Getting Your E-Business off the Ground
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Getting Your E-Business off the Ground






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Getting Your E-Business off the Ground Getting Your E-Business off the Ground Presentation Transcript

  • 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.
    • 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?
    Friends and Family (cont’d)
  • 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
    • 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
  • 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
  • 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
  • Incubators
    • May take an equity interest as well as charge for services
    • Not-for-profit incubators may use returns from equity to reinvest
  • 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.
    • 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)
  • “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