Funding a Business Venture - Assignment Example

Funding the Tracker Co. Funding the Tracker Funding a start-up business is a major challenge, as investors are often reluctant to finance a new business due to financing risks arising from the doubts about the market for the new product being offered. Tracker, a small device that tracks and records those television programs based on set criteria entered by the operator, has faced the same problem. After careful consideration of various options, Gary Wolf, the inventor of tracker, has decided to fund the development of his company, Tracker Co.

, with money from a business angel, John Parker. Although Parker’s funding comes with its pros and cons, Wolf found it as the preferred source, considering financing risks and possible help he could get for the promotion of tracker. Keywords: Start-up, financing risks, business angel. Investment Banker Investment banking matches the needs of those who have money and those who need it (Wise, 2006). And investment bankers, such as Goldman Sachs, raise capital by underwriting securities or working as an agent to issue them.

They also assist their clients with acquisitions and mergers as well as other ancillary services. Their significance lies in their ability to finance huge projects and help their clients with acquisitions and mergers. Stock MarketStock market facilitates the buying and selling of shares (Fontanills & Gentile, 2001). Shares of those companies that are listed in stock exchanges, such as New York and London, are traded there. Stock market is one of the best sources of raising capital and spreading the company’s ownership widely.

Financial ManagementFinancial management deals with acquiring assets, raising capital and maximizing the firm’s value (Fontanills & Gentile, 2009). It is as important to an organization as the blood is to a body. Risk FinancingMcLaney says risk is an important element of all financial decisions and must be considered (2009). Risk financing relates to managing funds for unexpected losses to the company. It is important to make provisions for weathering unexpected losses. Start-ups face more uncertainties than old ones about market, sales, competition, cost of production, and failure.

Funding the Tracker Co.Funding a start-up business is a major challenge. Gary Wolf, a former junior scientist with the General Electric (GE) with several minor but useful inventions under his belt, came to know about it when he wanted to start his own business, Tracker Co., to develop and sell a tracker. The tracker would help viewers to track and record television programs that met the pre-designated specifications, when the viewers were away from television. While recording, the device would skip too violent or sexually explicit scenes.

After carefully considering all options, Wolf decided to get funding from a business angel. Wolf needed $50,000 to start. Out of this, $40,000 was necessary to set up a laboratory to develop and test the tracker’s prototype and a small office in Wolf’s house and $10,000 to cover unseen expenses and contingencies. Wolf explored both internal and external sources of funding. Internally, he could invest his own savings; borrow from his family, friends and credit cards; or team up with other people.

But he decided against bootstrapping. Wolf had $15,000 in bank balance, which his family needed for the rainy days. He could not borrow $50,000 from family and friends, and using credit cards at an exorbitant interest was unwise. He did not like teaming up with others and losing control over the company.Externally, banks, government, venture capitalists, and business angels provide start-up finance (Go4funding, 2010). A mature company could also sell its assets and technology. After weighing these options, Wolf decided to get $50,000 from a business angel, John Parker.

Funding from business angels comes with several pros and cons. On the positive side, the angel, often an experienced and successful businessperson, could advise and mentor the start-up to success and offer additional funding if necessary. On the negative side, they could claim a share of profit (Go4funding, 2010). Parker is ready to lend the entire amount for 25 percent of profit of Tracker Co. and provide his advice and guidance to Wolf. If the company failed, Wolf will not have to pay anything to Parker.

On balance, Wolf found it as a preferable source of funding. He arrived at this decision after considering several other sources of funding. As banks are the first port of call for start-up finance (Stone, 2001), Wolf could borrow from one of the banks, either as a term loan or a revolving credit. But the chances of his application being rejected were high and the reporting requirements tough, and the loan had to be paid back whether the business succeeded or failed.Stock market was not a good alternative for Wolf either.

Wolf did not have any shares to sell. Even if he issued shares of Track Co., very few people would by the stocks. If they did buy, Wolf would lose control of the company. Neither did Wolf find other options attractive. Government guarantee for small businesses is often too bureaucratic and cumbersome to get. Venture capitalists usually invest only in the companies that are ready to sell their shares to the public, which means the original owner loses substantial control (Go4funding, 2010) and their impact on the start-ups is quite significant (Sahlman, 1999).

Wolf did not have technology license to sell yet to leverage the capital requirement.Once funding secured from John Parker, Wolf had to manage his finances. He had very little knowledge about financial management and no knowledge of management. Therefore, he and his wife had to learn the basics of financial management as well as overall management. Nonetheless, Wolf had the financing arranged, and he could work on the tracker without having to worry too much about potential loss most start-ups incur in the beginning.

In sum, Gary Wolf has, after careful consideration of all options, decided to get funding for Tracker Co. from John Parker, a business angel. Although he will have to share 25 percent of the profit with Parker, Wolf could focus on the tracker without much concern about potential loss. ReferencesBrigham, E. F. & Houston, J. F. (2009). Fundamentals of financial management. 12nd ed. Mason, OH: Cengage Learning.Fontanills, G. A. & Gentile, T. (2001). The stock market course. New York: John Wiley & Sons.

Go4funding.com. (2010). ABC’s of small business funding. Retrieved from http://go4funding.com/Articles/Small-Business/The-ABCs-of-Small-Business-Funding.aspxMcLaney, E. (2009). Business finance: Theory and practice. Essex: Pearson Education Ltd.Sahlman, W. A. (1999). The entrepreneurial venture. Boston: Harvard Business Press.Stone, P. (2001). Raising start-up finance. Oxford: How to Books.Wise, J. (2006). Investment banking insider’s guide. Retrieved from http://books.google.co.uk/books?

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