about high growth and cash flow?
High growth requires huge amounts of capital and causes negative cash flow.
Many successful entrepreneurs manage to grow with positive cash flow.
What can be the impact of VCs on exit decisions?
VCs can force companies to go public or be sold, impacting timing and control.
Without VC, entrepreneurs have more freedom in exit strategies.
