Part 4 (Chapter 13, 14, 16) Flashcards

Question

What are the 4 venture funding stages?

Answer 1

In the beginning, Entrepreneur uses own money and creative means through bootstrapping. Once they are done bootstrapping, they will proceed to venture funding stages. 1. SEED FINANCING: Provides initial funds for business concept to be developed. this includes product development and market research. 2. START-UP FINANCING: is where product development is completed and the market is trial-tested. Sales are still low and company needs one year or less of expense money. 3. EARLY STAGE FINANCING: is provided to companies that have completed the product development stage and test marketing well, but require additional financing to expand commercial manufacturing and sales 4. EXPANSION FINANCING: is provided when startup is poised to grow rapidly. The business is viable and is reaching break-even point. The funds may be used to increase production capacity, market or product development and/or provide additional working capital. After they are done with venture funding stages, they will proceed to Late-stage funding which refers to pre-initial IPO where it gains endorsements from top VCs as a company prepares for IPO.

Answer 2

An angel investor tends to specialise in early-stage businesses. These usually tend to be wealthy individuals who expect lower valuations and more control. Usually best for start-up stage. (1) Corporate angels (2) Entrepreneurial angels (3) Enthusiast angels (4) Micro-management angels (5) Professional angels

Answer 3

CORPORATE ANGELS: Senior managers who have been laid off with generous severances or went for an early retirement. The entrepreneur might try to tap on their expertise by asking to take on a key position e.g. business development strategist. ENTREPRENEURIAL ANGELS: Individuals who own and operate highly successful businesses. They are willing to take bigger risks and make more investments because of their stable and usually substantial sources of income. Might seek a position in the board of directors but usually will not want any more involvement than that. Usually makes investment outside their area of expertise and prefers investing in only a handful of projects a at a time. ENTHUSIAST ANGELS: wealthy, successful individuals usually above 65 years of age who find investment as a passionate hobby. Typically makes small investments and rarely want to be part of the management or the board of directors. MICRO-MANAGEMENT ANGELS: Serious, self-made wealthy investors. Problem with these type of investors is they try to impose their own tactics of success on the start up, thinking that it will also work successfully. Do not seek an active management position however might ask for a place in the board of directors. PROFESSIONAL ANGELS: Investors of different professions such as doctors, lawyers and engineers. They like to invest in companies they have some knowledge about. They rarely ask for a board seat but might be difficult to deal with especially if the business is going through a turbulent time period. They are likely to invest in multiple ventures at a time.

Answer 4

Idea development: Founders & family Seed: Friends Start-up: Angel Early and Late Expansion: Venture Capitalists

Answer 5

1. Build out allowances from landlords. 2. Vertical integration e.g. a distributor investing in their supplier in order to ensure adequate stock levels. 3. Professionals associated with the business e.g. law firms, advertising firms might often want to provide their services in exchange of stock share in the business. 4. White knights: having someone with better credits buying your product and selling it to others in exchange of a few percentage points per month. Rare to find and can usually be found through factoring companies. 5. Technical or professional expertise: similar to 3. However they will not entirely reduce the fee, rather discount it to as much as 50% plus equity. 6. Sell licenses or marketing rights: However should ensure too much of the rights is not sold in order to retain enough control for progress.

Answer 6

1. Build-out allowances from landlords. 2. Vertical integration e.g. a distributor investing in their supplier in order to ensure adequate stock levels. 3. Professionals associated with the business e.g. law firms, advertising firms might often want to provide their services in exchange of stock share in the business. 4. White knights: having someone with better credits buying your product and selling it to others in exchange of a few percentage points per month. Rare to find and can usually be found through factoring companies. 5. Technical or professional expertise: similar to 3. However they will not entirely reduce the fee, rather discount it to as much as 50% plus equity. 6. Sell licenses or marketing rights: However should ensure too much of the rights is not sold in order to retain enough control for progress.

Answer 7

To secure a bank loan, they will typically ask 5 questions: 5 Questions asked by them 1. What do you plan to do with the money? - Do not plan to use funds for high risk ventures. Banks seek the most secure venture possible. 2. How much do you need? - Some entrepreneurs go to their bank with no clear idea of how much money they need. All they know is they want money. 3. When do you need it? - Don’t rush to the bank to immediately ask for money. Lenders steer clear of poor planners. 4. How long will you need it? - The shorter the period of time an entrepreneur needs the money, the more likely they are to get the loan 5. How will you repay the loan? - Does collateral exist?

Answer 8

1. Apple started out bootstrapping in their garage (using Jobs’ savings and Wozniak’s salary). 2. Indiegogo and Kickstarter are examples of two crowdfunding platforms. 3. Shows such as Shark Tank allow businesses to access angel investors and venture capitalists.

Part 4 (Chapter 13, 14, 16) Flashcards

(32 cards)