Read the pages in the Entrepreneur June 2017 edition and answer the below questi
ID: 2569144 • Letter: R
Question
Read the pages in the Entrepreneur June 2017 edition and answer the below questions. (Tasks 1-6). This is a story of a start- up. You can research on other similar companies to enhance your answer.
TASK 1 The report should cover the following points related to
1. (LO 1.1) Identify and discuss the main sources of finance available to the company, Include discussion on internal, external, long-term, short/medium-term sources of finance available this company - (minimum half a page)
(LO1.2) Assess the implications of the different sources of financeavailable. Include discussion on advantages and disadvantages of each source of finance considering legal and financial implications. (minimum half a page)
(LO1.3) Evaluate appropriate sources of finance for compareit4me. which needs to decide on the choice of financial funds for which will require capital for the following:
a) Investment in the big data analytics
b) Renting of office premises for a period of 3 years
c) Day-to-day operations
Suggest appropriate sources of finance for each of the above expansion purposes providing your reasoning. Finance sources should be carefully matched with their purpose.
(minimum one and a half a pages)
(LO 2.1) Discuss the various costs associated with the sources of financesuggested for the expansion needs above. Provide examples and explanations. (minimum one page)
DOUBLING grow, they've witnessed the growth since their original Series A funding, and they strongly believe in our plans for the future." “It's a great tors want to see this as well," Chehab adds. "It would be a pretty bad sign if your exist- ing investors stopped taking part in rounds, so it's impor- tant for us to get these guys to come back in. It gives the right signals to new, incoming investors." JON RICHARDS AND AMREHAB COMPAREIT4ME.COM FOUNDERS MAKEEVERY (INVESTMENT) ROUNDCOUNT And compareit4me certainly would like to see new names in its list of ivestors- the company is, after all, looking to close a Series B round of indication, then compare- expected to be more than Entrepreneur Middle East t4me's rivals should indeed double that of 2016. Another $10 million in the coming filmed compareit4me.com co-founders Jon Richards themselves against it- after cnt state is how its back to some really interesting and Samer Chehab for an all, since its launch in 20ers keep returning to support nvestors-guys who can episode of #EntMETalks, this enterprising startup a video series that we think twice before pitting good sign of compareit4me's months. "We're speaking the venture- its latest funding round sees the participation of existing investors STC Ven- few rounds if we need it," write really big checks, who can support us for the next has been able to raise a total which is, by itself, a testatures, Wamda Capital, Dubai Chehab reveals. "Not only ment to how well this online Silicon Oasis Authority and this, but they will also be able we asked the duo if they comparison site is doing. Its Saned Partners, and the sig to support us with guidance had a message for theirnumbers are impressive: CFO nificance of this act isn't lost and contacts." But getting competitors in the market, Jonathan Rawling tells me o Chehab and Richards. "We funds in this round hasn't don't take this for granted; that compareit4me has seen organic traftic rise by over e feel incredibly lucky that 400% since January 2015, these guys are ready to sup- and since its Series A round in September 2015, its annu been smooth sailing, the co- founders note. It's not easy Chehab says, "I think we're and Richards replied: "Haram what I'd say!" He said this port us on an ongoing basis," lucky that we've shown great Richards says. "But this is not growth. We've shown that we in late May about raising arevenues have more than qua a charity. They're supporting have a good understanding of the insurance market, and»» announcemen total of US$3.5 million is any drupled, with 2017's revenue us because they've seen usExplanation / Answer
Main sources of Long Term finance available for a startup company like “compareit4me” are;
The entrepreneurs can publish information about the funding needs, giving details about the company’s strategies and business potential in the platforms like ‘Kick starter”. The potential who goes through the details may offer to invest, if they choose to do.
2. Venture Capital funding:
This form of funding is suitable for company like Compareit4me, as it is has set a team and started yielding results. The revenue stream is visible and potential growth opportunities are huge.
The venture capitalists are the big investors who look for set entrepreneurial ventures and invest funds to finance their long term needs. The pitfall in this form of funding is that they would look for controlling position in the business.
3. Angel Investor:
This is similar to Venture Capital, except that the angel investor would not play dominant role in steering the business. Hence, the entrepreneurs get more freedom to execute ideas and whenever want the investor can be approached for mentoring.
4. Private Equity Funding.
Once the long term financing is secured, then the company can look for medium and short term funding.
Internal Accruals:
The established companies which already have book profits can utilize the internal accruals to fund the company.
The other short term funding are;
2. Implications of different sources of finance:
The long term funding discussed above (like VCs, PEs) have flexible funding. The advantage is that there would not be any fixed Interest and principal payments unlike Bank funding.
However, the disadvantage is the loss of control. These investors will look for a considerable stake in the company and also would interfere in the management of its affairs.
Some may even demand a place in the Board, which may be uncomfortable to the Entrepreneurs.
Long term funds from Banks & Financial Institutions:
The implications are; the company has to repay the loans with interest, even if the company does not earn profits. This will be pinching during the initial stages of operation. The advantage is that these institutions would not interfere in the management of affairs even though they will hypothecate the assets & receivables against the funding.
The company is legally bound to repay the banks and charge is usually created on the assets in favor of the banks. In the event of dissolution of the company, the banks have to be repaid first before the share holders.
3. Evaluation of Financing Options by compareit4me:
1. Investment in big data analytics:
The preferred financing option is through “Internal Accruals”. Big data analytics would help the company is choosing a right direction in which it can strategize. The success depends on how the data is being used by the team. It is a spending for which the ideal option would be to go for internal accruals.
If sufficient Internal accruals are not available, and it is decided to invest in big data analytics which would yield result in the long run, the company can opt for Long term external funding like Term loan from banks & financial institutions or the “Equity funding” from investors.
2. Renting of office space for 3 years:
It is like taking the office space for lease. As it is a medium term requirement, the best way is to secure 3 year term loan from bank. Reason being, the monthly installment payment to bank can be equated to the regular rental payments, had it been taken for rent.
3. Day to day Operations:
For day to operational funding needs, the ideal way is “Working capital Finance” like Cash credits, Overdraft, Bill discounting, Suppliers Credit etc.,
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