Raising Capital: Why Raise Capital Type and Sources of Capital Debt Financing Equity Financing Advantages / Disadvantages How Much to Get Processes and Problems Where to Find It & Rates

1. Raising Capital for an
Event Business
Steve Gintowt
SteveGintowt @ gmail.com

2. Topics Covered
 Why Raise Capital
 Type and Sources of Capital
Debt Financing
Equity Financing
 Advantages / Disadvantages
 How Much to Get
 Processes and Problems
 Where to Find It & Rates

3. Why Raise Capital
 Survive
 365 Days of Expenses, 1 Day of Income
 Grow
 Scale Increases Profitability
 Scale Reduces Risk from Single Down Event
 Cash Out
 Start Taking Money Off the Table, Start to Exit
Process

4. Types and Sources of Capital
SHORT LONG
TERM TERM
Friends & Family
Credit Card Bank
Vendor Credit SBA
Revolver Alternative
Factoring (Bibs)
Friends & Family
Private Equity
Alternative
DEBT
EQUITY

5. DEBT FINANCING

6. DEBT FINANCING
Advantages Disadvantages
 Don’t Give Up Control
 Relationship Ends when
Loan Retired
 Interest is Tax Deductible
 Structured: Can Plan
Around It
 Adds Risk to Company
and Owner
 Collateral Locked Up.
Covenants
 Time and Effort to Find

7. How Much to Borrow ?
(Leverage Ratio)
Debt level as a Multiple of Earnings
0 1x 2x 3x 4x

8. 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
5 Year Loan Annual Debt Service, Free Cash
DebtService%ofEarnings
Borrowings as a Multiple of Earnings
Amount Borrowed $150k $300k $600k $900k $1.2M
($300,000 of Earnings
10% Interest Rate)
Debt Service 150,000$
Free Cash 150,000$
Debt Service 210,000$
Free Cash 90,000$

9. 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
DebtService%ofEarnings
($300,000 of Earnings
10% Interest Rate)
Debt Service 330,000$
Free Cash (30,000)$
Debt Service 230,000$
Free Cash 70,000$
Borrowings as a Multiple of Earnings
Amount Borrowed $150k $300k $600k $900k $1.2M
3 Year Loan Annual Debt Service, Free Cash

10. Importance of Term
 The TERM is may be more important than the interest
rate
 Borrow for a LONG ENOUGH TERM to have the asset
be able to help with the payments.
 The first year, it’s all on the Core Business
 “Interest Only” Year 1
 “Balloon” Loan – All at Maturity (Not likely)

11. 9 Months 6 Months 3 Months
Numbers of Days Advanced 274 183 91
Annulized Interest Rate 40% 60% 120%
Marketing at $2k/month 18,000$ 12,000$ 6,000$
Pro-Forma Interest Expense (3,000)$ 3,000$ 9,000$
Annualized Net Interest Rate Free 12% 72%
Factoring
 Sell $50,000 of Bibs (500 @ $100 each)
at 30% Discount ($15,000 off. Proceeds $35,000)

12. Difficulties in Obtaining Debt
 No Asset Base for Collateral
 Relatively Small Amount – not worth Bank’s effort
 Cash Flow Loan - proceeds paid back by uncertain
revenues
 No Market for Company if things go badly
Higher Risk = Higher Rates

13. Debt - Where to Find It / Rates
 Vendor Credit 0% Relationship
 Friends & Family negotiable
 Commercial Bank 3.28 % Fed Reserve Jan 16
 Small Business Admin 5.75% - 8.25% Fitsmallbusiness.com
 Alternative Capital 5.49% - 24.99% Funding Circle
Fundation
 Credit Cards 13.49% - 23.24% Nerdwallet.com

14. EQUITY FINANCING

15. EQUITY FINANCING
Advantages Disadvantages
 No Risk to Business
 No Loan Service / More
Cash in Business
 Access to Investor’s network
for additional cash
 Don’t have to Repay
 More Costly
 May Lose some Control. New
Decision Processes
 Mental Energy: Expectations &
Potential for Disagreements
 Hard to Get $$$ for Small Event
Company (Time/Effort)

16. Level of Investor Interest at
Different Levels
|- Mild -|--- Strong ---| |--------------- Strong -------------|- Mild -|
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100%
Percentage of Ownership
Zero Interest
Here

17. Comparing Cost of Debt vs. Equity
 Current Company
 3 races clearing $400,000 each ($1.2M)
 Overhead of $800,000
 Net Profit of $400,000 Company Value - $2.4M (@6x)
 Growing at 3% a Year
 Raise $150,000 to add a 4th race (cover 1st Year loss)
that will eventually be half as profitable normal
 Year 1: Lose $150,000
 Year 2: Breakeven
 Year 3: $50,000 Profit
 Year 4: $100,000 Profit
 Year 5: $200,000 Profit

18. Comparison of Debt & Equity
 Company value increases by $1.6M
 $1.2M from New Event, $0.4M from Core
 Cost of Equity = $398,000 (6.3% of Company) in
Dividends and Valuation
 Cost of Debt = $260,000 in Interest and Principle
Equity is almost always more expensive
In this case 53% more.

19. Equity - Where to Find It
 Up to $100,000 Friends and Family
 $100,000 - $500,000 More Friends and Family
 $500,000 - $5M People you WISH were your
Friends and Family
 Over $2M “Family Offices” of Wealth
Investment Firms of Sports Franchise Owners
Traditional Private Equity Firms
 No Marketplace or Central Directory

20. Alternative Capital
 Reward-Based Sites
 Kickstarter, Rockethub, MoolaHoop,
 Not really applicable
 Equity & Debt Sites
 Funding Circle, Fundera, OnDeck, Dealstruck, Fundation,
Kabbage, Indiegogo

21. Capital Raising Process Items

22. Debt – Key Process Items
 Documentation Requirement
 Accurate & Current Financial Statements
 Bank Statements
 Tax Returns
 Lease Agreements
 May Require Personal Guarantee
 Takes 30 – 60 Days

23. Equity - Key Process Items
 See Last Year’s Presentation on LinkedIn
Create a Business Plan
Identify an Exit Strategy
Compile Diligence Material in Data Room
Business Valuation Discussion

24. Equity - Key Process Items
 More Documentation / Paperwork
 Amending Operating Agreement / Articles of Incorporation
 Minority Protections
 Salary, Loans, Dividends, Owner Expenses
 Insert Buyback Clauses
 Company buys back shares in event of co-owner death /
divorce
 Put / Call Option

25. Five Things to Remember
 Financing can help you Grow Value
 Many more Debt Alternatives
 Debt is Cheaper Than Equity
 Loan Term - more Important than Rate
 Equity preserves Company Cash

26. Copies & Questions
 Presentation will be available on LinkedIn
 Email questions via LinkedIn or at
Stevegintowt@gmail.com