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Raising Capital for an Event
Business
Steve Gintowt
SteveGintowt @ gmail.com
Topics Covered
Why Raise Capital Type and Sources of CapitalDebt FinancingEquity Financing
Advantages / DisadvantagesHow Much to GetProcesses and ProblemsWhere to Find It & Rates
Why Raise Capital Survive
365 Days of Expenses, 1 Day of Income
Grow Scale Increases Profitability Scale Reduces Risk from Single Down Event
Cash OutStart Taking Money Off the Table, Start to Exit
Process
Types and Sources of Capital
SHORT LONGTERM TERM
Friends & Family
Credit Card Bank
Vendor Credit SBA
Revolver Alternative
Factoring (Bibs)
Friends & Family
Private Equity
Alternative
DEBT
EQUITY
DEBT FINANCING
DEBT FINANCING
Advantages Disadvantages Don’t Give Up Control Relationship Ends when
Loan Retired Interest is Tax Deductible Structured: Can Plan
Around It
Adds Risk to Company and Owner
Collateral Locked Up. Covenants
Time and Effort to Find
How Much to Borrow ?(Leverage Ratio)
Debt level as a Multiple of Earnings0 1x 2x 3x 4x
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
5 Year Loan Annual Debt Service, Free Cash
Deb
t Ser
vice
% o
f Ear
ning
s
Borrowings as a Multiple of EarningsAmount Borrowed $150k $300k $600k $900k $1.2M
($300,000 of Earnings10% Interest Rate)
Debt Service 150,000$ Free Cash 150,000$
Debt Service 210,000$ Free Cash 90,000$
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Deb
t Ser
vice
% o
f Ear
ning
s
($300,000 of Earnings10% Interest Rate)
Debt Service 330,000$ Free Cash (30,000)$
Debt Service 230,000$ Free Cash 70,000$
Borrowings as a Multiple of EarningsAmount Borrowed $150k $300k $600k $900k $1.2M
3 Year Loan Annual Debt Service, Free Cash
Importance of Term The TERM is may be more important than the
interest rate Borrow for a LONG ENOUGH TERM to have the
asset be able to help with the payments.
The first year, it’s all on the Core Business “Interest Only” Year 1 “Balloon” Loan – All at Maturity (Not likely)
9 Months 6 Months 3 Months
Numbers of Days Advanced 274 183 91Annulized Interest Rate 40% 60% 120%
Marketing at $2k/month 18,000$ 12,000$ 6,000$ Pro-Forma Interest Expense (3,000)$ 3,000$ 9,000$ Annualized Net Interest Rate Free 12% 72%
Factoring Sell $50,000 of Bibs (500 @ $100 each)
at 30% Discount ($15,000 off. Proceeds $35,000)
Difficulties in Obtaining Debt
No Asset Base for Collateral Relatively Small Amount – not worth Bank’s effort Cash Flow Loan - proceeds paid back by uncertain
revenues No Market for Company if things go badly
Higher Risk = Higher Rates
Debt - Where to Find It / Rates
Vendor Credit 0% Relationship Friends & Family negotiable Commercial Bank 3.28 % Fed Reserve Jan 16 Small Business Admin 5.75% - 8.25% Fitsmallbusiness.com Alternative Capital 5.49% - 24.99% Funding Circle
Fundation Credit Cards 13.49% - 23.24% Nerdwallet.com
EQUITY FINANCING
EQUITY FINANCING
Advantages Disadvantages No Risk to Business No Loan Service / More
Cash in Business Access to Investor’s
network for additional cash
Don’t have to Repay
More Costly May Lose some Control. New
Decision Processes Mental Energy: Expectations &
Potential for Disagreements Hard to Get $$$ for Small Event
Company (Time/Effort)
Level of Investor Interest at Different Levels
|- Mild -|--- Strong ---| |--------------- Strong -------------|- Mild -|
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100%Percentage of Ownership
Zero Interest Here
Comparing Cost of Debt vs. Equity Current Company
3 races clearing $400,000 each ($1.2M) Overhead of $800,000 Net Profit of $400,000 Company Value - $2.4M (@6x) Growing at 3% a Year
Raise $150,000 to add a 4th race (cover 1st Year loss)that will eventually be half as profitable normal Year 1: Lose $150,000 Year 2: Breakeven Year 3: $50,000 Profit Year 4: $100,000 Profit Year 5: $200,000 Profit
Comparison of Debt & Equity Company value increases by $1.6M
$1.2M from New Event, $0.4M from Core
Cost of Equity = $398,000 (6.3% of Company) in Dividends and Valuation
Cost of Debt = $260,000 in Interest and Principle
Equity is almost always more expensiveIn this case 53% more.
Equity - Where to Find It Up to $100,000 Friends and Family $100,000 - $500,000 More Friends and Family $500,000 - $5M People you WISH were your
Friends and Family
Over $2M “Family Offices” of WealthInvestment Firms of Sports Franchise OwnersTraditional Private Equity Firms
No Marketplace or Central Directory
Alternative Capital
Reward-Based Sites Kickstarter, Rockethub, MoolaHoop, Not really applicable
Equity & Debt Sites Funding Circle, Fundera, OnDeck, Dealstruck,
Fundation, Kabbage, Indiegogo
Capital Raising Process Items
Debt – Key Process Items
Documentation Requirement Accurate & Current Financial Statements Bank Statements Tax Returns Lease Agreements
May Require Personal Guarantee
Takes 30 – 60 Days
Equity - Key Process Items
See Last Year’s Presentation on LinkedInCreate a Business Plan Identify an Exit StrategyCompile Diligence Material in Data RoomBusiness Valuation Discussion
Equity - Key Process Items
More Documentation / Paperwork Amending Operating Agreement / Articles of
Incorporation Minority Protections
Salary, Loans, Dividends, Owner Expenses Insert Buyback Clauses
Company buys back shares in event of co-owner death / divorce
Put / Call Option
Five Things to Remember
Financing can help you Grow Value Many more Debt Alternatives Debt is Cheaper Than Equity Loan Term - more Important than Rate Equity preserves Company Cash
Copies & Questions
Presentation will be available on LinkedIn
Email questions via LinkedIn or at [email protected]
