Your SlideShare is downloading. ×
0
Chapter 12 Lecture Slides  Early-Stage Business Development:  Human and Financial Capital Exhibits and Tables Copyright © ...
Exhibit 12-1: Startup Business Investment Stages <ul><ul><li>Validate the business concept (e.g. build prototype, develop ...
Exhibit 12-2: Probability of Startup “Success” Idea to IPO Business Plan to IPO Funding to IPO Source:  Saratoga Venture F...
Exhibit 12-3: The Relationship Between Human and Financial Capital <ul><ul><li>Advisory Board </li></ul></ul><ul><ul><li>B...
Table 12-1:  Common Sources of Debt and Equity Financing for Startups Source: “Venture Capital and Angels Provide Just Ove...
Exhibit 12-4:  Summary of Primary Financial Capital Resources Note: There are additional sources of financing that provide...
 
Table 12-2:  First Quarter 2000 Top Twenty Venture Deal Makers [i]  Source: Pricewaterhousecoopers MoneyTree Survey Q1 200...
Table 12-3:  Fourth Quarter 2000 Corporate Venture Funds. Source:  Jim Evans.  “Corporate Venture Grows Bold.”  The Indust...
Upcoming SlideShare
Loading in...5
×

IECch12.ppt

655

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
655
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
6
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Transcript of "IECch12.ppt"

  1. 1. Chapter 12 Lecture Slides Early-Stage Business Development: Human and Financial Capital Exhibits and Tables Copyright © 2001 by Marketspace LLC
  2. 2. Exhibit 12-1: Startup Business Investment Stages <ul><ul><li>Validate the business concept (e.g. build prototype, develop business plan, conduct market research) </li></ul></ul>Seed Stage Financing Stages Investment Purpose Type of Investors <ul><ul><li>Angel investors </li></ul></ul><ul><ul><li>Traditional VC </li></ul></ul><ul><ul><li>Consulting firms </li></ul></ul><ul><ul><li>Online VC firms </li></ul></ul><ul><ul><li>Incubators </li></ul></ul>Startup Financing <ul><ul><li>Build management team and complete product development </li></ul></ul><ul><ul><li>Angel investors </li></ul></ul><ul><ul><li>Traditional VC </li></ul></ul><ul><ul><li>Consulting firms </li></ul></ul><ul><ul><li>Incubators </li></ul></ul>First-Stage Financing <ul><ul><li>Expand production, marketing, or sales capabilities </li></ul></ul><ul><ul><li>Traditional VC </li></ul></ul><ul><ul><li>Corporations </li></ul></ul>Second-Stage Financing <ul><ul><li>Provide working capital once shipping products or providing services </li></ul></ul><ul><ul><li>Traditional VC </li></ul></ul><ul><ul><li>Corporations </li></ul></ul>Mezzanine Financing <ul><ul><li>Fuel substantial growth (typically provided to business that are at least break even) </li></ul></ul><ul><ul><li>Traditional VC </li></ul></ul><ul><ul><li>Corporations </li></ul></ul><ul><ul><li>Buyout firms </li></ul></ul><ul><ul><li>Investment banks </li></ul></ul>Bridge Financing <ul><ul><li>Prepare for initial public offering, usually planned in the next 6 months to a year </li></ul></ul><ul><ul><li>Traditional VC </li></ul></ul><ul><ul><li>Corporations </li></ul></ul><ul><ul><li>Buyout firms </li></ul></ul><ul><ul><li>Investment banks </li></ul></ul>Source: Gold Book of Venture Capital Firms, Bob Zider, “ How Venture Capital Works,” Harvard Business Review Early Stage Expansion Stage Later Stage
  3. 3. Exhibit 12-2: Probability of Startup “Success” Idea to IPO Business Plan to IPO Funding to IPO Source: Saratoga Venture Finance; High Tech Startup Pg. 8 6 in 1,000,000 6 in 1,000 1 in 10 # of businesses that go from:
  4. 4. Exhibit 12-3: The Relationship Between Human and Financial Capital <ul><ul><li>Advisory Board </li></ul></ul><ul><ul><li>Board of Directors </li></ul></ul><ul><ul><li>Strategic Partners </li></ul></ul>Entrepreneur Management Team Strategic Advisors & Partners Logistical Advisors & Partners Human Capital Resources Business Planning Process Financial Capital Resources Trade Credit Commercial Bank Loans Debt <ul><ul><li>Necessary: Legal council, CPA </li></ul></ul><ul><ul><li>Supporting: Intermediaries, Consulting Firms, Incubators </li></ul></ul>Bootstrapping Angels Venture Capital Corporate Ventures Equity Holding Company
  5. 5. Table 12-1: Common Sources of Debt and Equity Financing for Startups Source: “Venture Capital and Angels Provide Just Over 7% of Funding for Private Companies.” Business Wire, April 23, 1999.
  6. 6. Exhibit 12-4: Summary of Primary Financial Capital Resources Note: There are additional sources of financing that provide services in exchange for equity rather than cash for equity (incubators, consulting firms, etc.) Items italicized for angels are those criteria common to multiple sources of funding <ul><li>Requires a large equity stake, and thus control </li></ul>Cons Pros <ul><li>Potential conflict of interest with parent company can cause problems </li></ul><ul><li>Complicated intellectual property rights discussions if business later seeks VC funding </li></ul><ul><li>Slow to make investment decisions </li></ul><ul><li>Objectives are primarily financial, which can create conflicts with the entrepreneur’s vision for the company </li></ul><ul><li>Requires high equity stake </li></ul><ul><li>Entrepreneur must give up a certain degree of control </li></ul><ul><li>Difficult to locate and obtain </li></ul><ul><li>Difficult to locate </li></ul><ul><li>Investors can decide to get very operationally involved with the startup, creating potential conflicts with the entrepreneur </li></ul><ul><li>One angel alone is unlikely to provide enough capital for operations </li></ul><ul><li>Dealings with multiple angels can cause operational and logistical complications </li></ul><ul><li>Unlikely to provide enough cash to sustain extended growth </li></ul><ul><li>Difficult for e-commerce startups to obtain given criteria for investment </li></ul><ul><li>Certain terms could carry a costly implied interest rate </li></ul><ul><li>Difficult for e-commerce startups to obtain </li></ul><ul><li>Patient capital due to operational focus </li></ul><ul><li>Ability to learn from other portfolio companies </li></ul><ul><li>Investors usually very experienced in specific industry </li></ul><ul><li>Usually defined by particular focus of the holding company </li></ul><ul><li>Items italicized for angels </li></ul><ul><li>Company that offers cash in exchange for equity in companies with an operational, rather than financial focus. Equity stakes typically range from 25-50%. </li></ul>Holding Company <ul><li>Provide operational expertise </li></ul><ul><li>Provide credibility and visibility for the business through corporations brand name </li></ul><ul><li>Provide large amounts of cash </li></ul><ul><li>Financing terms tend to be more favorable than that of VCs </li></ul><ul><li>Patient capital </li></ul><ul><li>Degree to which business complements corporations current strategic objectives </li></ul><ul><li>Right to utilize technology developed in the venture </li></ul><ul><li>Items italicized for angels </li></ul><ul><li>Venture funds set up by large corporations </li></ul>Corporate Ventures <ul><li>Able to provide large amounts of cash to sustain growth </li></ul><ul><li>Expertise in particular industries can provide coaching expertise and industry contacts to create a management team </li></ul><ul><li>Quality firm provides name brand recognition and publicity </li></ul><ul><li>Referral through network connections </li></ul><ul><li>Potential return on investment in three to five years </li></ul><ul><li>Firm’s strategic objectives </li></ul><ul><li>Existence of proprietary technology or concept for sustainable advantage </li></ul><ul><li>Items italicized for angels </li></ul><ul><li>Private partnerships or closely held corporations that raise money from investors which is invested in companies that hold promise for a liquidity event </li></ul>Venture Capital <ul><li>Angel can provide expertise, networks, and credibility to help the entrepreneur build the business </li></ul><ul><li>Can provide referral to additional funding sources </li></ul><ul><li>Tend to negotiate terms more favorable for entrepreneurs than VCs </li></ul><ul><li>Referral through network connections </li></ul><ul><li>Businesses in early stages of development </li></ul><ul><li>Personal objectives for investment </li></ul><ul><li>Market potential </li></ul><ul><li>Nature of the business concept </li></ul><ul><li>Quality of management team (if any) </li></ul><ul><li>Track record of the entrepreneur </li></ul><ul><li>Wealthy individuals who invest personal capital in startups </li></ul>Angels <ul><li>Retain firm equity </li></ul><ul><li>Gain valuable operational experience </li></ul><ul><li>Entrepreneur’s belief in his own business </li></ul><ul><li>Using personal resources to finance the early stages of a startup </li></ul>Bootstrapping Equity Financing <ul><li>Provides cash without losing equity </li></ul><ul><li>Likelihood of loan repayment </li></ul><ul><li>Amount of cash on hand </li></ul><ul><li>Existence of positive cash flow </li></ul><ul><li>Current burn rate </li></ul><ul><li>Typically installment loans where business borrows a specific amount of money with an interest rate for a specified length of time to be repaid in installments until paid in full </li></ul>Commercial Bank Loan <ul><li>Can provide an interest free loan </li></ul><ul><li>Those buyers with an established track record of making prompt payments </li></ul>Credit extended to a business by its suppliers Trade Credit Debt Financing Key Advantages & Disadvantages of Use Primary Criteria for Investment Selection What is it? Source
  7. 8. Table 12-2: First Quarter 2000 Top Twenty Venture Deal Makers [i] Source: Pricewaterhousecoopers MoneyTree Survey Q1 2000. Firm Location Deals BancBoston Capital and Ventures Boston, MA 45 Chase Capital Partners New York, NY 45 Bessemer Venture Partners Wellesley Hills, MA 33 New Enterprise Associates Baltimore, MD 29 Oak Investment Partners Westport, CT 28 Accel Partners Palo Alto, CA 26 US Venture Partners Menlo Park, CA 26 Sprout Group New York, NY 23 Norwest Equity Partners Minneapolis, MN 22 Crescendo Venture Management LLC Minneapolis, MN 21 Crosspoint Venture Partners Woodside, CA 21 Sequoia Capital Menlo Park, CA 21 Battery Ventures L.P. Wellesley, MA 20 Canaan Partners Rowayton, CT 20 CMGI Ventures Andover, MA 20 Mayfield Fund Menlo Park, CA 20 Charler River Ventures Waltham, MA 19 Mellon Ventures Inc. Pittsburgh, PA 19 Technology Crossover Ventures (TCV) Palo Alto, CA 19 Draper Fisher Jurvetson Redwood City, CA 18
  8. 9. Table 12-3: Fourth Quarter 2000 Corporate Venture Funds. Source: Jim Evans. “Corporate Venture Grows Bold.” The Industry Standard. January 10, 2001. Company Amount of Fund (MM) Target Sector Compaq $100 Data storage hardware, software and services Corning $50 Fiber-optic networking technologies Intel $300 Network infrastructure, wireless Koor Industries (KOR) $250 Israeli-based information technology Liberate Technologies (LBRT) $50 Interactive television Merck $100 Health-care information technology Nokia $500 Wireless applications and hardware Qualcomm $500 Digital wireless technology and services
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.

×