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Getting Your E-Business off the Ground
 

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
      • 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.
      • 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