Stelno started as a social media company. It’s unique approach to how it shares content made it stand out from other startups in this space. The founders were able to get an angel investor who seeded the company for its initial launch. The company released its app on Apple and Android Device on January 1th 2015. The company saw rapid growth in the first few months. They were even able to attract other companies to advertise after 6 months of growth. However, after this period, the company’s active users plateaued and then slowly decline.
The slow decline in active users alarmed some of their advertising partners, causing some to pull out. With the decline in users and with advertising pulling out, Stelno may need to close their company in 6 months. Fortunately, there is still hope. Stelno’s founders and engineers saw that their Machine Learning algorithm could be used for cyber security. This algorithm was first developed to stop fake users in their app. The program was so effective that Stelno had almost no fake users. With the rise in cybercrime, the founder and their engineers know that their machine learning algorithm can revolutionize the cyber security industry.
When our company sell bonds, we agree to pay investors interest in exchange for using their money. That interest is tax-deductible as an expense for our company.
Bondholders don't own a piece of our business and they don't participate in our decision-making.
We must pay interest payments on time to bondholders.
We pay interest according to a strict timetable. Which can create problems with our cash flow. In other words, we may have times when we wish we could use our cash for expansion or to buy assets, but we have to pay the interest on your bonds instead.
They increase the amount of debt we show on our books. Investors often look at debt as a factor that makes a company attractive or unattractive. We will eat up a portion of your future profits paying our bond interests. Also, we will need to maintain a good credit rating if we want to issue bonds in the future. Otherwise, we could have to offer high interest rates to attract investors
Multiple Loan options– All banks advertise various types of schemes to woo entrepreneurs setting up or running a business. The real earnings for a bank come from the interest they charge on these loans. Options like term loans, standard business loans and others are available for the entrepreneur.
Non profit sharing– Venture capitalists and angel investors agree to provide a loan in exchange for part ownership, the right to influence decision making and a share of the profits. Banks do not ask for any of these. If they do sanction a loan, they are only interested in getting their interest and partial loan payment installments.
Lower rates of interest-Though tough to get, banks provide loans at lower rates of interest than other lending agencies and instruments like credit cards.
Bank loans offer tax benefits– Small businesses taking loans from banks enjoy some relief from tax, since the percentage of profits used to repay the loan is exempted from tax.
However, as mentioned before, getting a bank loan is not easy, and its disadvantages include:
Lengthy application process– banks need to verify all the credentials and details about the business before sanctioning a loan. Therefore, its application process is very long and its review etc. takes a long time.
Cumbersome– The prospect of getting into the detailing that banks require is really cumbersome, and from the entrepreneur’s point of view, totally unnecessary.
Preference given to existing, running businesses– banks prefer running businesses because they can gauge its profitability and credit history before sanctioning the loan.
Long list of prerequisites to qualify for the loan– banks have long list of conditions that a business should fulfill before they clear the loan. It is sometimes not possible to meet all of them.
Risk of losing Collateral– bank loans are generally sanctioned against some collateral, often the entrepreneur’s house and property. This stands the risk of being lost to the bank should the business fail to take off.
Entire amount not granted– banks are known to not agree to grant the whole amount requested for a loan. They may grant 70 or 80 % of the sum applied for. This makes it difficult for the entrepreneur to begin since he has to scout around for the remaining balance and find agencies to funs that before he can start.
Since VC funding is not a loan scheme, there is no repay schedule; which means we don’t have to repay debt as a cost of doing business.
Additional resources. In a number of critical areas, including legal, tax and personnel matters, a VC firm can provide active support.
Credit issues gone. If we lack creditworthiness through a poor credit history or lack of a financial track record, equity can be preferable or more suitable than debt financing.
Some VC firms require much more ROI than expected.
Usually, VC firms will want to add a member of their team to your company’s management team. While this is generally to ensure the success of your business, it can create internal problems.
Our proposed financing option
25% Equity for $700,000