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Getting Your E Business off the Ground Chapter 5 The Entrepreneurial Process Startup Financing  As an entrepreneur starting a new e business you must be prepar

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									Getting Your E-Business
     off the Ground




           Chapter 5
The Entrepreneurial Process
Startup Financing

   As an entrepreneur starting a new e-
    business, you must be prepared to invest
    time, effort, and your own money to get your
    new e-business off the ground.
   Private placement memorandum (p. 173)
    –   Fed/state securities may require an attorney to
        prepare
    –   Discloses the benefits and risks of an investment
        in your e-business to potential private investors
Personal Assets

   Sweat Equity: putting in time and effort
   Mortgage Personal Assets: put up property
    as collateral to a bank
   Personal loans: taking a loan without
    collateral (higher interest rate)
   Credit card/credit line advance: similar to a
    personal loan (usually a high interest rate)
    Friends and Family

    Friends and family investors are family
     members or friends who invest in a
     business.

    Many entrepreneurs successfully solicit
     startup money from their network of friends
     and family.
Friends and Family (cont’d)

   A network of potential friends and family
    investors extends beyond immediate family
    members and friends, to their families and
    friends, to their families and friends, and so
    on.
   Advantages?

   Disadvantage?
Angel Investors

   The term angel investor originally referred to
    wealthy investors in Broadway theatrical
    productions
   In this context it refers to any individual with
    the assets and interest to invest in a startup
    business
   Not the same as a Venture Capitalist
   May be members of an Investment club
    “Touched by an Angel”

   Angels can be difficult to find.
   Angels sometimes appear unexpectedly.
   The keys are networking and research.

   Usually provide small-medium investments
    –   $10,000 up to $300,000
    –   May want to become involved in the business
    –   May want an equity position in the business
An Angel Investment Club




    www.womenangels.net

    •4/2000 – 85 members - $6M investment pool
    •Waiting list of 50 potential members
An Angel Investment Club

   Must quality as an accredited investor
    –   Min. net worth of $1M
    –   Individual income of min. $200,000 per year
    –   Household income of min. $300,000 per year
   Band of Angels
    –   140 high-tech executives
    –   $60.5 M in 109 companies
Venture Capital Investors

   Venture Capital (VC) firms are organized to
    invest specifically in new business startups.

   Typically take a significant equity interest
    (perhaps 20-40%) in the firm with in
    exchange for providing startup capital.
    Venture Capital Investors
   May also provide expertise

   Typically do not invest for the long term but
    expect to “cash out” after the business
    establishes a successful track record and can
    be sold or acquired by others

   There are many established VC firms
Venture Capital Firm



         http://www.sigmapartners.com/
    Business Incubators

   Have traditionally been government- or university-
    supported nonprofit organizations that nurture new
    businesses

   Provide startup companies with management advice,
    office space, networking opportunities, and other
    critical startup services

   http://www.thinkkentucky.com/kyedc/bguide01.asp
    Commercial Business Incubators

   Offer startup e-businesses access to the
    same services offered by nonprofit incubators
   Are primarily interested in high-technology
    businesses that can become financially viable
    quickly and leave the incubator within six
    months to a year

   www.idealab.com
    Incubators

   May take an equity interest as well as charge
    for services

   Not-for-profit incubators may use returns from
    equity to reinvest

   www.evansvilleincubator.org
    Internet Accelerators

   Some e-business incubators such as iStart
    Ventures and Katalyst style themselves as
    Internet accelerators.

   An Internet accelerator is a commercial
    business incubator whose goal is to get a
    new e-business up and running quickly.
Keiretsu Providers

   Keiretsu is a Japanese term that refers to a
    network of businesses that do business with
    each other as a means of mutual security.
   Incubators that use the keiretsu model offer
    entry into a network of companies that do
    business with one another with the goal of
    serving the overall interest of the network.
Questions to Ask and Answer

   Does the business incubator offer seed
    money or venture capital funds linked to the
    incubator?
   What specifically will the business incubator
    do to help your e-business?
   What is the business incubator’s track record
    with other e-business startups?
Questions to Ask and Answer

   How much will it cost your e-business—in
    cash and equity—to be incubated?
   How long is the incubation period?
   How do you feel about the business
    incubator’s environment?
Self-Incubation
   Some e-business startups like the idea of
    sharing office space with other entrepreneurs,
    exchanging ideas with others going through
    the startup process, and taking advantage of
    a mutual network of advisors.
Pitching Your Idea
   The first meeting with angel investors or VCs
    is a ________ meeting.
   Your immediate objective in a first meeting is
    to get potential investors ________ about
    your e-business idea.

   Be brief
   Present a brief pitch document (short
    marketing document)
“Here’s the Pitch…”

   Define your product or service.
   Define who will buy your product or service
    and how much they will pay for it.
   Define your key industry competitors.
   Explain how much it will cost to provide the
    product or service.
“Here’s the Pitch…” (cont’d)

   Explain when the investors can expect your
    e-business to be profitable.
   Illustrate the planned exit strategies.
   Detail how much money you are looking for,
    and how it will be spent.
“Here’s the Pitch…” (cont’d)

   Potential investors will try to determine how
    well you understand your:
    –   E-business
    –   Target market
    –   Competitors
    –   Critical marketplace issues
   During your presentation, you should:
    –   Differentiate yourself
    –   Show a real commitment
    –   Create the feeling of viable, exciting opportunity
Term Sheet

   List of the major points of the proposed
    financing being offered by the investor, and
    is used to start negotiations for the
    investment deal
   Example:
    –   Invest $200,000 for 10% equity, then the investor
        values your e-business at $2 M
   May include other demands
   Have reviewed by a qualified attorney

								
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