FUNDINGASTART-UPVENTURE

August2,2017

ChristopherSmith,SeniorDealFlowAssociate

JumpStartInc.

Cleveland,Ohio,USA

www.jumpstarDnc.org

@jumpstarDnc

Services Funding Talent Inclusion

Sources for Start Up Capital

BootstrappingFriendsandFamilyCrowdfundingLoansAngelInvestorsVentureCapitalBusinessPlan/PitchCompeHHons

Thetermreferstotheideaofsomeone"pullingthemselvesupbytheirbootstraps."Thatphrase—whichrefersto19thcenturyhigh-topbootsthatwerepulledonbytuggingatanklestraps—generallymeansdoingsomethingwithoutoutsidehelp.

Bootstrapping

PersonalSavingsHomeEquityLoanHomeEquityLineofCreditCreditCardDebt

Bootstrapping-CreditCardDebt

Advantagesofusingcreditcards•  quicksourceoffunding•  freeifpaidoffinHme•  helpbuildupcreditscoresDisadvantagesofusingcreditcards•  canbeveryexpensive•  caneffecttheabilitytoborrow•  candestroycreditscores

Bootstrapping-HELsorHELOCsHomeEquityLoan(HELs)-Thisisaone-Hmelumpsumloanthatisrepaidmonthlyatafixedrate.Theaveragecostofafixed-ratehomeequityloanis5.33%HomeEquityLineofCredit(HELOCs)-HELOCsallowhomeownerstoborrowagainsttheequityintheirhomesonanas-neededbasis.Youpayinterestonlyonwhatyouborrow,andtheaverageHELOCcurrentlycosts5.57%.Source:interestrate.com

Advantages• HomeequityinterestratesarelikelytobelowerthanyourotherborrowingopHonssincetheloanissecuredbyyourhome.• Youcanusethemoneyfromahomeequityloananywayyouwish,whilebusinessloanso]encomewithrestricHonsonhowyoucanusethecash.

Disadvantages•  Yourhomeisatrisk•  Closingcostsandfees•  HELOCsusuallycomewithvariableinterestrates

1. UnderstandtheirmoHves2.Comeupwitha“kitchen-tablepitch”3.Makeitaloan,notaninvestment4. Focusonarepaymentplan5. Dra]anofficialloanagreement6. Considerlininguponepersonasabackstopinstead7. Doagutcheckbeforegoingahead

TipsforRaisingFundsthroughFriendsandFamily

IfafriendorrelaHveiscontribuHngmoneyasagi],thatshouldbeputintoawricen"statementofgiQ."Thegi]mayhavetaxconsequences.

TheU.S.InternalRevenueCodeallowsanindividualannualexempHonfromgi]taxintheamountof$13,000perrecipient.Forexample,ifparentswantedtogivechildrenatax-freegi],theycouldeachgive$13,000peryear(totalgi]of$26,000perchildannually).Gi]sinexcessofthisamountwouldcountagainsttheparents'lifeHmeestatetaxcreditandmightrequirethefilingofagi]taxreturn.

Familyandfriendfinancingasagi]

Thegi]lecershouldbe:• Dated• Signed• Containthenameofthepersonwhosignedthelecer• Containthenameofthepersonreceivingthegi]• Confirmthegi]amount• Confirmthatthegi]is“uncondiHonal,nonrepayableandnonrefundable”

9/1/2013ToWhomItMayConcern:Re:JohnSmithIconfirmthatIamgivingmysonJohnSmithanuncondiBonalgiDof$50,000forhimtousetobuyabusiness.ThisgiDisnotrepayableorrefundable.ShouldyourequireanyaddiBonalinformaBonpleasedonothesitatetocontactmeon2020000000.Regards,(SIGN)AdamSmith

StatementofGi]

Ifthetransferoffundsisnotintendedtobeagi],anenforceableagreementsuchasapromissorynoteshouldbedra]ed.Theabsenceofinterestcharges,orbelow-marketrates,maybearedflagfortheIRStoquesHonwhetherthetransacHonisreallyagi],ratherthanaloan.IftheIRSacceptsitasaloan,butfindsthatlicleornointerestisbeingcharged,itmay"impute"interestandtaxthelenderontheinterestthatheorshe"should"havereceived.IfthelenderdoesnotwanttoparHcipateincontrolorownershipofthebusiness,apromissorynotestaHngthatthemoneyisaloan,andlisHngthetermsoftheloan,shouldbedra]ed

Familyandfriendsfinancingasaloan

Bizfilings.commakesavailableafreedownloadableinstallmentpaymentpromissorynote

Installment Note

$ _________________ _________________ , 20___

FOR VALUE RECEIVED, the undersigned promise(s) to pay to _________________________________________________________ the principal sum of _________________________________________________________ DOLLARS ($ ________ ) and interest from _______________________ on the balance of principal remaining from time to time unpaid at the rate of ____________________ per cent per annum, such principal sum and interest to be payable in installments as follows: ______________________________________ _________________________ DOLLARS ($ ________ ) on the ___ day of _________ , 20 __ , and _____________________________________________________ DOLLARS ($ _________ ) on the _______ day of each and every month thereafter until this Note is fully paid, except that the final payment of principal and interest, if not sooner paid, shall be due on the ______ day of _____________ , 20 __ . All such payments on account of the indebtedness evidenced by this Note shall be applied first to accrued and unpaid interest on the unpaid principal balance and the remainder to principal.

Payments are to be made at _________________________________________________ ______________________, or at such other place as the legal holder of this Note may from time to time in writing appoint.

And to secure the payment of said amount, the undersigned hereby authorizes, irrevocably, ____________ any attorney of any Court of Record to appear for the undersigned in such Court, in term time or vacation, at any time after maturity, and confess a judgment, without process, in favor of the holder of this Note, for such amount as may appear to be unpaid thereon, together with reasonable costs of collection, including reasonable attorney’s fees and to waive and release all errors which may intervene in any such proceedings, and consent to immediate execution upon such judgment, hereby ratifying and confirming all that said attorney may do by virtue hereof.

At the option of the legal holder hereof and without notice, the principal sum remaining unpaid hereon, together with accrued interest thereon, shall become at once due and payable at the place of payment aforesaid in case default shall occur in the payment, when due, of any installment of principal or interest in accordance with the terms hereof.

All parties hereto severally waive presentment for payment, notice of dishonor, protest and notice of protest.

(signed)

PromissoryNote

Ifthefamilymemberistobecomeanownerofthebusinessinexchangeforfinancing,documentaHonofthearrangementisimportant.

FamilyandFriendsFinancingasanEquityInvestment

Eachyear,FederalagencieswithexternalR&Dbudgetsexceeding$100millionmustallocate2.5%toSBIRandSTTRgrants:•  DepartmentofAgriculture•  DepartmentofCommerce•  DepartmentofDefense•  DepartmentofEducaHon•  DepartmentofEnergy•  DepartmentofHealthandHumanServices•  DepartmentofHomelandSecurity•  DepartmentofTransportaHon•  EnvironmentalProtecHonAgency•  NaHonalAeronauHcsandspaceAdministraHon•  NaHonalScienceFoundaHonEachagencyadministersitsownprogramwithintheguidelinesestablishedbyCongress.AwardsaremadeonacompeHHvebasisa]erproposalevaluaHon.

SmallBusinessInnovaHonResearchSmallBusinessTechnologyTransfer

Crowdfundingtypes

Theirarefourmaintypesofcrowdfunding1.Rewards,2.Equity,3.DonaHonand,4.Debt-basedhcps://www.fundable.com/crowdfunding101/types-of-crowdfunding

THEJOBSACT(Jump-startourbusinessstartupsact)

TheJOBSActwaspassedbyCongressonabiparHsanbasisand

signedintolawbythepresidentinAprilof2012.Itwas

designedtoallowanewtypeofcrowdfundinginwhich

contributorscouldgetequityinstartupcompanies

ThenonOctober23,2015TheSecuriHesandExchangeCommissionvotedunanimouslytoproposerulesundertheJOBSActtopermitcompaniestoofferandsellsecuriHesthroughcrowdfunding.RequirescrowdfundingtransacHonstakeplacethroughanSEC-registeredintermediary,eitherabroker-dealerorafundingportal.SecuriHespurchasedthroughcrowdfundingcannotberesoldforaperiodofoneyear.ThistookeffectonMay16,2016

•  Equitycrowdfundingenablesbroadgroupsofinvestorstofundstartupcompaniesandsmallbusinessesinreturnforequity.

•  UnHltheJOBSAct,numerousstatutespreventedusingcrowdfundingtosolicitequityinacompany

•  TheJOBSActrequiredtheSecuriHesandExchangeCommissiontomodifyseveralregulaHonsinordertopermitequitycrowdfunding

•  PlamormslikeEquityNetandOneVestperforma

matchmakingandduediligenceprocess

Whatisstart-upequitycrowdfunding?

RULESofTitleIIICrowdfundingMaximumOfferingAmountof$1,070,000AcompanyissuingsecuriHesinrelianceonRegulaHonCrowdfunding(an“issuer”)ispermicedtoraiseamaximumaggregateamountof$1,070,000ina12-monthperiod.IndeterminingtheamountthatmaybesoldinaparHcularoffering,anissuershouldcount:• theamountithasalreadysold(includingamountssoldbyenHHescontrolledby,orundercommoncontrolwith,theissuer,aswellasanyamountssoldbyanypredecessoroftheissuer)inrelianceonRegulaHonCrowdfundingduringthe12-monthperiodprecedingtheexpecteddateofsale,plus• theamounttheissuerintendstoraiseinrelianceonRegulaHonCrowdfundinginthisoffering.

Anissuerdoesnotaggregateamountssoldinotherexempt(non-crowdfunding)offeringsduringthepreceding12-monthperiodforpurposesofdeterminingtheamountthatmaybesoldinaparHcularRegulaHonCrowdfundingoffering.

RULESofTitleIIICrowdfundingInvestorsSubjecttoLimits• IndividualinvestorsarelimitedintheamountstheyareallowedtoinvestinallRegulaHonCrowdfundingofferingsoverthecourseofa12-monthperiod:• Ifeitherofaninvestor’sannualincomeornetworthislessthan$107,000,thentheinvestor’sinvestmentlimitisthegreaterof:• $2,200or• 5percentofthelesseroftheinvestor’sannualincomeornetworth.

–  Ifbothannualincomeandnetworthareequaltoormorethan$107,000,thentheinvestor’slimitis10percentofthelesseroftheirannualincomeornetworth.

–  Duringthe12-monthperiod,theaggregateamountofsecuriHessoldtoaninvestorthroughallRegulaHonCrowdfundingofferingsmaynotexceed$107,000,regardlessoftheinvestor’sannualincomeornetworth.

KickstarterstatsasofJuly2017

$3,189,422,991totaldollarspledgedtoKickstarterprojects

128,924successfullyfundedprojects

Category LaunchedProjects

TotalDollars

SuccessfulDollars

UnsuccessfulDollars

LiveDollars

LiveProjects

SuccessRate

All 364,087 $3.19B $2.80B $353M $33M 4,217 35.83%

Mostsuccessfullyfundedprojectsraiselessthan$10,000,butagrowingnumberhavereachedsixorsevenfigures.

While14%ofprojectsfinishedhavingneverreceivedasinglepledge,78%ofprojectsthatraisedmorethan20%oftheirgoalweresuccessfullyfunded.

Lastupdated:July30,2017

TradiHonalfinancingthroughabankisavailableforbusinessesthathaveasolidtrackrecordandcanshowthattheyhavegoodgrowthopportuniHes,butitisdifficultformostnewbusinessestoobtain.Bankswillrequire:

•  1.Highcreditscorebytheowner(s).•  2.Asolidbusinessplan.•  3.Collateraltoensurepaymentoftheloan.•  4.Ownerinvestmentinthebusiness.•  5.Ownerexperienceintheindustry.

Tradi4onal Financing

Alineofcreditisapre-determinedamountofcreditthattheborrowercandrawagainstasneeded.Insteadofalumpsumofmoney,thereisamaximumamountofmoneyavailabletouseasneeded.

Line of Credit

Entrepreneurswhoborrowmoneyneedtoknowhowmuchmoneytheywillneedtobudgettopaybacktheloan.Webmath.commakesavailableasimpleamorHzaHoncalculatorathcp://www.webmath.com/amort.html

Amor4za4on

MicrolendingisusuallydefinedasextendingcreditinrelaHvelysmallamountstoentrepreneurswhodonotqualifyforconvenHonalbankloans.

Microlending

TheFICO®scoreisthebest-knownandmostwidelyusedcreditscoremodelintheUnitedStates.Itwasfirstintroducedin1989byFair,Isaac,andCompany.UsedbycreditreporHngbureaussuchasExperian,Equifax,andTransUniontoproduceacreditscore.ItprovidesasnapshotofriskthatbanksandotherinsHtuHonsusetohelpmakelendingdecisions.90%oftoplendersuseFICO®scoreswhenmakinglendingdecisions.*OperaHonHOPEoffersfreecreditcounselingwhichincludespullingyourcreditreportandprovidingyouwithyourFICO®scorehcp://www.operaHonhope.org/

CreditandCreditScores

HowaFICOscorebreaksdown

AngelInvestor(alsoorganizethemselvesingroups)

•  Anindividualinvestor

•  Maybewillingtoinvestinearly-stageorstart-upbusinesses,aswellasestablishedcompanies

•  Investmentamounts:$5k-$100k,someHmesabitmore

•  Haveexperienceandcontactstocontribute

•  Maybewillingtobe"hands-off"or"hands-on"

VentureCapital

•  Acompanyorbusinessratherthananindividual

•  Seldomareinterestedinearly-stage,unlesscompellingreasons(e.g.;hightechwithalreadysuccessfulfounders)

•  Investmentamounts:$1M+

•  Havecontacts

•  Requireseatonboard

TolearnmoreaboutAngelInvestorsvisit:www.angelcapitalassociaHon.org

TolearnmoreaboutVentureCapitalvisit:hcp://nvca.org/

Angel Investor vs. Venture Capital

• Astrongmanagementteam• UniqueproductorservicedisHnguishedbyanidenHfiedcompeHHveadvantageandlargemarket

• Apersonalfinancialinvestmentinthecompany.• AclearpictureofthemarketfortheproductorserviceandrealisHcplanformarketpenetraHon

• Anexitstrategyfortheinvestorthatisreachablewithin5to7years

•  ThepotenHalforastrongreturnoninvestment

What criteria do angel groups use to select entrepreneurs?

Services Funding Talent Inclusion