Unit 1

Introduction to
Entrepreneurial Finance

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Table of contents

1.The Finance Stream

2.Introduction to Entrepreneurial Finance
3. Why raising capital?
4. Identify & quantify the financial need

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Our Journey until now

Accounting for Financial Entrepreneurial

entrepreneurs Planning Finance
Our Our First Our New
Beginning Building Beginning

Accounting provides the Financial Planning gives you Entrepreneurial Finance

basis for management the knowledge on how to brings you in the investors
decisions and accountability plan the business activity ecosystem, presenting you
through the process of through the analysis of the the main actors, the
recording, summarizing and three main statements: investment process, criteria,
presenting Income Statement, Balance and prepares you to the
historical and prospective Sheet & Cash-Flow presentation of a financial
information. Statement. request

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EF: final assignment

Starting from your Business Model and Finance

Model …
build your FINANCING STRATEGY including
Financial need, assumptions, financial
projections, investors selected.

U RNEY!
OUR JO
S S TART
LET’

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Table of contents

1.The Finance Stream

2.Introduction to Entrepreneurial Finance
3. Why raising capital?
4. Identify & quantify the financial need

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 “I could never convince the financiers
that Disneyland was feasible,
because dreams offer too little collateral”

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 From a dream…

…To reality

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Finance stream objectives

To provide useful economic and financial information

to stakeholders for:

Evaluation Planning
It’s possible to assess Financial Report can be
future cash flows, and the basis to plan the
compare economic and activity, allocate
Evaluation Planning
financial results year by resources, schedule
year the job

Internal Decision Making External Decision Making

The management can use External users can
Internal External evaluate the possibility
all the information to guide
and lead the company
Decisions Decisions to invest in the company
through future
performances

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Table of contents

1.The Finance Stream

2.Introduction to Entrepreneurial Finance
3. Why raising capital?
4. Identify & quantify the financial need

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The need of capital

To be an entrepreneurs you need to START UP a business

When you start you need to GROW fast

To grow and to reach FINANCIAL SUSTAINABILITY

To START UP and to GROW

you need a GOOD BUSINESS MODEL + CAPITAL

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Why Capital?

 One of the most critical issues facing

entrepreneurs is deciding IF and WHEN it makes
sense to raise outside capital
 In today's entrepreneurial environment, there are
many funding options to foster growth
 Access to capital cannot only help accelerate product
development and sales, but in many cases partnering
with the right investors can influence the trajectory
of a business

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What you must know

To raise money, we need to know the possibilities we have in

terms of:
 FINANCING DECISIONS:

1. Financial Instruments
(Debt and Equity)

2. Financial Institutions
(Business Angels, Banks, Venture Capital, Equity funds…
but also alternatives: accelerators, crowdfunding…)

3. Financial Tools
(Income Statement, Balance Sheet, Cash-Flow
Statement, Business Plan, Valuation Analysis)

 Basing on the LIFE-CYCLE of the COMPANY

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The life-cycle approach

 Funding options depends on the life stage of the firm!

 Every company born and grow till maturity
  Decision-making
 After maturity…typically decline or changes (re-born) …
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Life-cycle & source of financing

Profit

Further Stages

Expansion Growth & Mature

Third Stage
– improvement – growth quickly
Second Stage of production – strength competition
Early Growth – improvement – restructuring business
distribution
Start-up – Products & Services–
First Stage new markets
Design &
Financing development – strengthen the position
– market outlets within the market
Validate Seed – start-up
– sales success – facilitating the Stock
Financing – products
Exchange listing
Grant market launch
– idea
– prototype
– design – market analysis
– validate
– prepare
SHORT TERM LOANS LONG TERM LOANS
Business
Model
FFF,
INCUBATOR, VENTURE CAPITAL & PRIVATE IPO
GRANTS VENTURE CAPITAL
PHILANT.
ACCELERATORS, ANGELS EQUITY *

Loss * Initial Public Offer

Small Big

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What we will focus on

UN. 4: STARTUP & UN. 5: GROWTH &

EARLY-STAGE MATURITY
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Table of contents

1.The Finance Stream

2.Introduction to Entrepreneurial Finance
3. Why raising capital?
4. Identify & quantify the financial need

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What we need to finance?

An entrepreneur need capital for two main reasons:

A. To buy fixed (durable) assets
B. To finance the net working capital

a b NET WORKING
FIXED ASSETS & CAPITAL

 Along with fixed assets such as plant and equipment,

working capital is considered a part of operating capital
 The management of working capital involves managing inventories,
accounts receivable and payable, and cash

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a) Fixed Assets: a quick recap

• Company HQ
• Land • Factory
o ftw are • Buildings • Equipment
• S
top • • Machineries
• Lap Warehouse
• Car
• Truc • Desk
ks… s
• Chair

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b) Working Capital: a quick recap

CURRENT ASSETS –
NET WORKING CAPITAL = CURRENT LIABILITIES
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A new way to analyse the Balance Sheet

ACCOUNTING FOR ENTREP. COURSE

1. Fixed Assets 3. Liabilities

2. Current Assets 4. Shareholders’ equity

FINANCIAL PLANNING COURSE

1. Fixed Assets 3. Net Financial Position

2. Net Working Capital 4. Shareholders’ equity

This form of classified balance sheet makes it much more useful

for entrepreneurial team, investors and creditor

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A clear tool: reclassified balance sheet

 What do we need to finance:

1. Fixed Assets

2. Net Working Capital

PAY ATTENTION
At DAY 0, you need to calculate the FIXED ASSETS without
amortization. This will be the amount of fixed assets to be financed!
The value in reclassified balance sheet, does not reflects the real
amount of capital required, because reclassified BS is calculated
at the END of the YEAR!
… But you need capital at DAY 0 !!!
Then, you need to consider the CAPEX (capital expenditure)
from the investment list.

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An example of reclassified Balance Sheet

Values in USD Dollars 2015 2016 2017 2018 2019

Intangible Assets 903 855 808 760 713
Tangible Assets 232.367 214.233 196.100 177.967 159.833
Total Assets 233.269 215.088 196.908 178.727 160.546

Account Receivables 18.082 20.351 23.403 28.084 34.374

Inventory 22.000 24.760 28.474 34.169 41.822
Account Payables (6.559) (7.487) (8.610) (9.908) (11.508)
Net Working Capital 33.523 37.623 43.267 52.344 64.689

NET INVESTED CAPITAL   266.792 252.712 240.174 231.071 225.234

Long Term Debt -

Short Term Debt / Cash 175.864 111.649 45.026 - 19.016 - 105.832
NET FINANCIAL POSITION 175.864 111.649 45.026 - 19.016 - 105.832

Share Capital 50.000 50.000 50.000 50.000 50.000

Retained Earnings - 40.928 91.062 145.148 200.087
Profit or Loss of the period 40.928 50.134 54.086 54.938 80.980
EQUITY 90.928 141.062 195.148 250.087 331.066

TOTAL FINANCING SOURCES   266.792 252.712 240.174 231.071 225.234

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What Kenya Herbs needs to finance?

1. Fixed assets + Net Working Capital = NIC

2. Calculate the FINANCIAL NEED per difference:
+ Net Invested Capital
– Equity
– Long term debt =
Financial Need

1. Short Term Debt (Positive Sign): you need capital

2. Cash (Negative Sign): you are generating cash
with your operations

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TASK 1: identify & quantify your financial need

And now … work on your

FINANCIAL MODEL to
IDENTIFY & QUANTIFY
your financial need

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“Social entrepreneurs are not content just
to give a fish or teach how to fish.
They will not rest until they have
revolutionized the fishing industry.” 
Muhammad Yunus 

begi ns !
j o ur n ey
Let’s the
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