Chapter 7 Channel Your Equity Flashcards
(17 cards)
What is expected of entrepreneurs before investors will consider an investment?
Entrepreneurs are expected to invest a significant portion of their assets in the venture.
What type of financing strategy is preferred in Silicon Valley for high-growth ventures?
The traditional financing strategy involves securing initial financing from family and friends, followed by angels, early-stage VCs, late-stage VCs, and an IPO.
Why are bank loans not suitable for capital-intensive, high-growth ventures?
They mostly do not have positive cash flow and entrepreneurs do not want to offer personal guarantees or collateral.
What did most billion-dollar entrepreneurs in Silicon Valley do before seeking VC?
They delayed VC until after they had evidence of the venture’s growth potential and the entrepreneur’s leadership potential.
How did billion-dollar entrepreneurs outside Silicon Valley typically fund their ventures?
They used their savings along with money from family, friends, and angels.
What percentage of billion-dollar entrepreneurs got VC after showing potential?
About 10 percent.
What is one reason billion-dollar entrepreneurs channel their equity?
To avoid losing control of their business.
True or False: VCs typically focus on high-potential ventures in emerging industries.
True.
What percentage of entrepreneurs are replaced as CEOs by VCs who fund early?
20–40 percent.
What is a common financial challenge faced by startups?
Startups lose money due to fixed costs or high expenses at the start and no sales to cover these expenses.
What do VC-funded ventures often seek to achieve?
High-growth rates to dominate emerging industries.
What strategies do finance-smart entrepreneurs use to reduce working capital needs?
They keep close tabs on inventory, eliminate accounts receivable, link growth rate to cash flow, and reverse the cash-to-cash cycle.
What are fixed assets and how do billion-dollar entrepreneurs typically finance them?
Fixed assets include real estate and equipment, which are often financed through leasing.
How did Bob Kierlin build Fastenal?
By leasing assets until he could buy them from internal cash flow.
What is one way billion-dollar entrepreneurs channel their scarce equity?
By using smart marketing strategies such as public relations.
Fill in the blank: Billion-dollar entrepreneurs grow with positive cash flow and do not have to raise VC to fund _______.
negative cash flow.
What is a key financial principle for billion-dollar entrepreneurs?
They reduce their losses and their needs for working capital by adjusting their business and finance strategies.
