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PTRBOA002: Funding Your Venture and Business Planning
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PTRBOA002: Funding Your Venture and

Business Planning
What you'll do
Use key metrics to create a pro forma financial model that you can use to
determine how much capital you need at various points in your venture
Identify potential funding sources and for each one determine the requirements for
level of control and returns, investment size, and exit strategy
Identify the access challenges faced by women seeking capital
Find the right fit for funding your business based on its stage of development
Course Description
Regardless of the size or age of their business, entrepreneurs need to

understand some key financial metrics before they can seek initial or
additional capital. They need to know their maximum financing need,
how long it will take for cash flow to turn positive, and when investors
can expect to recoup their investment and get a return. Without these
numbers, investors-even friends and family-won't fund the venture.
Additionally, women entrepreneurs need to understand the funding landscape, the

options appropriate at different stages of the business life cycle, and the specific
challenges women face in the area of funding. With this knowledge, women can direct
their efforts and energy toward the sources most likely to invest as their businesses
grow.
In this course, Susan Fleming, former senior lecturer at the Cornell School of Hotel
Administration*, draws on her deep expertise in the area of entrepreneurship and
funding to help women understand the financial aspect of their businesses and seek the
right funding at the right time to grow their ventures.
*This course was developed while Susan Fleming was senior lecturer at the Cornell
School of Hotel Administration.
Susan S. Fleming
Senior Lecturer
School of Hotel Administration, Cornell University
Susan S. Fleming, PhD, is a senior lecturer at the Cornell School of

Hotel Administration. Professor Fleming is an educator, researcher,
businesswoman, and mother with deep experience and expertise in the areas of
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finance, insurance, business strategy, organizational behavior, and issues of gender

diversity.
Fleming began her career on Wall Street, where over a period of 12 years she held
various positions in the investment community, including that of analyst at Morgan
Stanley & Co.; vice president of Insurance Partners, L.P., a $540M private equity fund;
and partner at Capital Z Financial Services Partners, a $1.85B private equity fund.
After retiring from Wall Street in 2003, Fleming began work as an educator, teaching
executives, investment professionals, MBAs, and undergraduates in the areas of
corporate finance, insurance, valuation, and gender bias. She also enrolled at Cornell
University's Johnson Graduate School of Management to pursue a PhD in
management, where her research focused on better understanding the factors
contributing to a dearth of women in leadership positions in U.S. society.
In addition to her work as an educator, researcher, and business consultant, Fleming

helped to found a startup company in Ithaca, NY; has previously served on the board of
directors of five publicly traded insurance and reinsurance companies, two private
companies, and three non-profit organizations; and currently serves on the boards of
Virtus Investment Partners, Inc., a publicly traded asset management firm, and RLI
Corp., a publicly traded specialty insurer. Fleming is also a frequent speaker on issues
of gender bias and entrepreneurship, having spoken to organizations such as
TEDxCornell, CEB, Transatlantic Reinsurance, Selective Insurance, Hershey
Entertainment and Resorts, and The Venetian/Palazzo/Las Vegas Sands Corporation.
Fleming has been published in the Cornell Hospitality Quarterly, Psychology of Women
Quarterly, and Cornell Hospitality Reports. She holds a BA in economics and Asian
studies (highest distinction) from the University of Virginia, and an MS and PhD in
management from Cornell University. To learn more about her, please visit
www.susansfleming.com.
Video Transcript
Understanding the financial elements of your business is critical to your success,
whether you choose to raise outside capital or not. In this course, you will learn to
estimate the key financial drivers of your business and then use them to figure out if and
when your business will generate cash flow. You will also estimate how much capital
you need to get up and running and to keep your business alive until you're cash-flow
positive.
You will also be introduced to some of the most common sources of funding for starting
or growing an early-stage business, and then assess which sources are the best fit for
you and your company. Finally, you'll hear about some of the specific challenges that
women often face in accessing capital, and get some advice on how to best overcome
them.
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Table of Contents
Meet Your Class

1. Meet Your Class
Module 1: Key Financial Metrics

1. Module Introduction: Key Financial Metrics
2. Tool: Financial Terms
3. Watch: Understanding the Financial Aspect of Your Business
4. Watch: Elements of Required Initial Capital
5. Watch: How to Estimate the Capital You Need to Start Your Business
6. Activity: Estimate the Capital You Need to Start Your Business
7. Watch: Sales Revenue
8. Read: Estimating Sales Example
9. Activity: Estimate Your Sales Revenue
10. Watch: Ongoing Costs: Fixed and Variable
11. Activity: Estimate Ongoing Variable and Fixed Costs
12. Watch: The Pro Forma Financial Model
13. Watch: Introducing Uncertainty
14. Part 1: Use the Pro Forma Financial Model
15. Module Wrap-up: Key Financial Metrics
Module 2: Sources of Funding

1. Module Introduction: Sources of Funding
2. Watch: What You Need to Know about Raising Capital
3. Read: Formal and Informal Sources of Funding
4. Watch: Bootstrapping
5. Watch: Family and Friends
6. Watch: Crowdfunding
7. Ask the Expert: Samantha Abrams, Emmy's Organics
8. Read: Grants
9. Watch: Angel Investors
10. Watch: Venture Capital
11. Ask the Expert: Jennifer Tegan, Cayuga Venture Fund
12. Watch: Bank Lending
13. Funding Options
14. Part 2: Research Sources of Funding
15. Module Wrap-up: Sources of Funding
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Module 3: Finding the Right Fit
1. Module Introduction: Finding the Right Fit

2. Watch: Stages of New Venture Development
3. Tool: Stages of New Venture Development
4. The Development Stage of Your Business
5. Watch: Stages of New Venture Financing
6. Watch: The Benefits of Fundraising in Stages
7. Tool: Staged Funding Map
8. Read: Factors that Affect Your Financing Choice
9. Watch: Relative Cost of Financing from Different Sources
10. Watch: Financial Needs and Financial Condition
11. Watch: Product/Market Considerations
12. Watch: Organizational Considerations
13. Watch: Your Track Record, Reputation, and Relationships
14. Part 3: Find the Right Funding Fit
15. Tool: Action Plan
16. Module Wrap-up: Finding the Right Fit
17. Read: Thank You and Farewell
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Meet Your Class

1. Meet Your Class
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Meet Your Class

Using the discussion below, please introduce yourself to the class. We're all eager to
learn more about you. What do you hope to learn from the course? What is your
business? Where are you located? Please respond in a text format or as a video using
the filmstrip icon that is available when you click Reply.
(If posting a video response, we recommend that you do not use your cell phone as
most do not use Flash software which is required to convert the recording.)
Back to Table of Contents
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Module 1: Key Financial Metrics

1. Module Introduction: Key Financial Metrics
2. Tool: Financial Terms
3. Watch: Understanding the Financial Aspect of Your Business
4. Watch: Elements of Required Initial Capital
5. Watch: How to Estimate the Capital You Need to Start Your Business
6. Activity: Estimate the Capital You Need to Start Your Business
7. Watch: Sales Revenue
8. Read: Estimating Sales Example
9. Activity: Estimate Your Sales Revenue
10. Watch: Ongoing Costs: Fixed and Variable
11. Activity: Estimate Ongoing Variable and Fixed Costs
12. Watch: The Pro Forma Financial Model
13. Watch: Introducing Uncertainty
14. Part 1: Use the Pro Forma Financial Model
15. Module Wrap-up: Key Financial Metrics
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Module Introduction: Key Financial Metrics

When you start a business, you face some major financial questions:
How much money do you need to get your company started? How long
will it take to begin making money? How much money will you need to
sustain your business until it's profitable? These questions can be
daunting for any entrepreneur, but maybe even more so for women, who
have traditionally been socialized to think they're not good with numbers
or finances, or who may be hesitant to dive into the financial aspects of
their business because they have comparatively less experience than men in managing
money. The truth is, you don’t have to be an accountant or financial expert to confidently
estimate the financial needs of your business. You just need to learn a few basics, do
your homework, and then apply what you’ve learned.
This module will give you the necessary tools to calculate the amount of capital you
need to both start your business and sustain it until you get to the point where you are
making a profit. Then, you will explore methods for projecting your sales and costs to
figure out if your business can actually make money, when it will start to generate
positive cash flow, and when your business will have generated enough cash flow to
recoup the capital invested and begin yielding a return.
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Tool: Financial Terms
• Use this helpful Financial Terms

to increase your fluency in the
language of finance.
One of the most exciting aspects of this certificate program is the diversity of the
students taking the courses. Some of you are fluent in the language of finance, but for
others, the terms and concepts may seem alienating and intimidating. If you're someone
for whom the idea of managing, or even just understanding, your company's finances
seems overwhelming, don't despair. You probably know more than you think! If you've
ever balanced your checkbook or created a household budget, you have experience
managing finances. Once you learn what some common financial terms mean, you will
likely find that they refer to concepts that you already understand.
If you're new to financial jargon or you need to brush up on financial terms, download
this glossary. Print it out or keep it open as a reference while you watch the videos in
this course.
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Watch: Understanding the Financial Aspect of Your Business

As an entrepreneur, you need to have a firm understanding of the financial aspect of
your business. Ultimately, you are responsible for making sure your venture is
financially sound. Professor Fleming explains what you need to know and why.
Video Transcript
I've often found, especially in the early stages of starting a business, entrepreneurs are
so excited about and focused on developing and launching their product or service, that
they spend little or no time considering the financial aspects of their business. For
example, they might figure out how much capital they need to create the first few
products, but not what will be required long-term to sustain and grow the business. Or
they sometimes consider how much to charge to cover the basic cost of delivering their
service, but they don't calculate the price that will cover the cost of overhead, pay them
a salary someday, or generate an attractive return on the capital invested.
This failure to really understand the financials of your business can be fatal. Your
business must make money to survive long-term. Before you meet with investors or
consider investing your own money, you need to come up with reasonable estimates of:
the amount of capital you will need to start your business, the amount of capital you will
need to sustain it until you're making a profit, when your business will start to generate
positive cash flow, and when your business will recoup the initial investment and
generate a return.
Think about it. If the price that the market is willing to pay for your product is too low or
the number of people who would ever purchase it is too small to ever make a profit, it's
better to know this before you start spending money to launch the venture. And if you do
discover this, you might be able to adjust your product pricing or consumer segment to
find a strategy that will make money.
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Watch: Elements of Required Initial Capital

Two of the key metrics you need to determine or estimate when starting a business are
the capital needed to launch the business and the capital needed to keep it going until it
makes a profit. Here, Professor Fleming explains how to think about these numbers.
Video Transcript
One key element of starting or sustaining a new business is figuring out how much
capital that you need and ultimately where you will get that money. But before you really
even think about funding sources or how to access them, you need to answer the first
question: How much capital do I need, and when will I need it?
If you already have an operating business, then you should go through a similar
exercise prior to initiating any major new growth plans, such as launching a new product
or opening a new location. Start by estimating how much money you will need up front.
Do you need equipment to create the product or deliver the service? What about space;
can you work out of your home to start or do you need to rent a place for your business?
Other things that can cost money up front include paying a manufacturer, hiring a
specialist such as a programmer or a designer, and fees for licenses and permits.
In addition to these upfront costs, you also need to estimate how much money you will
need to finance any losses until you can make a profit. If you have to do a lot of
research and design, or build out a space for a service business, prior to actually selling
anything, you need capital to cover bills during that development period. And even once
you do launch, you most likely will not be making a profit after factoring in things like
rent, business insurance, or salary for yourself or for employees. So, you need capital to
finance these losses until you do get to a point of making money.
As you may know, restaurants have one of the highest failure rates of any type of
business. However, the reason for failure is often not that the restaurant doesn't have
high-quality food, good service, or customers that are willing to eat there. The issue is
that the entrepreneurs only raised enough capital to get the doors to their restaurants
open; they didn't raise enough to sustain losses while they were building up a consistent
clientele that would fill the restaurant every night. So, whatever your business is, make
sure to budget for what happens after you start selling your product.
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Watch: How to Estimate the Capital You Need to Start Your

Business
It is one thing to identify the metrics that are important when thinking about starting and
funding a business, but it's another to quantify those metrics for your venture. Your
estimate of the capital needed to start your business must be based in reality. In this
video, Professor Fleming breaks down some of the key factors you should consider
when estimating your capital needs.
Video Transcript
To estimate your capital requirements, I recommend making a list of all of the elements
that are required to deliver your specific product or service. You should also talk to other
business owners, or if your community has resources or networks to support
entrepreneurs, to them, about more general requirements. When I helped to launch a
business in 2007, despite my prior experience doing venture capital and angel investing,
I was surprised by all of the regulatory requirements for employees, licensing, and the
cost and time required to do day-to-day things like handling payroll and sales taxes.
Do make sure to talk to a broad range of people from different backgrounds, including
both women and men. People tend to have networks that are dominated by those of the
same gender and background, so if you only talk to those in your most immediate
network, you might not be getting the best information compared to if you were to seek
out information more broadly. Once you have a good list, do some research to come up
with a solid estimate for each item. For example, if you need equipment, find out where
you can buy it and what it will cost.
Likewise, once you've come up with estimates for your sales and cost, which we will
discuss next, you can estimate how much capital you will need to sustain losses until
you are making a profit. If this seems a bit overwhelming, don't worry. You don't need to
do all this research right now; just do it before you launch. For the purposes of this
course, you can make a rough estimate that you will refine later. Once you've completed
this exercise, you should have a solid sense of how much capital you will need.
If you think you can access that capital, then great, but even if you don't think you can,
that doesn't mean you have to abandon your entrepreneurial dreams. Instead, consider
a different approach. I often work with entrepreneurs that ultimately want to own their
own restaurant but don't have the capital to open one right now. Instead of giving up, I
advise them to consider whether they can raise enough capital to start a food truck, or if
not that, to open a stall at a farmers' market. Either of those could grow and generate
enough customer and cash flow to someday fund a restaurant.
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Activity: Estimate the Capital You Need to Start Your Business

Now that you know how to estimate the capital you need to start your business, it's time
to move from theory to practice.
Instructions:
1. Download the Estimate Initial Capital Needed worksheet.

2. Follow the directions to make a rough estimate of the capital you need to start your
business, or if you have already started your business, to take on a major new
growth initiative.
You will use this estimate as the basis for financial projections you will make later in this
module, so take some time to research and make educated guesses. A rough estimate
is OK. You can update this worksheet anytime.
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Watch: Sales Revenue

One of the most critical things you need to estimate is the level of sales revenue your
business will generate over a given time period. To do this, you will multiply the number
of units of your product or service that you will sell in a given time frame by how much
you will charge for each unit. Professor Fleming describes two approaches to estimating
your sales so you can calculate revenue.
Video Transcript
The math for calculating sales and revenues is pretty simple, but unfortunately, an
estimate of sales is often the hardest one to get right. The good news is that there are
multiple ways to go about this. Ideally, you should take several approaches and then
triangulate on your best guess. And then, once you're selling your product, you will use
past experience to estimate future sales. The first method is the demand-side approach.
In this case, you assess consumer willingness and ability to buy the product, assuming
that you have adequate capacity to supply all of the demand.
To do this, you should consider questions such as how many potential customers there
are in the market; how much a typical customer is likely to purchase in a given period;
how much you think they'll pay for your product; how rapidly the market is growing; and
how much competition there is for your product, both now and in the future. The second
method is the supply-side approach. In this case, you seek to determine how fast your
business can grow, given the managerial, financial, and other resource constraints.
For example, if you're running a service business with a certain amount of space or
staff, how much of your product can you produce at a hundred percent capacity? This
number of units times the price you will charge per unit is the maximum sales you can
generate. By combining these two approaches, you can hopefully come up with a
reasonable estimate. Keep in mind that some businesses will be limited by the supply
side, or capacity, while others will be limited by the demand side; they can produce an
unlimited amount, but not everyone wants their product. An example of the latter would
be an app for a mobile phone.
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Read: Estimating Sales Example
• Use multiple approaches to estimate your sales, and then triangulate on your best
guess.
• The demand-side approach assesses consumer willingness and ability to buy your
product or service.
• The supply-side approach considers the maximum amount you can produce.
Juliana wants to open a coffee shop, and she needs to estimate her sales revenue. She
decides to use both the demand-side and the supply-side approaches to calculate her
best guess.
Primary Method One: The Demand-Side Approach
With the demand-side approach, Juliana assesses consumer willingness and ability to
buy her products, assuming that she has the capacity to meet customer demands.
The first thing she needs to know is how many customers a typical coffee shop in her
town (or in another town with similar demographics) serves per day. Juliana must base
her analysis on shops similar to the one she plans to open in terms of location (for
example, lots of foot traffic vs. accessible only by car), products offered, and hours of
operation. She should also consider how often customers visit, how much they spend
per visit, and how many items they purchase and at what price. Juliana can gather
some of this data through general research online in trade publications. Other data
might best be gathered through direct observation by sitting outside local shops and
counting customers.
Juliana must also consider the degree of competition. Is she

opening her shop right across the street from an existing shop? If
so, how effectively will she compete? In other words, what is her
differentiator? Are there enough customers to go around for all
shops, or is the market already saturated? If Juliana is going to
open the first coffee shop in her market, it could be a great thing;
however, she must consider whether there is demand in this
specific market for her products.
Juliana must consider all of these factors as she projects the number of customers to
expect, estimates how much of each of her products she will sell, and sets the prices
that she can charge for them.
Primary Method Two: The Supply-Side Approach
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When Juliana uses the supply-side approach, she must determine how fast her
business can grow given her managerial, financial, and other resource
constraints. Juliana starts with the assumption that there will be an unlimited
number of customers, so she instead focuses on how many customers she can
serve coffee to—and seat, since that is part of her value proposition—within
any given period of time. Juliana must multiply this number of customers by the
estimated average check size per customer to determine her maximum possible
revenue for that period.
Combining Results
By combining the demand-side and the supply-side approaches, Juliana should be able
to come up with a reasonable estimate of her sales. She must keep in mind that her
coffee shop will be limited by supply at peak times because all the tables will be full and
the baristas can only serve a certain number of coffees in a given period, but it will be
limited by demand at other times when they have lots of seats free but no one to fill
them.
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Activity: Estimate Your Sales Revenue

Now you will estimate the sales revenue of your business.
Instructions:
1. Download the Estimate Sales Revenue worksheet.

2. Follow the directions to make a rough estimate of the monthly sales revenue you
expect from your business or new initiative for at least the next year or until you
expect to reach cash-flow positive.
3. If you already have some sales revenue numbers, are they in line with your original
estimates? Consider if you’d approach your estimate the same way in the future.
You will use this estimate as the basis for financial projections you will make later in this
module, so take some time to research and make educated guesses. A rough estimate
is OK. You can update your estimates anytime.
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Watch: Ongoing Costs: Fixed and Variable

Once you have estimated your anticipated revenue, you also must calculate your
ongoing expenses and determine whether your revenue, plus your starting capital, will
be sufficient to cover those expenses as well as your upfront costs. In this video,
Professor Fleming talks through the two types of costs and how entrepreneurs may be
able to use the difference between them to their advantage.
Video Transcript
Once you have an estimate of how much you will sell, you should also estimate your
ongoing costs of operating your business. These fall into two major categories: variable
costs and fixed costs. Variable costs are those that change as you produce and sell
more or less product. Typically, one major variable expense is your cost of goods sold,
otherwise known as COGS. These are costs for the materials and labor that are
required to produce each unit of your product.
Other common variable expenses are sales commissions and distribution costs. Fixed
costs are those that don't change with sales over the short term. These include things
like the development costs that you incurred prior to selling anything, as well as things
you have to pay for whether you sell one unit or a million units, like rent, management
salaries, and business insurance. The good news about costs is that they are easier to
estimate than sales. For each category of variable and fixed costs, you should get very
granular and solid estimates.
For example, if your product requires a particular part or input, you should find out
where you can buy it and how much it costs, both for a small number while you're
getting started and for a bulk order when you're at capacity. Also, one piece of advice: A
key skill of an entrepreneur is turning fixed expenses into variable ones in order to limit
upfront capital as you're starting out. For example, can you rent a building instead of
buying one, or can you pay commission to your salespeople instead of paying them a
salary? By doing this, you might be able to get your business off the ground sooner than
you think.
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Activity: Estimate Ongoing Variable and Fixed Costs

Now that you understand the difference between variable and fixed costs, it's time to
estimate your business's costs.
Instructions:
1. Download the Estimate Ongoing Variable and Fixed Costs worksheet.

2. Follow the directions to roughly estimate your variable and fixed costs. Make sure
that your variable expense estimates vary with your sales estimates.
3. If you already know what your variable and fixed costs are, how close were your
initial estimates? Consider if you’d approach your estimates the same way in the
future.
You will use these estimates as the basis for financial projections you will make later in
this module. It’s OK to estimate these for now, but since costs are much more
“knowable” than sales, you should research and know these numbers in detail before
you launch your business or new initiative.
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Watch: The Pro Forma Financial Model

Once you have estimated your capital needs, sales, and costs, you can create a
financial model that can help you answer some key questions:
• Can your business actually make money?
• When will it start to generate positive cash flow?
• When will your business have generated enough cash flow to recoup the capital
invested and start to generate an attractive return?
This is called a "pro forma" model, which just means it's a standard way of calculating
these things. One important point to remember: This is a PROJECTION model, so by its
very nature, it is an iterative process—you will look at these numbers regularly. As you
do more research into launching your business and as you start to actually operate it,
you will gain knowledge and experience that you can and should use to refine your
projections. If you haven’t started your business yet, it’s OK to start with your best guess;
you’ll refine it as you go.
Contribution Margin
One way to determine whether your business is a worthy investment is by calculating the
contribution margin of your product, or the amount each unit sold contributes to your
profits. Professor Fleming walks you through this calculation.
Video Transcript
To start creating your pro forma model, the numbers that you've already estimated—
one, the capital needed to start and operate the business until it's cash-flow positive;
two, sales revenue; and three, costs—go in. Using those numbers, you can calculate
and understand whether and when your business makes money and how much, from
selling the first unit and from selling as many units as you can produce at scale. And you
can understand whether it makes enough money to generate an attractive return, given
the risk you're taking in investing in the business.
There are several key ratios that you're going to calculate to answer these questions.
The first is your contribution margin percentage. In any given period, this is your sales
revenue less the direct variable costs associated with producing those sales, divided by
sales. For example, if each unit sells for $10 and the variable direct costs of producing
the unit is $5, then the unit contribution is $5 and the contribution margin is 50 percent.
Contribution margin can also be thought of as the percentage of sales that is available to
offset fixed costs, or the amount each additional unit sale adds to your bottom-line profit.
If your idea doesn't have a positive contribution margin, you probably should not pursue
it. The reason I say "probably" is that if you can buy the inputs you need to produce your
product much more cheaply when you buy in bulk, you might ultimately have a positive
contribution margin, even if you don't have one now.
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Net Margin
Another important calculation helps you determine your net margin, or the amount of
profit remaining once all costs have been deducted from total revenue. In this video,
Professor Fleming discusses the relationship between net margin and scalability.
Video Transcript
The second key ratio you want to calculate is your net margin percentage. This is the
profit your business generates after considering all of your expenses, including both
COGS and operating overhead expenses, divided by sales. Most businesses don't make
a net margin in the early days because they aren't selling enough units to cover the cost
of fixed expenses.
This is OK. Even if your idea cannot immediately generate a net profit, it still might be a
viable concept. To assess this, you need to consider how scalable your business is. In
other words, what is the relationship between growth and sales, and growth and profit?
The higher a business' contribution margin, the faster profits will grow with sales. This is
called a highly scalable business. If a business is scalable, then it has the ability to
generate net profits quickly once growth has been achieved.
This is accomplished either through a high contribution margin or low fixed operating
expenses or both. An example of a highly scalable business is one that sells software or
apps. They spend a lot of money to create the first unit, but once it's created, they can
sell a ton with little added cost. In contrast, restaurants and hotels are examples of less
scalable businesses because they are limited in capacity by real estate. They can
leverage the brand, purchasing, and overhead, but not variable costs and real estate
costs.
Scalability and ROI

Once you’ve defined your key ratios, you must interpret these results to make a decision
about the overall profitability of your business.
Video Transcript
Consider what your pro forma model tells you about your contribution margin, net
margin, and scalability, as well as how much capital you will need before you generate
positive cash flow. Does your business generate a net profit at scale when you're selling
as much as you can produce? If the answer is no, then you need to rethink your
business. Perhaps you need to charge more for your product; figure out a way to reduce
costs, either COGS or fixed expenses, to be more efficient to produce more units with
the resources you have.
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If does make a net profit, great. However, you need to consider whether the net profit
generated by the business once it has reached scale is attractive relative to the capital
invested in the business to create that profit. In other words, what is the return on
investment, and how does that compare to the returns being generated by other
similarly risky ventures? To calculate this, the benefit or return of an investment is
divided by the cost of the investment.
The result is expressed as a percentage or a ratio. That return can be the net profit in a
given period, the dividends that the business can provide during a given period, or, if
you're considering the entire life of the business, it could include the dividends paid out
and the amount you sell the company for when you exit. When talking to investors or
considering investing yourself, you want to consider whether the ROI, however you're
defining it, is attractive on a relative basis. If it is, you're more likely to be able to raise
capital for your venture.
The J Curve
The final piece of the puzzle is determining how much capital you will need to invest at
each stage of your business’s growth. Luckily, these needs often follow a familiar
pattern, described here by Professor Fleming.
Video Transcript
Finally, ask yourself what your pro forma model can tell you about how much capital you
will need before you generate positive cash flow. What is the maximum cumulative
amount of cash that will be invested in the business throughout the entire projection
period? This is your cash trough, or the turning point in your business where it starts to
generate a positive cash flow. You don't necessarily need to raise the maximum amount
up front; in fact, it's often a good idea to raise it over time. However, you do want to have
some sense of whether and where you can get the capital when you do need it.
A useful visual representation of this is what we call the J curve, or "hockey stick"
because of its shape. The cash curve plots out cash flow for your business over time as
it goes through idea generation, beginning to sell, rapid growth, and then either stable
growth or exit. The period from when you start investing cash into your company to
when the business is generating enough cash flow to sustain its growth has been
referred to as the "valley of death," with the lowest point in the valley being your
maximum capital required.
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Watch: Introducing Uncertainty

What happens when the estimates on which your pro forma model are based are
wrong, or when unforeseen circumstances throw your estimates off? Chances are,
things won't work out the way you had expected. In this video, Professor Fleming
discusses strategies for expanding your predictions to account for the uncertainty of the
actual market.
Video Transcript
When you've completed your pro forma financial model, you will have your base case.
However, one thing is for sure: It will be wrong. Not because you haven't done a good
job of researching and estimating, but simply because that is the nature of projections.
Given this, it's important that you factor uncertainty into your model, by either running
sensitivity analyses or by creating alternative scenarios or cases. With sensitivity
analyses, you change one variable at a time, like price or the number of units sold or the
cost of a key input, to see how it influences your ratios. With creating alternative
scenarios, you change multiple variables at a time which are linked.
For example, perhaps your product becomes a hot item, and so you sell lots of units
and can raise the price, which allows you to buy a key input in bulk, thus lowering the
price of that input. I recommend coming up with both an upside or aspirational case, and
a downside case. Then, consider the various cases and come up with an estimate of
how much capital you need to raise now and in the foreseeable future. Most likely,
you're going to want to raise the amount of capital indicated in the base case, plus some
decent margin of error, though perhaps not as much as is indicated in the downside
case.
This decision, however, is up to you, based on your personal tolerance for risk. One
word of caution: Your base case estimates might be too optimistic, or they might be too
pessimistic. I usually see entrepreneurs erring on the high side. However, some
research has shown that women are less likely to take risk. So, as you come up with
your downside case, make sure to talk to others, both men and women, to get feedback
on what level of capital you need. You don't want to be so conservative that you end up
not getting the business started if it is a good idea to do so.
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Part 1: Use the Pro Forma Financial Model

As an entrepreneur, you must understand some key financial metrics for your business
so you can predict future performance and needs. In this part of your course project, you
will use your upfront costs, sales revenue, and ongoing costs estimates to complete a
pro forma financial model. This model will help you project the future performance of
your company.
You do not have to complete all of Part 1 for course credit. You must, however,
demonstrate that you have started forecasting with the pro forma financial model.
Instructions:
• Download the pro forma financial model.
• Download the course project.
• Complete Part 1.
• Save your work.
• You will not submit your course project now. At the end of the course, you will
submit it for credit.
Before you begin:
Please review eCornell's policy regarding plagiarism (the presentation of someone

else's work as your own without source credit).
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Module Wrap-up: Key Financial Metrics

It’s vital that you understand the financial metrics that let you know whether your
business venture will make money and how much capital you will need to get to that
point. Forecasting with the pro forma financial model helps you answer those questions
and spot problems before they arise so you can adjust your business strategy.
In this module, you explored key financial metrics for your business and gained tools
that will help you calculate how much capital your business will need to survive until it
makes money. You also took steps toward making realistic financial predictions with the
pro forma financial model so you can determine how your venture's capital needs will
change over time.
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Module 2: Sources of Funding

1. Module Introduction: Sources of Funding
2. Watch: What You Need to Know about Raising Capital
3. Read: Formal and Informal Sources of Funding
4. Watch: Bootstrapping
5. Watch: Family and Friends
6. Watch: Crowdfunding
7. Ask the Expert: Samantha Abrams, Emmy's Organics
8. Read: Grants
9. Watch: Angel Investors
10. Watch: Venture Capital
11. Ask the Expert: Jennifer Tegan, Cayuga Venture Fund
12. Watch: Bank Lending
13. Funding Options
14. Part 2: Research Sources of Funding
15. Module Wrap-up: Sources of Funding
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Module Introduction: Sources of Funding

Once you have a good idea of the capital you need to raise to start and
sustain your venture, you need to understand the various sources of
funding that may be available to new and young businesses—and, when
your company is ready to move to the next level, to more mature
businesses.
In this module, you will explore some of the most common funding
options for early-stage companies, including general requirements along with the pros
and cons for each from the entrepreneur’s perspective. You’ll also uncover some of the
specific challenges that women face in accessing capital. Armed with all of this
information, you should walk away better prepared to find available capital for the
company that you are starting or seeking to grow.
Does this matter for me?
Students in this course have diverse goals when it comes to funding. Some of you may
aspire to build a large business that will require significant outside funding, while others
may only be looking to launch a small business that you can grow on your own without
ever needing outside capital. If you fall into the latter group, you may be wondering why
you should spend time learning about different sources of funding. Part of being a
successful entrepreneur is understanding the entire landscape, and this course can help
you better understand the big picture of entrepreneurship. Additionally, if your goals
change over time, you will find it helpful to understand your potential sources of capital.
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Watch: What You Need to Know about Raising Capital

Before exploring sources of capital, Professor Fleming shares a few caveats and
warnings about the fundraising process in general.
Video Transcript
First, entrepreneurs often underestimate the amount of both time and money that it will
take to raise outside capital. This includes both money spent on travel expenses and
time they will personally invest in networking, meetings, and travel, only to hear "No."
This is time you could otherwise be spending working on your company, so it has a high
opportunity cost.
Further, the process often takes longer to complete than you might expect; this is
especially true if you're raising capital for more formal sources. Second, there is risk in
sharing information about your company with potential investors. And most investors will
not be willing to sign a nondisclosure agreement, at least for the first few meetings.
Therefore, it is important to be smart about what you share and with whom. If you can,
vet each source with someone you trust to make sure they are good people.
On that note, you should be careful in the advisors you select to help you. Third, it's
important to realize that not all money is the same. What I mean by this, is that sources
of capital, like angel investors and venture capitalists, have great networks that you can
tap into to help grow your company. That may also be true for other sources but often is
not. Finally, a high- maintenance investor who's going to call you every day, worrying
about their money, can eat up a lot of your limited time. So if you can, get to know your
investors before you take their money.
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Read: Formal and Informal Sources of Funding
• Funding comes from formal and

informal sources.
• Most startups use informal

funding first.
There are many potential sources of capital for new and growing businesses, but they
generally fall into one of two broad categories: informal or formal capital.
Informal sources include funds generated by the company itself, your own personal
resources, and those of your family and friends. Crowdfunding is another newer informal
source of funding. This is where individuals are largely providing capital to your
company on a one-off basis, not because they regularly invest in startups.
Formal capital includes funds provided by individuals and organizations that regularly
support startups and, in many cases, have a financial responsibility to the organization
they work for to make good funding decisions. These include government grants, angel
investors, venture capitalists, and traditional lenders, such as banks and credit unions.
Both types of funding may be appropriate for your venture at some point based on your
goals and where you are in your entrepreneurial journey, but most businesses tend to
start by raising money from less formal sources because they can be easier to access in
the early days.
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Watch: Bootstrapping
Studies show that most startup funds for businesses are either provided by the
entrepreneur herself or generated by profits from early sales. We refer to this practice
as “bootstrapping,” which comes from the term “pulling yourself up by your bootstraps.”
It’s an informal source of funding that does not require outside investors.
What does bootstrapping involve?

Professor Fleming defines bootstrapping and describes a few forms it can take.
Video Transcript
Bootstrapping can include simply providing the capital from your own resources, such as
personal savings and credit cards; borrowing against your home or other personal
assets; or even selling them. I knew one entrepreneur who financed his online wine
company by gradually selling off his wine collection. This allowed him to avoid putting
his family's home at risk with a mortgage. Bootstrapping is often defined more broadly,
however, to include doing it yourself.
In this case, it might mean that you are not only CEO, but also the person creating your
product, mailing it, sweeping the floor, building your website, and collecting receivables.
It can also mean simply operating the company and living on the cheap. I've often heard
references to a company being "ramen-profitable," meaning that they're profitable, but
only because they only eat ramen noodles and run their company with the same
philosophy, perhaps by starting their business at home, paying employees in equity or
experience instead of salary, and leveraging help from friends to carry out certain tasks,
like website maintenance, and packing and shipping.
Pros and Cons of Bootstrapping

Bootstrapping can be a beneficial strategy, but it comes with its own set of challenges—
especially for women. Professor Fleming explains.
Video Transcript
There are obviously pros and cons to bootstrapping your company, keeping in mind that
often entrepreneurs will bootstrap as long as possible but then do raise outside capital.
On the positive side, when you bootstrap, you keep complete ownership and control of
the business.
This means that you can also get away with running a less tight ship from an accounting
and governance standpoint than might be required if you have investors or loans from a
bank. Further, instead of spending time on raising money, especially in the early stages
before you have a proven product or service, you can spend it on really refining your
concept and making sure that it will be successful. Finally, if and when you do go raise
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money later, bootstrapping shows your level of commitment to the business, thus
strengthening your credibility with investors.
On the negative side, bootstrapping can starve an otherwise attractive business to

death; if you run the company too lean, you may cut so many corners that you fail to
deliver a high-quality product or service. Further, without enough capital, you often have
a very short runway; there is simply no room for error. A second con is that you could
miss out on first-mover advantage or the opportunity to solidify market position. Third, as
some of you may have already learned, relying solely on your own resources can create
a high level of personal stress; this is especially true if you have a family to support.
Finally, by bootstrapping, you miss out on the possibly valuable advice of investors.
Considering all the pros and cons, it does usually makes sense to bootstrap for at least
some period, because raising outside capital before you have a clear concept is often
simply unrealistic. That said, it can be more challenging for women to bootstrap than
men, because women are less likely to have significant wealth to personally invest, or
the same level of personal credit or assets for getting personal loans that they can
invest into the business. If this is the case, you might have to rely more on internally
generated revenues and grow even more slowly.
Best Practices for Bootstrapping

If you decide that bootstrapping makes sense for you and your business, Professor
Fleming has some advice for making the most of it.
Video Transcript
Given that you will likely bootstrap at some point, you might be wondering what the best
practices are for this approach. I have a few suggestions. First, instead of trying to
recreate the wheel with something new, consider pursuing a business that you can get
operational fast because it's been done before. This will limit the amount you spend
before you start selling a product, and then once you're selling, you can roll any profits
right back into the business. Second, grow slowly. Investing in hiring more people or
building systems only when absolutely necessary due to product demand.
Third, manage cash, focus on cash, and maintain high margins. Bootstrappers can't
afford to use a strategy of initially selling products at a loss, i.e., loss leaders, in order to
get customers or market before eventually raising their prices. Also, only spend money
on the things you really need; go cheap with everything else. And finally, look to cultivate
banking relationships early on, and start keeping solid accounting books and taxes. If
you can create a business that consistently generates cash flow, eventually you may be
able to access a bank loan to grow, and thus avoid ever selling a part of your company
to an outside investor.
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Watch: Family and Friends

Next to your own savings, friends and family are the most likely source of startup
capital. Professor Fleming includes “fools” in this group—only half-jokingly—because
often the only people that are willing to invest in a very early and high-risk business are
either people that love you or fools. That said, friends and family are a critically
important source of capital, especially for entrepreneurs with limited personal resources,
as without their help, you simply might not be able to get your business off the ground.
Pros and Cons of Family and Friends Providing Funds

Soliciting or accepting an investment from a person that you have a close relationship
with can be both rewarding and challenging. Professor Fleming breaks down why this is.
Video Transcript
The main pro of taking capital from "family, friends, and fools" is that it's generally
desperately needed, and it's the only money available. Unlike some other sources of
capital, the manner in which friends and family invest can be quite varied. Some will
come in the form of a loan to the company, while others might want to invest in
exchange for an equity ownership. Likewise, the terms can vary dramatically. Some
friends and family are looking to earn interest or get a return on their capital, while
others may just hope to get their money back. There simply is no market standard. As
you might imagine, there are inherent dangers to taking money from people that love
you.
If you handle the process poorly, or if you take an investment from someone that
doesn't really understand the risk or feels pressured into investing when they don't really
want to, this is a very quick way to destroy a relationship. This is the most significant
negative to friends and family capital. A second one is that, typically, friends and family
have limited resources themselves. So, while they may be able to help you get the
business off the ground, they likely won't be a source of further capital for growth. And
of course, they are usually not experienced investors or entrepreneurs, so can't provide
a lot of valuable business advice.
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Best Practices When Family and Friends Provide Funds

Though navigating a business relationship with a friend or family member can be
difficult, Professor Fleming describes a few safeguards that can be put in place to
minimize misunderstandings and future hard feelings.
Video Transcript
Given the relationship risks, although friends and family are the most common source of
capital outside bootstrapping, I advise that you take it with caution. There are also some
best practices that can help you avoid common pitfalls. First, explain the risk openly and
honestly. I advise my students to go so far as to tell your loved ones that they will lose
their money. That might seem extreme, but the relationship stakes here are high, and
they are likely listening to you through rose-colored glasses. So, if you simply tell them
that it's risky, they might not fully comprehend the risk.
Second, never let anyone invest more than they can afford to lose. I saw an episode on
the American TV show "Shark Tank," where an entrepreneur shared that if she didn't get
the investment, her parents, who had taken out a second mortgage to finance her
business, would lose their house. Even worse, she didn't get the investment. You don't
want to find yourself in this situation. Third, keep the arrangement strictly business;
settle details in writing up front, and make sure there is an agreed, reasonable exit.
If they're buying equity in your company, how will they get their money— and a return—
back? Are they OK being an investor until you decide to sell the company? Or if they're
loaning you the money, do you need to pay interest? How much? And when? And when
do they expect you to repay the loan? What happens if you can't? You should talk
through and write down all of the answers to these questions in a simple contract. And
finally, don't take it personally if they say no; investing in startups is not for everyone and
it might not make sense for them, even if they love and support you in other ways.
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Watch: Crowdfunding
Crowdfunding refers to the practice of funding a project by raising small amounts of
capital from a large group of people, usually through an internet platform. Raising capital
this way can be a critical supplement to bootstrapping or a way to avoid sharing control
of the company with a large-share investor. In this video, Professor Fleming describes
three distinct types of crowdfunding and how they work.
Video Transcript
Crowdfunding platforms— examples include Kickstarter, Indiegogo, and Wefunder— let
an entrepreneur showcase his or her idea and provide donors or investors of all sizes
an opportunity to participate in growing the business. Crowdfunding is a relatively new
source of capital, but one that has grown exponentially over the last decade. Good data
on the amount of annual crowdfunding is difficult to get, but some estimate the amount
raised in 2015 at approximately 35 billion—up from 16.2 billion in 2014— for things
ranging from donations to art projects to equity funding. There are three models of
crowdfunding: rewards, donation-based, and equity.
Rewards and donation-based crowdfunding are the most developed and largest types of
crowdfunding. With rewards crowdfunding, people can pre-purchase products or buy
experiences from early-stage companies. In donation-based crowdfunding, people
simply donate to a project. In each case, while the funding may go to helping a
business, the funders are not allowed to invest and do not become shareholders in the
business. For a startup, this is very cheap money. It may even be free, outside of the
fee paid to the platform, depending on the rewards offered.
Aside from being cheap capital, the other benefit of these types of crowdfunding is that it
helps to promote the product or service that the company is selling. And if the campaign
is successful, it can signal to other, larger sources of funding that there is a strong
market for what the company is selling. Beyond the time and effort that goes into
designing and marketing the campaign, the negatives are that, first, this is not a large
source of capital; normally, less than $50,000 is raised. And second, the campaign may
not be successful. If you don't reach your funding goal, all amounts that have been
committed must be forfeited.
A much newer and less established form of crowdfunding is equity crowdfunding. Unlike
raising money through donations or rewards-based platforms, equity crowdfunding gives
investors a financial stake in the company they're supporting. Equity crowdfunding was
only made legal in the U.S. in 2012 and fully implemented in 2016. In the year that
followed, only 17 percent of the 326 companies who raised funds this way were run by
women. Be aware that the law places limits on this sort of fundraising, so you should
work with a lawyer to set up any crowdfunding campaigns.
One of the benefits of such funding, relative to other forms of equity capital, is that you
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get exposure to a passionate community of early adopters who are looking to invest in
the next big thing. Further, there's no one big investor getting a huge share of the
company and dictating the terms; you get to keep control and stay focused on running
your business. Clearly, it is very early days for equity crowdfunding, so it's a bit difficult
to speculate on how large a source of capital it will become. However, it is certainly
worth exploring, as ultimately the market could develop much further and provide
meaningful funding for early-stage companies.
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Ask the Expert: Samantha Abrams, Emmy's Organics
Crowdfunding can be a relatively low-risk way to raise capital for a new or expanding
business. Here, a successful entrepreneur explains why she chose crowdfunding, how it
turned out for her business, and what she learned along the way.
Samantha Abrams is the CMO and Co-Director of Strategy and Innovation

of Emmy's Organics, Inc., which she founded in 2009 alongside her partner
(in life and business), Ian Gaffney. Samantha received a BS in Theatre Arts
Management and a minor in Dance from Ithaca College where she honed in
on her passion for healthy eating and making things happen.
Emmy's Organics came from the shared desire to take real ingredients and turn them
into something delicious that everyone could enjoy. There lay the opportunity to turn
Ian's Coconut Cookie recipe into a real product that you could buy at a store.
Emmy's got its start in a home kitchen (that belonged to Ian's mother, Emmy) where
Samantha and Ian made small batches of Coconut Cookies and sold them door to
door in their local Ithaca community and, eventually, New York City. Emmy's has
grown over the last nine years into a nationally recognized brand that can be found in
stores like Whole Foods Market, Sprouts, Wegmans, Starbucks, and CVS.
Samantha's enthusiasm to make a difference and to do business the "right way"

motivated the company to become a certified B-Corp, which is recognized as the
highest standard of corporate responsibility. When not giving her heart and soul to
Emmy's, Samantha can be found walking her dog, Sadie, in the woods, exercising,
and eating Dark Cacao Coconut Cookies.
Question
Why did you choose to use crowdfunding to raise capital?
Video Transcript
So, we used crowdfunding at such an early stage of our company that we really
didn't have many resources to go and find capital or to take out more debt from the
bank. And so we decided to try crowdfunding because it was kind of an innovative
new way to get some money together to do a re-brand; that was the main purpose
of it. And so everything else just seemed really risky and we felt like, "Why not give
this a shot?"
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Question
What advice do you have for entrepreneurs who want to crowdfund?
Video Transcript
So, what worked for us was to just put the campaign out there as much as possible.
We were almost annoying in how much we were posting on social media and letting
people know that the campaign was happening. What also was very successful for
us was that we sent the campaign to family members and asked them to pass it
along to three to five other close friends or family members, and we felt that that
network was so loyal and supportive to us, and just to see our business growing, that
that— some of those crowdfunders were some of our strongest.
So, that was really successful for us. And now I feel like just even social media and
digital marketing is so different than it was when we launched our campaign; that
there's so many other really creative, cool resources to really just get your campaign
in front of as many eyes as possible.
Question
Were there benefits to raising money through crowdfunding beyond the money
itself?
Video Transcript
The biggest benefit, I think, was that we really created loyal fans. There are people
who donated to our campaign so many years ago that are still our customers today.
And because they got to see our packaging—because that was what we did; we re-
branded our whole company with our crowdfunding campaign. They were able to
see our packaging go through that change and to really see our company grow. And
just to feel like they were a part of it, I think, was one of the best benefits, and it just
really kind of like shared our story and created loyal customers.
Question
How did you promote your crowdfunding campaign?
Video Transcript
We reached out to friends and family— that was really great for us—but also we had
it as the home page to our website, we sent out newsletters to anyone who was a
current customer. So it wasn't just the friends and family we're reaching out to; it was
really anybody. And so, yeah, from that we just got some really loyal fans and
followers.
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Question
What long-term impact can a successful crowdfunding campaign have on your

business?
Video Transcript
Yeah, I think it's a way to kind of show that you're a proven concept. You know, if
you're launching a product through crowdfunding and you have people who want to
donate, I mean, that's a great story to bring to— whether it's a retailer or an investor;
you know, you have a proven concept there. For us, it wasn't as much the case, but I
really feel like you can tell a great story about your business if you have a successful
campaign.
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Read: Grants
• Grants are an inexpensive form

of formal funding.
• Grants are available from

government and private sources.
• Many grants have specific areas

of focus, such as industry or
location.
Sometimes informal sources of capital are unavailable or cannot meet your company's
needs. Grants can be a good place to start looking for formal funding sources.
U.S. Government Grants
Government grants can be one of the earliest, least expensive, and most common
sources of formal capital for startups and small businesses in the U.S., particularly those
focused on developing and commercializing new technology or scientific discoveries.
Many grant programs are available to a wide range of types and stage of organizations.
For example:
• The National Science Foundation and the National Institutes of Health provide
grants to fund research
• The Small Business Innovation Research (SBIR) Program provides a

grant of$100,000 to support exploration of the technical merit, or
feasibility, of an idea or technology, followed by the opportunity for a
further grant of up to $750,000 to evaluate the potential for
commercialization
Start your search for U.S. government grants at Grants.gov, a database of federally
sponsored grants. If you're outside the United States, search the Internet for similar
grants offered by your national or local government.
Private Grants
Private grant programs for startups and small businesses also exist, including a handful
for women-owned businesses. For example:
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• The Cartier Women's Initiative Award is granted annually to women

entrepreneurs anywhere in the world who are "leading creative, for-profit
startups that are financially sustainable and socially responsible"
• Girlboss Foundation awards grants biannually to female and female-identifying

entrepreneurs in the U.S.
• WomensNet offers Amber Grants, monthly and annual awards to women

entrepreneurs in the U.S.
Benefits of Grants
The greatest benefit of this form of capital is that it's effectively free. Entrepreneurs can
maintain 100% ownership of their company, while moving forward their product or
technology.
Drawbacks to Grants
Grants may have specific requirements and areas of focus that your company may not
meet. Sometimes companies, in order to access this cheap capital, agree to take on
projects or research that are somewhat related to their main focus but which ultimately
slow them down in their efforts to launch their core product. Additionally, entrepreneurs
need to "read the fine print" before accepting any grant award, as occasionally, agreeing
to accept grant money from an organization may enable that organization to make a
claim on your company's intellectual property. Despite these drawbacks, it is still worth
spending some time to research what grants, if any, might be a good fit for you.
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Watch: Angel Investors

Another option for formal funding is to seek angel investors. These "angels” are wealthy,
independent, and often successful entrepreneurs themselves who invest their own
money directly in startups. Here Professor Fleming discusses more about the value of
angel investors.
How Angel Investments Work

Professor Fleming explains why and when you might want to pursue angel investors,
what they typically provide, and how they can differ from other types of investors.
Video Transcript
Angels are usually the first form of formal equity capital for startups, providing funds
after entrepreneurs have exhausted personal resources and friends and family money,
but before they are cash-flow positive, have access to debt financing, or need enough
capital to attract venture capital investment.
The typical angel round of financing ranges from 250 to $750,000, provided by a group
of angels providing 50 to $100,000 each. These individuals usually invest money they
can afford to lose and diversify their risk by investing in multiple companies. I heard one
entrepreneur describe a group of angel investors to whom he pitched as "a bunch of
middle-age men playing fantasy football with entrepreneurs."
Importantly, angels are equity investors, not lenders, who purchase ownership in very
early-stage companies that they think have the potential to generate a return of ten
times their money, or even more, over a five- to ten-year investment period. While the
level of professionalism and desired involvement in the company varies widely, angels
tend to be fairly passive investors, who don't seek to hold a board seat or exercise
much control over the business. Further, although some angels want to do significant
due diligence prior to investing, in my experience even more do not.
That said, since many angels specialize in investing in companies operating in sectors
in which they have some experience, as well as within a fairly close radius to their
homes, they often do seek to be a source of advice and support for the business. This
advice and the networks that angels bring can be very valuable. However, an overly
intrusive one can be a pain. So, it is a good idea to spend some time and get to know
these investors prior to taking their money so that you can get a feel for how much they
want to be involved and decide if you're comfortable with that.
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How to Find Angel Investors

If you decide that seeking angel investors is right for you and your business, there are
many places that you can begin your search. Professor Fleming suggests a few
strategies.
Video Transcript
To find angels that might be interested in investing in your company, first, reach out to
your network. focusing in particular on anyone that you know who is affluent or has
affluent friends, especially if they made their money through entrepreneurship. Try
asking friends, family, lawyers, accountants, and alumni from the school where you went
to for introductions.
You can also access angel money through angel groups, which are professionally
organized groups that screen investments and pool money on a local and regional level
to invest in entrepreneurial ventures. Although they can come in a variety of forms, most
angel groups meet regularly to review business proposals, conduct due diligence, and
select some of those entrepreneurs to present to the membership of the group.
However, usually, each member angel makes his or her own investment decision about
whether to invest in the presenting business. You can see if there are any angel groups
in your area that focus on investing locally or angel groups focused on your industry
sector. The Angel Capital Association has a list of more than 400 angel groups on its
website. I also strongly recommend that you reach out to the growing list of angel groups
focused on investing in women-owned businesses. One of the longest-established and
best-knowns is Golden Seeds.
Since 2005, they have invested over $100 million in nearly 150 companies. These
groups are particularly important because women's networks tend to be
disproportionately women, who are less likely to have significant money to invest. And
not surprisingly, most angels are men. And since people tend to like to support those
that look like them, whether consciously or unconsciously, they tend to favor investing in
businesses run by men. This, coupled with the fact that women have been socialized not
to self-promote or ask for things for themselves, can create extra barriers for women
seeking to access capital.
Given this, I advise that you pay close attention to cultivating a broad and deep network
that is comprised of both men and women, and that you get advice and encouragement
from both genders as you pursue capital. One final note: It is important to recognize that
angels are unlikely to provide larger rounds of growth financing when needed. So if you
expect to need further financing in excess of a million dollars, you should start cultivating
other sources of capital, such as venture capital and traditional lending, even while you
are raising your angel round of financing.
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Watch: Venture Capital

When your business requires more capital than you can raise from angel investors—or
if angel investment isn't a good fit for your business—it may be time to consider a
different formal funding option: venture capital. Venture capital, also known as VC, is a
type of private equity financing that is typically invested by professionally managed firms
into smaller, emerging companies that are deemed to have high growth potential, or that
have already demonstrated high growth and need more capital to further accelerate that
growth. In the next videos, Professor Fleming explains the ins and outs of engaging with
venture capitalists.
How Venture Capital Works

When you accept funds from a VC, they come with a set of expectations that you must
be prepared to meet. Professor Fleming discusses typical expectations common to all
VC firms and why VC may—or may not—be a good fit for your business.
Video Transcript
Venture capitalists usually invest after other capital has already been invested into the
business by the entrepreneur, family and friends, or by angel investors. They bridge the
gap between the funding that is available from these sources and the point where
companies can access more traditional financing from banks or the public equity
markets through an initial public offering. A typical VC investment is at least a million
dollars but can be as much as tens of millions of dollars over time.
Venture capital funds invest in these earlier-stage companies in exchange for equity
ownership in the business, with the expectation that the firms they support will become
successful and generate a return on the capital invested of ten times or more over a
five- to seven-year period. This return is usually generated through an eventual exit
event, such as the company's selling shares to the public for the first time in an initial
public offering or by selling the company. Given that VCs are focused on investing in
high-risk, high-growth companies, they can generate an exceptional return.
The sectors they most commonly invest in are high-tech industries such as software,
biotech, and clean technology. Some VC funds are generalist funds that consider
investments into companies at any stage of development, into any high-growth industry,
anywhere in the world; while other funds specialize in a particular industry, geography,
or stage of company. Irrespective of whether they specialize or not, there are a few
characteristics that VC firms share in common.
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First, unlike the other forms of capital we've discussed so far, these investors manage
other people's or organizations' money so they have a fiduciary obligation to make good
investments on behalf of their investors, in accordance with the guidelines agreed with
those investors. Second, they are paid to manage that money, largely through a share of
any profits generated on the investments. Third, as professional investors, they will
surely want to provide some degree of oversight and control in your business, typically
through a seat on your board.
The good news is that if you pick a good VC who is well-connected and experienced,
they can also provide a lot of help to your business as well as connections to other VCs
who might provide further capital. Finally, because they are investing explicitly for the
purpose of generating a significant return on their money, they are looking for you to first
build a large and profitable company, and then they will expect and require you to
provide them with an exit at some point.
This means that if you do take money from VCs, you should expect to either sell your
company or take it public through an IPO at some point in the next five to ten years. If
this isn't of interest to you, then you should not seek capital from venture capitalists.
Challenges of Accessing VC Funding

Professor Fleming explains why it can be difficult to access VC funding, especially for
women.
Video Transcript
Although there are many benefits to VC funding, namely that they can provide large
amounts of capital coupled with expert advice, one of the greatest challenges is that
very, very few companies actually ever get this type of funding. This is because most
companies do not have the high-growth and high-return potential required by venture
capitalists. Further, to access this type of capital, you need to be referred in. If you
simply send a business plan to a VC firm, most likely it will never be read. And even for
those that are read, perhaps one in 100 actually get funding.
Women face special challenges in accessing venture capital investment. In 2017,

women-founded companies received only 2.2 percent of VC capital dollars. Women-
founded companies made up only 4.4 percent of deals, with an average deal size of just
over $5 million, compared to just under 12 million for male-founded companies. While
there's not a clear answer for this huge gender gap, one explanation that has been
offered is that VCs are biased in their evaluations of women. Some research suggests
that women are judged based on performance, while men are evaluated on potential,
effectively giving them the benefit of the doubt.
Another recent study that recorded and then evaluated the way in which venture capital
investors spoke about founders seeking government-based VC funding in the country of
Sweden, an exceptionally gender- progressive country, showed that they relied heavily
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on typical gender stereotypes, often perceiving the same qualities as either showing
entrepreneurial potential in men or diminishing it in women. For example, when talking
about men, being seen as young and aggressive was seen as showing promise and
potential, while for women, it was seen as inexperience and emotionality. Not
surprisingly, women founders received less than half of the funding that men did.
Other explanations have suggested that women get less VC funding because male VC
partners often can't personally relate to the women pitching or fully grasp the opportunity
presented by some of their products, especially those that are targeted to a female
market. And since women make up only a tiny number of venture capital partners at top
firms— 8 percent in 2017, a number that hasn't changed much since I was in the
business in the 1990s— women are almost always pitching to men. One explanation
that is not supported by research is that women-run companies are lower quality than
those run by men.
A recent study of 350 startup companies, conducted by Boston Consulting and Mass
Challenge, found that the women business owners who raised outside capital received
only $995,000, while the men business owners received on average $2.12 million.
Despite this huge gender gap, the women-run businesses performed better over a five-
year period, generating 10 percent more in cumulative revenue. In other words, for
every dollar of funding, women startups generate 78 cents, while male-founded startups
generated just 31 cents of revenue.
Is Venture Capital Worth It?

Although the challenges of obtaining VC funding can seem insurmountable, Professor
Fleming provides some important reasons not to rule it out.
Video Transcript
Given the challenges for anyone, and especially women, to get venture capital, you
might ask why we're even talking about it. The reason is that although there are less
than a thousand VC firms operating in the U.S.— 898 in 2016— they invest significant
amounts of capital each year— 83 billion in the U.S. and an estimated 214 billion
globally in 2017— and they have huge economic impact.
In 2010, U.S. venture-backed companies represented 11% of private employment and
21% of gross domestic product. In sectors such as software, biotech, and
semiconductors, VC-backed companies made up 75 to 90% of jobs and 80 to 88% of
revenues. You probably know that companies such as Google, Facebook, Microsoft,
and Amazon were backed by VC. But did you know that Starbucks, Home Depot,
FedEx, Staples, and Costco were, too? Truthfully, the economic impact of venture
capital on the U.S. and global economy has been profound, and the impact it can have
on your company can be transformational.
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How to Seek VC Funding

For women, successfully procuring VC funding requires careful strategizing. Professor
Fleming offers her advice on what women can do to best position themselves to
overcome limitations imposed by VC scarcity and gender biases.
Video Transcript
So, let's assume that you eventually conclude that you want to seek VC funding. How
should you go about it? First, if you decide to seek venture capital financing, it is critical
that you do enough research to understand which firms invest in the sector and
geography in which you operate. Also, work your network to find someone that can
introduce you to the firm you are targeting, preferably with a strong recommendation.
If you've raised angel financing, your angels may be able to help. Before meeting with
them, craft a pitch deck that clearly explains the problem you are solving in the market,
how big the market is, why your solution is the best one to solve the problem, and why
your team is the right team to make this all happen. You also want to have a good
understanding of your pro formas. VCs won't necessarily buy into your numbers, but
they will use the quality, detail, and your grasp of them to assess you as a CEO.
Finally, while it is certainly a good idea to target any VC fund that focuses on your
industry and where you have a relationship, you might have even more success if the
firm has a woman partner, or better yet, if the individual partner you are pitching to at
that firm is a woman. Although there are not a lot of them, the good news is that with the
#MeToo movement and increasing focus on both sexual harassment and discrimination,
more women are being hired into the industry. Further, there are a small but growing
number of funds that are led solely by women, or who explicitly focus on only investing
in women-run businesses.
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Ask the Expert: Jennifer Tegan, Cayuga Venture Fund
Professor Fleming described some of the difficulties entrepreneurs—particularly female

entrepreneurs—face in trying to secure VC funding. Now a successful venture capitalist
will share her insights and guidance for how women can overcome barriers to access
and better prepare to seek funding from VC firms.
Jennifer Tegan has been a partner with Ithaca, NY-based Cayuga Venture Fund (CVF
for over 15 years. Jennifer has led investments in the areas of communications
equipment, social networking, semiconductors, materials sciences, consumer products,
and SAAS businesses. She serves on the boards of GiveGab, Intrinsiq Materials, POM
Company, Tompkins Trust Company, True Gault, and Venuebook. Jennifer is also a
board member of the National Venture Capital Association. Jennifer has her BA and MS
in Geology from Smith College and University of Cincinnati, respectively, and her MBA
from Cornell University.
Since its inception in 1994, Cayuga Venture Fund and its member investors have
invested more than $70 million in technology companies in upstate New York, many of
which are based on research performed at Cornell University, and helped to attract
approximately $300 million of investor capital to technology startup companies in what is
traditionally considered to be a region underserved by venture capital.
Question
Why do you think businesses led by women get much less VC funding than businesses
led by men?
Video Transcript
I think a lot of it has to do with, one, I mean, the fundamental fact that most women are
actually presenting to mostly all male partners, and that just generally the receptivity can
be— you know, when a woman walks into a room versus a man, they are automatically
put on a different playing field; I think especially in a room full of all men.
That makes it a higher bar for them to jump over to prove that they're capable, that they
can run a business, that they can do the hard work and everything that it takes to get a
brand-new business off the ground, to hire the right people, to make the right
connections with people. So, I think that's a lot to do with it. Another factor that I think
has been important in some of the companies that I've worked with and some of the
women CEOs I've worked with is, you know, some of the products that they're pitching
are more female- oriented products.
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And so if it's a group full— if it's a room full of men, it's harder for them to understand the
value proposition that they're putting forth with their business, so that makes it— for
those women in particular it's been a bigger struggle even, and so they've had to get a
lot more creative with the types of people that they're requesting funding from; so not
going through traditional channels. trying to go to more family offices or individual
investors who may understand better what their business is.
Question
In what ways do you think networking can be a barrier for women entrepreneurs when
pursuing VC funding?
Video Transcript
I think if you're good at networking, you can find a way through, but, you know, it's easier
for a man when— I've always said that, you know, it's easy for a guy to say, "Oh, can we
go grab a coffee or a beer?" when it's another— if it's somebody of the same gender.
That can be harder for a woman to do because there's other signaling that people may
be thinking is happening when it's not, right?
So, there's definitely— women have to— if they're mostly looking to build a network with
male investors to fund their business, then that can be harder to figure out how to
navigate those waters. I think that it's getting a little bit better, but yeah, it's definitely
important to have the right network and the right connections. And women can be at a
disadvantage if they're not already connected in with people that are top in the field, or
with the right attorneys, or the right connectors.
Question
What suggestions do you have for women entrepreneurs who seek VC funding?
Video Transcript Unavailable
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Question
Do you have any advice about how women entrepreneurs should choose which VC
firms to target?
Video Transcript
Yeah, so when you're looking at venture funds, certainly be mindful of targeting a

partner who seems to be most interested in your business and finding firms that are a
good fit; not only a good fit for your industry and your market, but also a good fit for the
stage of your business because a lot of firms won't invest very early.
So, make sure you understand that if you're a seed-stage company but you're pitching
only to a venture firm that does Series A or Series B round, then it's fine to ask for a
meeting but it's probably not going to get you what you need. So, be mindful of stage,
be mindful of the type of firm that you're picking in terms of which industry sectors that
they focus on, and then do try to select the partner who you think will be most receptive
to understanding your idea and your business.
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Watch: Bank Lending

The final type of formal lending Professor Fleming describes is bank lending. Bank
lending typically comes in two main forms: traditional/cash-flow lending and asset-based
lending. Professor Fleming describes each type and how it might be appropriate for your
venture at different times.
Video Transcript
In traditional or cash-flow lending, banks lend money based on the current and future
cash flows of the company. This means that to qualify for such a loan, the company
must have a track record of consistent and preferably growing cash flows.
They also evaluate the credit rating of the business and expect you to be able to
document both of these with solid accounting and tax records. These requirements
present a problem for most startups, who either have no cash flow and credit rating—
because they haven't started operating yet— or only a short and inconsistent history of
cash flows and credit. As a result, most startups do not qualify for traditional bank loans.
In asset-based lending, the bank makes a loan against assets of the company and the
loan is secured by that collateral. In some instances, startup companies can qualify for
this type of lending, but only when they have assets to lend against. One example would
be a business that is purchasing real estate or other significant equipment. In this case,
while the business most likely won't be able to borrow money for ongoing operations,
they may be able to get a loan to help purchase the real estate or equipment.
Given the strict requirements, you might be asking why you should even consider this
type of capital. The answer is that bank loans are typically the least costly capital that is
widely available to all types of businesses in large amounts, as long as you meet the
cash-flow or collateral requirements. Interest rates are generally a fraction of the return
that angels or venture capitalists require, and the entrepreneur doesn't have to give up
any ownership in the business, as the capital is in the form of a loan.
However, given that the bank isn't getting paid much interest, it isn't going to take a lot
of risk, which is why they tend to say no to lending to early-stage startups with no track
record. That said, bank lending very likely will be an attractive and appropriate source of
capital for you as your business develops. So it's a good idea to start keeping good
accounting and tax records now, as well as getting to know some of your local bankers.
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Funding Options
Discussion Topic:
Professor Fleming has described several informal and formal funding sources, and each
has its pros, cons, and barriers to access.
Create a post that addresses these questions: Which of these options for funding seems
easiest for you to secure? Most difficult? Why?
If you have attempted to secure funding from any of these sources, successfully or
unsuccessfully, please share your experiences and lessons learned.
Instructions:
• You are required to participate meaningfully in all course discussions.
• Limit your comments to 200 words.
To participate in this discussion:
Click Reply to post a comment or reply to another comment. Please consider that this is
a professional forum; courtesy and professional language and tone are
expected. Before posting, please review eCornell's policy regarding plagiarism. (the
presentation of someone else's work as your own without source credit).
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Part 2: Research Sources of Funding

In Part 2 of your course project, you will investigate some of the informal and formal
funding options described in Module 2. This exercise will help you better understand the
financing landscape and prepare for challenges and barriers you may encounter in
accessing capital from various sources.
Completion of this part of the project is required for course credit.
Instructions:
• Save your work.
• You will not submit your course project now. At the end of the course, you will
submit it for credit.
Before you begin:

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Module Wrap-up: Sources of Funding

When looking for capital to fund your startup or early-stage company, there are quite a
few options to consider. In this module you explored some of the most common sources
of capital, including formal and informal options. You considered the benefits and
drawbacks to each, and you identified challenges to access specific to women. You are
now better prepared to pursue whichever type of funding you decide is right for your
business.
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Module 3: Finding the Right Fit

1. Module Introduction: Finding the Right Fit
2. Watch: Stages of New Venture Development
3. Tool: Stages of New Venture Development
4. The Development Stage of Your Business
5. Watch: Stages of New Venture Financing
6. Watch: The Benefits of Fundraising in Stages
7. Tool: Staged Funding Map
8. Read: Factors that Affect Your Financing Choice
9. Watch: Relative Cost of Financing from Different Sources
10. Watch: Financial Needs and Financial Condition
11. Watch: Product/Market Considerations
12. Watch: Organizational Considerations
13. Watch: Your Track Record, Reputation, and Relationships
14. Part 3: Find the Right Funding Fit
15. Tool: Action Plan
16. Module Wrap-up: Finding the Right FIt
17. Read: Thank You and Farewell
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Module Introduction: Finding the Right Fit

How do you know which source of capital is most appropriate for you
and your business? The answer depends on your goals and your
business’s current stage of development. And remember, the best
source of capital for your business will change as your business
develops.
In this module, you will identify the various stages of new venture
development and determine which stage your business is currently in. You’ll also
investigate the typical stages of financing and see how they relate to the stages of
business development. By the end of the module, you should start to have a sense for
how the whole financing picture fits together for your company. You will be able to
recognize one or more sources of financing that are a good fit for you now, and you’ll be
able to identify possible sources for when your business takes its next steps.
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Watch: Stages of New Venture Development

Given how many demands there are on your time, it is critical that you seek capital
strategically. The most appropriate source of capital—and therefore the source most
likely to fund your business—will depend on your business's stage of development. In
this video, Professor Fleming describes the stages of development in order to help you
identify the right sources at the right time.
Video Transcript
Most businesses go through several development stages in their life cycle. They include
the development stage, the startup stage, the early-growth stage, the rapid-growth
stage, and then either stable growth or exit. The development stage includes everything
that you do to envision, create, and develop your product or service, up until the point
where you launch.
For some companies, such as biotech firms, this can be a long period with extensive
R&D and customer discovery and large amounts of capital spent; while for others, such
as a consulting service, it can be relatively short and inexpensive. The startup phase
begins, as you might expect, when you actually start selling. Again, this can be capital-
intensive, perhaps if you need to staff up for sales or service delivery, or less so, for
example, if you developed an app and simply start selling it through the Apple store.
Typically, growth starts slowly until the company gains traction in the market and
establishes a customer base.
There can be quite a lot of experimentation in this phase, especially if the product or
service is not well- received and you need to tweak the product or consider targeting a
new market. If the company has sufficient capital investment to survive this stage and
get to a point of being cash-flow positive, the founder could decide to simply continue to
grow slowly and reinvest the profits from each sale into the business to fund growth.
However, companies often desire to, or need to, grow faster in order to solidify their
market position and respond to market demand.
In this case, the company will likely need to invest additional funds to support this rapid-
growth phase. Eventually, after a rapid-growth phase that can be either long or short—
months in the case of a fad or where the market is smaller than anticipated and
becomes quickly saturated, or long in the case of a company that's created a
sustainable competitive advantage in a large market— growth will stabilize. It is often at
this point that shareholders look to monetize their investment through an exit, either by
selling the company or taking it public through an IPO.
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Tool: Stages of New Venture Development
• Use this helpful Stages of New

Venture Development chart to
prepare for the financial ups and
downs of entrepreneurship.
Every venture goes through a similar growth trajectory that includes five major stages:
The last stage is exit rather than stable growth for some entrepreneurs.
Predicting what your company's finances will look like at each stage can help you
prepare to secure appropriate funding. Download this Stages of New Venture
Development chart to use as you seek funding throughout the life of your business.
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The Development Stage of Your Business

Discussion topic:
Professor Fleming has described five stages of new business development and
demonstrated how revenue, net income, and cash-flow levels fluctuate somewhat
predictably throughout a new venture’s development.
Create a post in which you share your ideas and observations about your own venture's
development. What stage is it in now? To this point, do you feel that your business's
development aligns with the predicted trends for revenue, net income, and cash flow?
Why or why not? What other factors are affecting your business?
If you're still in the development stage, share your thoughts about what it will take to get
to the startup stage. Do you need more capital? When do you think you'll be ready to
take the next step in your venture's development?
Instructions:
• You are required to participate meaningfully in all course discussions.
• Limit your comments to 200 words.
To participate in this discussion:
Click Reply to post a comment or reply to another comment. Please consider that this is
a professional forum; courtesy and professional language and tone are
expected. Before posting, please review eCornell's policy regarding plagiarism (Links to
an external site.)Links to an external site. (the presentation of someone else's work as
your own without source credit).
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Watch: Stages of New Venture Financing

Just as there are typical stages of development for a startup, there are also typical
stages of financing. Not all companies will need every stage of financing, but you should
be familiar with the options so you can make decisions about which funding strategy is
most appropriate for your needs.
Video Transcript
Most companies start financing with bootstrapping. Once they've exhausted their own
personal resources, they will often look to secure the first outside equity capital that will
be used to further the business. This is known as seed financing. For some companies,
seed financing is sufficient to bring them to the startup phase, where they likely will need
to raise additional capital, to hire staff, rent space, buy manufacturing equipment, and
the like, in order to start operations.
This is known as startup financing. However, for companies that are developing
significant technology, a new drug, or the like, they might need to raise a round of R&D
financing after they use up their seed funds and prior to startup. Once the company is
up and running, founders often will need to raise subsequent equity capital, known as
first-round financing, second-round financing, etc., in order to fund rapid growth.
For most companies, these are the final rounds of money needed. However, for the
most high-growth, large, and successful businesses, a final round of what is known as
mezzanine financing may be necessary to continue to finance growth before they can
either go public, access traditional bank loans, or sell. The financing is often a cross
between equity and debt— that's its name, referring to the middle— that has lower
requirements in terms of returns than typical venture- capital equity financing.
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Watch: The Benefits of Fundraising in Stages

Why do we talk about financing in stages? While raising all of the capital that you need
up front may seem more straightforward, there are benefits to taking it slow. Professor
Fleming explains why many business founders—and investors—prefer a gradual
fundraising approach.
Video Transcript
For many founders, it is simply not possible to raise all the capital they will ever need at
once, especially if the capital needs are large. The company and founder do not have
the track record to convince investors to give them a large amount of capital for
something that is just an idea. A second reason is that it is often in the founder's best
interests to raise equity in stages. As milestones are achieved, both the difficulty and
cost of raising capital decreases, which means that the founder will end up owning more
of their company if they only raise as much capital as they need in each given stage.
Of course, there's more risk in doing this, because if the company runs into trouble and
doesn't hit the milestones for sales, cash flow, or profit that they promised to early
investors, then other investors might not want to invest. Or if they do, the investors
might want an even greater ownership interest in the company than before. That said,
given the trade-off between giving up a very large ownership interest in their company at
the outset in exchange for all the capital they think they will need, or taking the risk and
raising it over time so as to end up owning more in the end, most founders opt to raise
capital in stages.
Finally, raising capital in stages is also attractive from the investor's perspective. They
can provide the capital that a company needs to get them through a given stage, see if
they hit the milestones that were laid out, and then have the option to invest more when
they do. The investors understand that they will pay a higher price in the later rounds,
but it is worth it to them in order to have the option to walk away and not invest if things
don't go well.
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Tool: Staged Funding Map
• Use this Staged Funding Map to

check your work.
Not every funding option is available or appropriate at every stage of business

development. It's important to know when you should seek each type of financing so
you don't end up wasting time and energy when you have a bad match. Download this
helpful tool to guide your efforts to seek funding as your business grows.
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Read: Factors that Affect Your Financing Choice
• Many factors determine

whether a source of capital
is a true fit for your business.
• The goal is to find the best

fit, not to raise money from
every possible source.
• Cultivate sources of capital

you will need in the future as
well as those you need now.
The Best Fit for Your Unique Business
In general, you can determine which sources are the best fit for your business given its
general characteristics and its stage of development, but you should dig a bit deeper
before pursuing any given source. For some companies, every source of financing will
be appropriate to the business at some point in its life cycle. For other companies, there
will be certain financing sources that will never be a good fit, because of factors such as
the market that you are targeting, your desires regarding the potential sale or exit of
your company, or your expected rate of growth. That's fine—the goal isn’t to raise
capital from every source; it’s figuring out the BEST source of capital for you and your
business at any given point in its development. This is going to be driven by the
particular goals and requirements of each funding source and how they fit with YOUR
business.
Factors to Consider
Several key factors will determine whether a funding source is truly a good fit for your
business. They include:
• the relative cost of financing from different sources
• the financial needs of the venture and the venture’s financial condition
• product/market considerations
• organizational considerations, including legal form and structure
• your track record, reputation, and relationships.
Don’t make the mistake of discarding all but those that are the most obvious immediate
sources. You want to cultivate multiple sources of capital, both those you need now and
those you think you will need in the future. Much of this funding is based on
relationships, and you need to be building those now. This is especially important for
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women, who may not have the same access to funding networks and who may face
skepticism about their qualifications as an entrepreneur. These challenges can be
overcome but that will take time, a lot of networking (sometimes outside of your comfort
zone), and consistency in building your credibility.
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Watch: Relative Cost of Financing from Different Sources

The funds you raise to start and support your new venture almost always come at a
cost. It’s important to consider if the cost to you and your business is worth the capital.
In this video, Professor Fleming explains the relative costs of several financing options.
Video Transcript
One of the most critical factors that you should always keep in mind is that different
sources of financing have different costs, both in terms of the level of return that they
require and in terms of control that they will want over your business.
These costs tend to correlate with the risk that they're willing to take and thus their
availability. The cheapest forms of capital are often the hardest to access in any
significant amount. That said, as you seek capital, ideally you want to raise money from
the lowest cost source that you can. Generally speaking, donation crowdfunding is the
cheapest— it's free, other than the cost of running the campaign— followed by rewards
crowdfunding, where the cost is simply the cost of whatever rewards you are offering.
Neither of these funding sources require any ongoing say in your business, but you
often can't raise a lot of money this way. Grants are also usually free but likely require
you to pursue certain types of research or business activities and can be highly
competitive and limited in amount. After grants, bank loans are the next cheapest, as
the interest rate that is charged is almost always lower than the rate of return required
by an equity investor. This is because the bank expects to be repaid within a set amount
of time, and if you don't repay them, they can force you into bankruptcy to get their
money back.
Of course, as we've already discussed, one of the reasons that banks don't require as
high a rate of return as an equity investor is because they are simply not willing to take
as much risk. They simply won't loan to companies that don't have a track record of
consistent cash flows or assets to serve as collateral to secure the loan. Among equity
investors, both angel investors and venture capital investors expect a high rate of return
on their investments— often as high as 50 to 75 percent compounded rate of return
each year— to compensate them for the risk they are taking.
They don't get this through interest payments as they are equity owners, not lenders.
They get their return by waiting until you build a valuable business and either sell it or
take it public so they can sell their stake. They also often want some degree of control in
the business through voting rights or a board seat. Finally, you may have noticed I didn't
mention friends and family money. In these cases, since there's such variance in the
specific terms, this funding may be more or less expensive than other sources,
depending on those terms.
Cornell University
Watch: Financial Needs and Financial Condition

How do you choose which funding options to pursue? Professor Fleming discusses the
financial circumstances under which each capital source may be a fit for your needs.
Video Transcript
Two of the most important factors that will determine which funding source is best for
you are the financial needs of your business and the financial condition of your
business. With respect to financial needs, you want to consider how soon you will need
the money, how much money you need currently, and how long you will need it, as well
as the total amount you will ultimately need.
For example, if you need money right away, you might want to target the less formal
sources of financing such as bootstrapping and friends and family, especially if the
amount you need isn't large. If you need a larger amount that is beyond their resources,
then angel money is likely your best bet. If you don't need money too immediately, then
you might have time to put together a crowdsourcing campaign, research and apply for
grant funding; or if you need large amounts of capital, target venture capital money; or if
you're further along in your business, access a bank loan.
You just need to be realistic about the fact that the more formal the capital source, the
longer it will likely take to raise, if you can raise it at all. Highly intertwined with financial
need is financial condition. As we discuss, some forms of capital specialize in riskier,
early-stage companies, while others only provide money to lower-risk businesses. To
assess your financial condition, first consider the risk and return characteristics of your
business at its current stage. Does your business generate positive cash flow? Does it
generate profit? Does the company have assets that could serve as collateral?
If you are cash-flow positive and make a profit, then you might be able to access a bank
loan or even be ready to raise capital in the public markets by taking your company
public. Even if you don't, if you have collateral, you might be able to secure an asset-
based loan. However, if you are much earlier in your life cycle, don't generate cash flow
or profit, or have significant assets, then you need to consider capital sources such as
friends and family, angels, or VC, who have higher risk tolerance. Also, ask yourself,
how close to a successful exit are you? If that seems very far away, again, angels and
VCs are probably the best fit, as they have a long investment horizon.
Cornell University
Watch: Product/Market Considerations

Market position is another important factor to take into consideration when making
funding decisions. Your market position will affect the speed with which your company
needs to grow, and different types of capital are better suited for rapid vs. slow-and-
steady expansion. In this video, Professor Fleming explains how your competitors and
other relationships within the market should impact your approach toward raising
capital.
Video Transcript
In addition to financial factors, you also should consider the product market in which
you're operating. Ask yourself if it is important to the long-term survival and success of
your business to grow very rapidly or be first to market with your product. Also, consider
whether you need to defend your market position from immediate competition. If the
answer to either of these questions is "yes," then you likely will need more immediate
capital and more capital. Unfortunately, as we've discussed, these two, speed and size,
can be incompatible.
But if you truly need to get big fast, then you will have to accomplish both
simultaneously. In contrast, if you can grow more slowly, then you can rely on slower
and smaller sources of capital, or decide not to raise outside capital at all and instead
use the money generated by the company to gradually grow. In addition to speed of
growth, you also might consider whether you have strong and deep relationships with
customers, suppliers, or distributors, and how committed they are to your product and
how supportive they are of your business.
If you do have a relationship like this, you might be able to see if they'd be willing to pre-
pay for advance orders, invest in your business, or provide you with a loan or excellent
payment terms. Just be aware that this would increase your reliance on them, which
could be risky if the relationship sours. On the other hand, if your relationships with
these parties are weak and they're concerned about your financial stability, then you
might actually need to raise more capital in order to give them the confidence to work
with you.
Cornell University
Watch: Organizational Considerations

The way you have formed your business entity, the structure of ownership, and the legal
foundation you have built for your venture can all affect your access to certain funding
sources. Watch Professor Fleming explain these organizational considerations and their
relationships to raising capital.
Video Transcript
The third factor that you should think about as you target financing sources relates to
your organizational form and how tight a ship you run with respect to books and records.
Specifically, what is your current legal form? In order to have outside equity or debt
capital, you need to have formalized the business by creating an LLC, an S corp, a C
corp, or a partnership. If you haven't already done this, then I recommend you consider
the capital source you want to target as you decide the legal form you want to take.
Typically, outside equity sources— in particular, angels and VCs— will require you to be
a C corp in order to take investment from them.
However, if you don't plan to raise formal capital, you may prefer a simpler entity, like an
LLC or S corp. The good news is that these forms can be converted to a C corporation
later if you ultimately do want to raise outside equity. I suggest you get advice from a
lawyer on this. Also, be aware that more formal sources of capital, such as banks and
VC, and some government grants, will expect to see financial statements and tax
records that are in good order prior to giving you money.
Cornell University
Watch: Your Track Record, Reputation, and Relationships

Professor Fleming has discussed a series of factors that contribute to the type of capital
you should raise and what opportunities for doing so may be available to you. But there
is one more thing to consider: When planning your approach to raising funds, you must
also account for your own history and interests. In this video, Professor Fleming guides
you through a self-reflection to ensure that you have fully considered your own role in
the fundraising process and what that may mean for your business.
Video Transcript
The last factor you should consider in choosing a financing source is, well, you. What is
your personal track record and reputation, both in the world of entrepreneurship and
throughout your career and personal life?
Have you built relationships with financing sources or people that can provide a
recommendation of you to financing sources? Have you had past business failures or
been in personal financial distress or even bankruptcy? If so, that doesn't mean that you
can't raise capital, but it might make it harder, especially if you didn't handle the situation
well and with integrity. The answers to these questions will play heavily in determining if
you can get financing, so it's important to be honest with yourself.
If you have a strong reputation as a high-integrity person who works hard, is creative
and intelligent, and really cares about not losing investors money, even if you have in
the past, then you'll be more likely to succeed at getting the capital you need. If not, you
may have a tough time getting capital at all, even if you have a great business and even
from people that love you. In addition to your reputation, you should also consider
whether or not you feel like you need the advice and contacts provided by more
sophisticated investors who have experience in your market or in entrepreneurship.
If you do, it might be worth seeking out angel or VC money, even if you could raise the
capital you need by other means. And finally, in raising capital, it is important to know
thyself. Are you seeking to build a smaller lifestyle business that you hope will provide
you with a decent income for a long time but isn't going to make you or your investors
rich? Or are you seeking to build a legendary, high-growth company that can ultimately
provide a return of at least ten times the money invested? Also, are you a control freak
or do you play well with others?
And finally, what is your propensity for risk? Would you rather have 5 million in the bank
or a 10% chance of getting 50 million? If you lean toward the latter on each of your
answers to these questions, then you should ultimately be targeting angel and VC
money. In contrast, if you lean toward the former, then you're better off sticking to
bootstrapping, crowdfunding, and friends and family, where you can grow slowly, take
less risk, and keep greater control over your company.
Cornell University
Part 3: Find the Right Funding Fit

Finding the right funding fit for your business requires more than just matching the stage
of your business with a type of funding. You must consider the additional factors that
Professor Fleming identified in this module. In this part of the project, you will look at the
big picture of your business and its funding needs to find the best potential fit.
Completion of this part of the project is required for course credit.
Instructions:
• Save your work.
• Now you will submit your completed course project for credit.
• Click the Submit Assignment button on this page to attach your course project
document and send it to your instructor for credit. Please note that you will not
receive feedback from your instructor.
Before you begin:

Cornell University
Tool: Action Plan
• This Action Plan can guide your

efforts to secure funding.
Hopefully, you have identified potential funding sources for your business. If you find it
helpful, you can use this Action Plan to organize your efforts to take the next steps
toward securing that funding. The Action Plan on this page follows traditional "SMART"
methodology to help you identify concrete steps to take that are specific, measurable,
action-oriented, realistic, and time-based. If you are not yet ready to seek funding, you
may save this tool to guide your actions in the future.
Cornell University
Module Wrap-up: Finding the Right FIt

As your company grows and changes, its funding needs will grow and change. In this
module, you began to develop the big picture of how you can finance your company
throughout its life cycle. You determined the stage of development your business is in
so you can focus your energy on seeking capital from sources that are appropriate and
available. The tools you've gained also help you look ahead and prepare to seek the
sources for capital that are likely to be a good fit in the future.
Cornell University
Read: Thank You and Farewell
Susan Fleming
Senior Lecturer
School of Hotel Administration
Cornell University
Congratulations on completing "Funding Your Venture and Business Planning." I

hope you now feel comfortable forecasting your company's funding requirements
and confident about your choices in where to seek capital throughout your venture's
life cycle. If you now have a better grasp on the financial needs of your business and
your options for meeting those needs, you have achieved the goal of this course. I
hope the material covered here has met your expectations and prepared you to
confidently seek the funding your new venture or young business needs.
From all of us at Cornell University and eCornell, thank you for participating in this
course.
Sincerely,
Susan Fleming

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PTRBOA002: Funding Your Venture and Business Planning

PTRBOA002: Funding Your Venture and

Regardless of the size or age of their business, entrepreneurs need to

Additionally, women entrepreneurs need to understand the funding landscape, the

Susan S. Fleming, PhD, is a senior lecturer at the Cornell School of

finance, insurance, business strategy, organizational behavior, and issues of gender

In addition to her work as an educator, researcher, and business consultant, Fleming

Meet Your Class

Module 1: Key Financial Metrics

Module 2: Sources of Funding

Module 3: Finding the Right Fit

1. Module Introduction: Finding the Right Fit

Meet Your Class

Meet Your Class

Back to Table of Contents

Module 1: Key Financial Metrics

Back to Table of Contents

Module Introduction: Key Financial Metrics

Back to Table of Contents

Tool: Financial Terms

• Use this helpful Financial Terms

Back to Table of Contents

Watch: Understanding the Financial Aspect of Your Business

Back to Table of Contents

Watch: Elements of Required Initial Capital

Back to Table of Contents

Watch: How to Estimate the Capital You Need to Start Your

Back to Table of Contents

Activity: Estimate the Capital You Need to Start Your Business

1. Download the Estimate Initial Capital Needed worksheet.

Back to Table of Contents

Watch: Sales Revenue

Back to Table of Contents

Read: Estimating Sales Example

Primary Method One: The Demand-Side Approach

Juliana must also consider the degree of competition. Is she

Primary Method Two: The Supply-Side Approach

Back to Table of Contents

Activity: Estimate Your Sales Revenue

1. Download the Estimate Sales Revenue worksheet.

Back to Table of Contents

Watch: Ongoing Costs: Fixed and Variable

Back to Table of Contents

Activity: Estimate Ongoing Variable and Fixed Costs

1. Download the Estimate Ongoing Variable and Fixed Costs worksheet.

Back to Table of Contents

Watch: The Pro Forma Financial Model

• Can your business actually make money?

• When will it start to generate positive cash flow?

Scalability and ROI

Back to Table of Contents

Watch: Introducing Uncertainty

Back to Table of Contents

Part 1: Use the Pro Forma Financial Model

• Download the pro forma financial model.

• Download the course project.

• Save your work.

Before you begin:

Please review eCornell's policy regarding plagiarism (the presentation of someone