Definitive Business Plan, Second Edition, The

What's the deal?

If you are going cap-in-hand to your bankers, you will be telling them that you want a $10 000 increase in working capital … or a $25 million loan for the specific purpose of acquiring the following assets, with repayment proposed…. They will mumble some incantations and arrive at an interest rate that they want to charge you. (But do not accept it – negotiate.) It is not quite so simple if you are looking for equity funding.

In theory, you value the business (we will do this in a moment), see what proportion you will raise, and allocate a chunk of shares accordingly. The business is worth $10 million today, you are raising $1 million; therefore, you will swap 10% of the equity capital for the cash. Sometimes it works in much ...