Raising Entrepreneurial Capital

to borrow until the absolute level of debt causes all invest ors to raise their

required rates of return and thus the firm’s cost of capital.

New businesses do not have unlimited access to capital. Until a firm

becomes publicly traded capital access will usually be a constraint. The

new venture ’s equity is typically limited to the personal resources and friends

and family financing mentioned in Chapter 1. The primary consideration for

the new venture is cash flow, and debt reduces cash flow. The firm must

maintain a reserve of borrowing capacity for emergencies and keep debt to a

level that does not jeopardize the firm’s existence through unsustainable ...