Financing Sources for Your Venture

Outline

This paper deals with a preferred source of financing venture called public offerings or IPO’s (In the event of an initial issue). It embodies better use of funds and a large financial canvas for corporate business houses to fructify results and prospects.

While there are inherent and acquired benefits in terms of larger capital base, safety of investments, non-dependence on high cost debts (in terms of interest payments and capital repayments) and other advantages over its existence, it is also burdened with greater cause for accountability, CRO guidelines and regulatory mechanism and substantial audit examination procedures and reporting.

However, it is believed that over time, well managed public offerings offer better scope and volume of corporate development which in turn, fosters better economic growth

Besides, well managed public limited companies are also a boon to the financial growth and development of the country.

Introduction

The choice of source of financing would depend upon a host of factors including the type of product proposed to be dealt with, market demographics, whether an existing business venture capital proposal or fresh venture, and also “where the business is located.” (Timmons and Spinelli, 2007, p. 494).

However, for the purpose of this study, it is proposed to confine to mezzanine financing requirement for the software industry that deals high end customized software solutions on a global level.

This option is believed to provide access to large equity base that could sustain the company in future years and also provide impetus to further investment proposals in future for demanding software business needs and future diversification plans.

It is proposed to raise nominal capital of £500 million through issue of fresh equity holdings at par, each valued at £50. The issue would be partly underwritten by underwriters, lead bankers and brokers, with £250 million provided by the promoters, etc. and another £100 million guaranteed by financial institutions and insurance companies. The uncalled portion of capital would be used for future public offerings.

What are the pros and cons of using your choice?

The main advantages, or benefits of equity funding are as follows:

!.Access to large funds “with less dilution “that could be used for large scale investment purposes.” (Timmons and Spinelli, 2007, p. 425). Non-dependence on loan or debt capital that is riskier in terms of mandatory interest payments and other costs. This is because “as debt, the interest is payable on regular basis and the payment must be repaid, if not converted into equity. ” (Timmons and Spinelli, 2007, p. 425).

1. Dividend payments to shareholders would be at the discretion of the Board of Directors and, in the event of deferred payments, could be a source of corporate savings for future use.
2. A broader and diversified capital base is ensured, providing motility and spread to fund movements
3. There would be funds available in the event the management decided to go in for diversification, acquisitions or acquiring shareholdings in other companies.
4. Delinking ownership and management could ensure greater professional control and heightened efficiency systems could be set into practice.
5. The public image of the company is build, especially in a competitive market, and third parties have greater confidence in dealing with them.” The public trading of the shares determines a value for the company and sets a standard.” (Advantages of IPO).

The disadvantages of equity funding could be seen in terms of the fact that:

1. Greater degree of legal and financial accountability is forthcoming in public limited companies
2. Strict Companies Registration Office compliances and tighter regulatory framework would be in force
3. Delinking ownership and management could delay or cause abandon business proposals and contracts, since majority approval would become necessary for governance and planning new ventures.
4. Higher degree of disclosure to outside regulatory bodies. “Once a company is a reporting company it must provide information regarding compensation of senior management, transactions with parties related to the company, conflicts of interest, competitive positions, how the company intends to develop future products, material contracts, and lawsuits. “ (Taubman, 2008).

This could prove very cumbersome for newly started companies with little professional experience or expertise in these areas of public accountability

Conclusion

While all avenues of finance procurement have resultant pros and cons it is believed that public issues are imbued with better usage options and contribute to better streamlined corporate functioning, especially in global multinational settings. Besides, well managed public limited companies are also a boon to the financial growth and development of the country.

Bibliography

1. Advantages of IPO. [online]. Business, mapsofindia.com.
2. TAUBMAN, Louis E. (2008). Considerations of an IPO. [online]. Find Law.
3. Timmons, J., and Spinelli, S. 2007. Ch.15: Obtaining Debt Capital: New Venture Creation: Entrepreneurship for the 21st Century, 7th ed. (International 2007). McGraw-Hill, P. 494. (Provided by customer).
4. Timmons, J., and Spinelli, S. 2007. Ch.13: Obtaining venture and growth Capital: New Venture Creation: Entrepreneurship for the 21st Century, 7th ed. (International 2007), McGraw-Hill. P. 425. (Provided by customer).
5. Timmons, J., and Spinelli, S. 2007. Ch.13: Obtaining venture and growth Capital: New Venture Creation: Entrepreneurship for the 21st Century, 7th ed. (International 2007), McGraw-Hill. P. 425. (Provided by customer).