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LET'S PRACTICE
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Capital Recap For any new business, access to money to fund R&D, hire talent, rent space, buy equipment and supplies, and market their product is critical. Money used by businesses to fund these needs is called capital . Financially literate people know that capital is the lifeblood of innovation. Let’s recap the Quest for Capital. 1. There are many ways to finance a startup, but applying to a commercial bank for a loan is probably not one of them. Why? What Act prevents the bank from making a loan to or investing in a startup? _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ 2. What is crowdfunding ? If you were looking to raise money to start a small business designing apps for animal lovers, would crowdfunding be a capital raising option for you? How are crowdfunding investors repaid? _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ 3. Go online and check out a crowdfunding sources such as Kickstarter or Indiegogo . Read about three projects and tell about one you think has potential for great success. _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ 4. What is an angel investor ? How would you pitch your team’s product to an angel investor to convince him or her of its worthiness? _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ 5. What is seed money ? _ ______________________________________________________________________________ _ ______________________________________________________________________________ Commercial banks make business loans, but are limited by the Dodd-Frank Act to lending only to profitable businesses with successful operating histories. Banks may not make risky loans. A startup is a risk . An angel lends money or invests to bridge the gap to venture capital . They may have an investment agenda. If you are seeking an angel investor you’d pitch to someone who has an interest in promoting businesses or products like yours. Crowdfunding raises capital from backers via the Internet. Money can be a donation , a guaranteed discount on a product, or a loan . Crowdfunding is an option for funding the startup of a small business, like the animal app. student ’s discretion Personal funds, loan , or gift from family or friends; usually a small amount; just enough to get the project off the ground. PRODUCT PREVIEW
249 THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY
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