What are the 5 C's of Entrepreneurship?

The 5 C’s of Entrepreneurship is a Tool that helps Entrepreneurs attract the Interest of Financial Institutions and Raise Capital.

 

To do so, it proposes 5 aspects that a Business must take care of before borrowing money:

  • Character.
  • Cash Flow.
  • Collateral.
  • Capital.
  • Conditions.

5 C's of Entrepreneurship

  • 1. Character: The Team should Demonstrate that Investors can Trust Them.
    • They can show their Background, Milestones Accomplished, etc.

 

  • 2. Cash Flow: The Business must prove its Profitability.
    • The more evidence it gives, the better.

 

  • 3. Collateral: Businesses must Offer some Assets that could cover an Insolvency.
    • A Building, Machinery, Stock, etc.

 

  • 4. Capital: The Company should have a Healthy Capital Structure.
    • Not too much Debt, Having enough Cash, etc.

 

  • 5. Conditions: The Company should highlight the good Conditions for the Project.
    • External factors that could provide a good opportunity.

 

5 C’s of Entrepreneurship.

 

Let’s see them in detail with some examples:

 

* As we usually highlight, we have experience in Venture Capital Investments.

  • Therefore, these examples come from our direct Professional experience.

Character - First C of Entrepreneurship

 

When Investors look for Projects to Invest in, they look for:

  • A Team with Experience in the Market.
  • Companies that have proven to be Right and Trustworthy in the past.
  • Ambitious Entrepreneurs with Ambitious Goals.

 

Example

 

Imagine that you are thinking of investing some money in a Small Project.

 

What is the First thing you would know about the Candidate Projects?

  • The Founders.

 

The first Impression would be absolutely decisive.

 

If you didn’t see a Decided, Intelligent, Ambitious Team …

If you didn’t see a Team with a Strong CharacterYou wouldn’t invest in their Project.

Cash Flow - Second C of Entrepreneurship

 

When Investors look for Projects to Invest in, they look for:

  • Projects that could easily Cover their expenses.
  • Projects that would pay off their Debts in a short period of time.
  • Projects where money comes in frequently, not in the distant future.

 

Example

 

Once you have found an Interesting project with a good Team … What would you look at?

  • Money Flows.

 

How would you assess whether the Project is generating enough Cash?

  • If it is covering all its expenses easily.
  • If the Project has surplus money, or is expected to have it.

 

You would be looking for a project that needed your money to Expand its Operations.

  • Not to cover its daily expenses.

 

If you are more interested in Cash Flows, check our publication:

Collateral - Third C of Entrepreneurship

 

When Investors look for Projects to Invest in, they look for:

  • Investments that would be covered by Valuable and Tangible Assets.
  • Projects that perfectly know where money would be allocated.
  • Projects with Assets that could be easily sold.

 

Example

 

Imagine that you have found a Nice Project, with a Good Team, and attractive Cash Flows.

 

This Company asks you for a million dollars to expand its Activity.

 

How would you be more comfortable:

  • Investing 1 million dollars in an Aggressive Marketing Promotion
  • Or 1 Million dollars in buying 3 Stores?

 

Maybe, the 1 million dollars Marketing Strategy would be more effective…

 

But, you would be much more comfortable buying 3 Stores that would be in your name and, if the Project failed, you could easily Recover your Investment by selling them.

Capital - Fourth C of Entrepreneurship

 

When Investors look for Projects to Invest in, they look for:

  • Companies with a good Equity (money contributed by partners) / Debt Relation.
  • Businesses with reduced Debt.
  • Companies that Optimize the money invested in it.

 

Example

 

Imagine that you are almost decided to Invest in a Company with:

  • A Good Team.
  • Acceptable Cash Flows.
  • Interesting Collateral.

 

You then start looking at its Balance Sheet.

 

How would you feel more comfortable?

  • If they had a huge Debt that had to be paid in less than 1 year?
  • If they had no Debt?

 

Also … How would you feel if they had already raised Capital in the past but it was not enough and that is why they had to request a Loan?

  • You wouldn’t probably trust them.

Conditions - Fifth C of Entrepreneurship

 

When Investors look for Projects to Invest in, they look for:

  • Projects that are at the Right time, in the Right Place.
  • Projects that do not have external setbacks.
  • Projects that take advantage of favorable Situations.

 

Example

 

Let’s imagine that you have been presented with a Wonderful Project.

 

It has it all:

  • Character.
  • Cash Flows.
  • Collateral.
  • Healthy Capital Structure.

 

It is a Company that has patented a new Typewriter, and the year is 1985.

The first Computers are appearing.

 

Would you invest in it?

We know what you may be thinking right now:

  • Well, these are theoretical examples, but can you give us some real ones?

 

Now we will give you Real Examples that will make you understand this Tool much better and Why it is important:

5 C's of Entrepreneurship Examples

We have chosen 2 famous and Successful Businessmen to see what we can learn from them.

  • And How the 5 C’s can explain part of their success.

 

We have also chosen a common situation in which you use the 5 C’s even if you are not aware of it.

 

Let’s see what we can learn:

Elon Musk - 5 C's of Entrepreneurship example

 

Elon Musk is synonym with Success.

  • PayPal.
  • Tesla.
  • SpaceX.
  • Hyperloop.
  • The Boring Company.
  • His implication with Bitcoin.
  • etc.

 

We could analyze the different Capital Structures, Projected Cash Flows… of each of his Projects.

 

However… Which C do you think is the most important in his success?

  • How could Elon Musk Raise capital for creating a Private Space Company?

 

How can Investors Trust his “crazy Ideas”?

  • Because of his Character.

 

He has Proven to be Right in the Past in almost Impossible Projects:

  • PayPal; and its new way of transferring money.
  • Tesla; with the electric car.
  • SpaceX; and its vertical landing system.

 

He has Earned trust after having succeeded where others could only have dreamed of.

Warren Buffet - 5 C's of Entrepreneurship example

 

Now, we’ll analyze the “other side of the table”.

  • The Investor Side.

 

Warren Buffet is one of the most successful Investors of all time.

 

How do you think he invests?

He has said several times that he invests in Companies with:

  • Good Management Team.
  • Good record of Dividends.
  • Well Established Products.
  • Healthy Balance Sheets.
  • Undervaluation by the Market.

 

These are basically the 5 C’s.

 

In fact, the last point (Undervalued Companies) means:

  • Companies that are in a better Time and Place than the Market estimates.

Mortgage - 5 C's of Entrepreneurship example

 

This example may seem weird for you.

  • But, if you have ever applied for a mortgage, you will know exactly what we mean.

 

When you ask for a Mortgage, the Bank makes sure that:

  • You have no bad Credit in the Past (you have always paid all your debts).
  • You earn enough Money to pay your future mortgage.
  • The House you buy is worth the money you ask for.
  • You have Savings to cover your down payments.
  • There is no Real Estate Crisis.

 

These are exactly the 5 C’s.

 

The Bank wants to make sure that you are able to pay your Debts and, in case you cannot, they could sell the House and get their Investment back.

  • Your House is the Collateral.

Summarizing

The 5 C’s of Entrepreneurship is a Tool that helps Entrepreneurs attract the Interest of Financial Institutions and Raise Capital.

 

It proposes 5 aspects that a Business must take care of before borrowing money:

  • Character: The Team should Demonstrate that Investors can Trust Them.
  • Cash Flow: The Business must prove its Profitability.
  • Collateral: Businesses must Offer some Assets that could cover an Insolvency.
  • Capital: The Company should have a Healthy Capital Structure.
  • Conditions: The Company should highlight the good Conditions for the Project.

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