Your SlideShare is downloading. ×
0
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Entrepreneurial marketing
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Entrepreneurial marketing

273

Published on

Published in: Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
273
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
9
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. ENTREPRENEURIAL MARKETINGMETHODOLOGYLEGALCAPITALBy:MBA, Sajad Nazarinazary_sajjad@yahoo.com1
  • 2. The Pathways to New Ventures for EntrepreneursAcquiring anExisting VentureCreating theNew VentureObtaining aFranchisePathways to NewVentures2
  • 3. Creating New VenturesApproaches toCreating a NewVentureNew-NewApproachNew-OldApproach3
  • 4. Emerging OpportunitiesGreen ProductsOrganic foodsOrganic fibers/textilesAlternative EnergySolarBiofuelFuel cellsEnergy conservationHealth CareHealthy foodSchool and govt.-sponsored programsExerciseYogaNiche gymsChildrenNonmedicalPre-assisted livingAssisted living transitionservicesNiche ConsumablesWineChocolateBurgersCoffee housesExotic saladsHome Automation andMedia StorageLighting controlSecurity systemsEnergy managementComfort managementEntertainment systemsNetworked kitchenappliancesEmerging Internet Opportunities Emerging Technology OpportunitiesMobile AdvertisingCell phonesPDAsConcierge ServicesNiche Social NetworksSeniorsMusic fansGroups of local usersPet ownersDating groupsVirtual EconomiesOnline auctionsEducational TutoringHuman Resources ServicesMatchmakingVirtual HROnline StaffingNanotechnologyWireless TechnologyTrends Creating Business Opportunities4
  • 5. Sources of New Business IdeasAmong Men and Women5
  • 6. Examination of the Financial Picture• Upside gain and downside loss expectations• The profits the business can make and the losses it can suffer.• How much money will the enterprise take in if all goes well?• How much will it gross if operations run as expected?• How much will it lose if operations do not work out well?• Risk vs. reward analysis• Points out the importance of getting an adequate return on theamount of money risked.6
  • 7. Acquisition of a Business VentureAcquiring aBusiness VentureAsking Key QuestionsExaminationofOpportunitiesEvaluation ofthe VenturePersonalPreferences7
  • 8. Advantages of Acquiring an Ongoing VentureBuying anOngoingVenturePurchasing at aGood PriceReduced Timeand EffortLess Fear aboutSuccessful FutureOperation8
  • 9. Evaluation of the Selected VentureFactors AffectingSale of theVentureAssets of theVentureProfits, Sales, andOperating RatiosThe BusinessEnvironment9
  • 10. Key Questions to Ask• Why is this business being sold?• What is the physical condition of the business?• What is the condition of the inventory?• What is the state of the firm’s other assets?• How many employees will remain?• What type of competition does the business face?• What does the firm’s financial picture look like?10
  • 11. Negotiating the DealFactors AffectingNegotiationsAlternativesTime PressureInformation11
  • 12. 1. Have a seller retain a minority interest in the business.2. Never rely on oral statements.3. Have an accountant examine the books and check thecash flow.4. Investigate, investigate, investigate!5. Interview the employees.6. Find out the real reason the company is for sale.―Do’s and Don’ts of Buying a Business‖12
  • 13. Franchising: The Hybrid• Franchising• Any arrangement in which the owner of a trademark, trade name,or copyright has licensed others to use it in selling goods orservices.• Franchisee• A purchaser of a franchise• Franchisor• The seller of the franchise13
  • 14. How a Franchise Works• Franchisee Obligations:1. Make a financial investment in the operation.2. Obtain and maintain a standardized inventory and/orequipment package usually purchased from the franchisor.3. Maintain a specified quality of performance.4. Follow a franchise fee as well as a percentage of the grossrevenues.5. Engage in a continuing business relationship.14
  • 15. How a Franchise Works (cont’d)• Franchisor Provides:1. The company name that provides drawing power.2. Identifying symbols, logos, designs, and facilities.3. Professional management training for each independentunit’s staff.4. Sale of merchandise necessary for the unit’s operation,equipment to run the operation, and the food or materialsneeded for the final product.5. Financial assistance, if needed.6. Continuing aid and guidance to ensure that everything isdone in accordance with the contract.15
  • 16. Franchising• Advantages• Training and guidance• Brand-name appeal• A proven track record• Financial assistance• Disadvantages• Franchise fees• Franchisor control• Unfulfilled promises offranchisor16
  • 17. 1. The basic franchising fee2. Insurance3. Opening product inventory4. Remodeling and leasehold improvements.5. Utility charges6. Payroll7. Debt service8. Bookkeeping and accounting fees9. Legal and professional fees10. State and local licenses, permits, and certificatesThe Cost of Franchising17
  • 18. Franchise Law• The Uniform Franchise Offering Circular(UFOC)• Is divided into 23 items that provide differentsegments of information for prospectivefranchisees.• Was developed to provide guidance incomplying with the Franchise Disclosure Rulethat requires franchisors to make full presaledisclosure about their franchises.18
  • 19. -The Decision to Purchase a Franchise: Process Model19
  • 20. Evaluating the Franchise OpportunitySeekingProfessional HelpInvestigating theFranchisorFinding ReliableInformationThe FranchiseOpportunity Decision20
  • 21. Legal Challenges for Entrepreneurial Ventures21
  • 22. Legal Challenges for the Entrepreneurial VentureGrowth andContinuity of theVentureLegalConceptsInception of theVentureThe OngoingVenture22
  • 23. Major Legal Concepts and Entrepreneurial Ventures• I. Inception of an Entrepreneurial Venture• A. Laws governing intellectual property• 1. Patents• 2. Copyrights• 3. Trademarks• B. Forms of business organization• 1. Sole proprietorship• 2. Partnership• 3. Corporation• 4. Franchise• C. Tax considerations• D. Capital formation• E. Liability questions23
  • 24. Major Legal Concepts and Entrepreneurial Ventures• II. Ongoing Venture: Business Development andTransactions• A. Personnel Law• 1. Hiring and firing policies• 2. Equal Employment Opportunity Commission• 3. Collective bargaining• B. Contract Law• 1. Legal contracts• 2. Sales contracts• 3. Leases24
  • 25. Major Legal Concepts and Entrepreneurial Ventures• III. Growth and Continuity of an Entrepreneurial Venture• A. Tax considerations• 1. Federal, state, and local• 2. Payroll• 3. Incentives• B. Governmental regulations• 1. Zoning (property)• 2. Administrative agencies (regulatory)• 3. Consumer law• C. Continuity of ownership rights• 1. Property laws and ownership• 2. Wills, trusts, and ownership• 3. Bankruptcy25
  • 26. Intellectual Property Protection: Patents• Patent• Provides the owner with exclusive rights to hold, transfer, andlicense the production and sale of the product or process as anintellectual property right.• Design patents last for 14 years; all others last for 20 years.• What Items Qualify for Patent Protection?• Processes, machines, products, plants, compositions of elements(chemical compounds), and improvements on already existingitems.26
  • 27. Securing a Patent• Rule 1: Pursue patents that are broad, arecommercially significant, and offer astrong position.• Rule 2: Prepare a patent plan in detail.• Rule 3: Have your actions relate to your originalpatent plan.• Rule 4: Establish an infringement budget.• Rule 5: Evaluate the patent plan strategically.27
  • 28. Intellectual Property Protection: Patents• Patent Application1. Specification: the text of a patent and may include anyaccompanying illustrations.a. An introduction explaining why the invention will be useful.b. A description of prior art considered similar to the invention.c. A summary of the essence of the technology/invention, itsdifferences from prior art and requisite features.d. A description of the invention, including anything remotely relevant,reference to variations, and number bounds.e. Examples and/or experimental results, in full detail.2. Claims: a series of short paragraphs, each of which identifies aparticular feature or combination of features that is protected bythe patent.28
  • 29. Continued onfollowing slideThe Patent Process: FromApplication toAllowance and Issue29
  • 30. Continued onfollowing slideThe Patent Process: FromApplication toAllowance and Issue (cont’d)30
  • 31. The Patent Process:FromApplication toAllowance and Issue (cont’d)31
  • 32. Intellectual Property Protection: Copyrights• Copyright• Provides exclusive rights to creative individuals for the protection oftheir literary or artistic productions.• Duration: life of the author plus 70 years.• The copyright owner has the rights to:• Reproduce the work• Prepare derivative works based on it• Distribute copies of the work by sale or otherwise• Perform the work publicly• Display the work publicly• Sell or transfer individual rights32
  • 33. Intellectual Property Protection: Copyrights• Copyright Protection• The material must be in a tangible form so it can be communicatedor reproduced.• It also must be the author’s own work and thus the product of his orher skill or judgment.• Formal registration of a copyright is with the Copyright Office of theLibrary of Congress.33
  • 34. Copyrights (cont’d)• Fair Use Doctrine• Reproduction of a copyright work for purposes such as criticism,comment, news reporting, teaching (including multiple copies forclassroom use), scholarship, or research is not an infringement ofcopyright.• Protected Ideas?• The Copyright Act specifically excludes copyright protection for any―idea, procedure, process, system, method of operation, concept,principle, or discovery, regardless of the form in which it isdescribed, explained, illustrated, or embodied.‖34
  • 35. Intellectual Property Protection: Trademarks• Trademark• A distinctive name, mark, symbol, or motto identified with acompany’s product(s) and registered at the Patent and TrademarkOffice• Advantages of Trademark Registration• Nationwide constructive notice of the owner’s right to use the mark• Bureau of Customs protection against importers using the mark• Incontestability of the mark after five years35
  • 36. Intellectual Property Protection: Trademarks• Trademark Duration• Current registrations are good for 10 years with the possibility forcontinuous renewal every 10 years.• A trademark may be invalidated in four specific ways:• Cancellation proceedings• Cleaning-out procedure• Abandonment• Generic meaning36
  • 37. Trademarks (cont’d)• Avoiding the Trademark Pitfalls• Rule 1: Never select a corporate name or a mark without firstdoing a trademark search.• Rule 2: If your attorney says you have a potential problem with amark, trust his or her judgment.• Rule 3: Seek a coined or a fanciful name or mark before yousettle for a descriptive or a highly suggestive one.• Rule 4: Whenever marketing or other considerations dictate theuse of a name or a mark that is highly suggestive of theproduct, select a distinctive logotype for the descriptive orsuggestive words.• Rule 5: Avoid abbreviations and acronyms wherever possible,and when no alternative is acceptable, select a distinctivelogotype in which the abbreviation or acronym appears.37
  • 38. Trade Secrets• Trade Secret• Business processes and information that cannot be patented,copyrighted, or trademarked but makes an individual companyunique and has value to a competitor could be a trade secret.• Information Is Considered a Trade Secret:• If it is not known by the competition.• If the business would lose its advantage if the competition were toobtain it.• If the owner has taken reasonable steps to protect the secret fromdisclosure.38
  • 39. Trade Secrets• Examples of Trade Secrets:• Customer lists• Strategic plans• Research and development• Pricing information• Marketing techniques• Production techniques39
  • 40. Trademark Protection on the Internet• Cyberlaw• The emerging body of law governing cyberspace.• Domain Names (Internet Addresses)• The principles of trademark law apply to domain names(Cybersquatters).• Unauthorized use of another’s mark in a domain namemay constitute trademark infringement.40
  • 41. Identifying Legal Structures• A legal structure that will best suits the demands of theventure addresses:• Changing tax laws• Liability situations• The availability of capital• The complexity of business formation.• Three primary legal forms of organization• Sole proprietorship• Partnership• Corporation41
  • 42. Sole Proprietorships• Sole Proprietorship• A business that is owned and operated by one person. Theenterprise has no existence apart from its owner.• To establish a sole proprietorship, a person merely needs to obtainwhatever local and state licenses are necessary to beginoperations.42
  • 43. Sole Proprietorships (cont’d)• Advantages• Ease of formation• Sole ownership of profits• Decision making andcontrol vested in oneowner• Flexibility• Relative freedom fromgovernmental control• Freedom from corporatebusiness taxes• Disadvantages• Unlimited liability• Lack of continuity• Less available capital• Relative difficultyobtaining long-termfinancing• Relatively limitedviewpoint andexperience43
  • 44. Partnerships• Partnership• An association of two or more persons acting as co-owners of abusiness for profit.• The Revised Uniform Partnership Act (RUPA) acts the guide forlegal requirements in forming partnerships.• Articles of Partnership• Clearly outline the financial and managerial contributions of thepartners and carefully delineate the roles in the partnershiprelationship.44
  • 45. Articles of Partnership Items• Name, purpose, domicile• Duration of agreement• Character of partners (general orlimited, active or silent)• Contributions by partners (atinception, at later date)• Division of profits and losses• Draws or salaries• Rights of continuing partner(s)• Death of a partner (dissolution andwindup)• Release of debts• Business expenses (method ofhandling)• Separate debts• Authority (individual partner’sauthority on business conduct)• Books, records, and method ofaccounting• Sale of partnership interest• Arbitration• Settlement of disputes• Additions, alterations, ormodifications of partnership• Required and prohibited acts• Absence and disability• Employee management45
  • 46. Partnerships (cont’d)• Advantages• Ease of formation• Direct rewards• Growth and performancefacilitated• Flexibility• Relative freedom fromgovernmental controland regulation• Possible tax advantage• Disadvantages• Unlimited liability of atleast one partner• Lack of continuity• Relative difficultyobtaining large sums ofcapital• Bound by the acts of justone partner• Difficulty of disposing ofpartnership interest46
  • 47. Corporations• Corporation• ―An artificial being, invisible, intangible, and existing only incontemplation of the law‖.–Supreme Court Justice John Marshall• As such, a corporation is a separate legal entity apart from theindividuals who own it.• Forming a Corporation• Subscriptions for capital stock must be taken and a tentativeorganization created.• Approval (a charter) must be obtained from the secretary of state inthe state in which the corporation is to be formed.47
  • 48. Corporations (cont’d)• Advantages• Limited liability• Transfer of ownership• Unlimited life• Relative ease ofsecuring capital in largeamounts• Increased ability andexpertise• Disadvantages• Activity restrictions• Lack of representation• Regulation• Organizing expenses• Double taxation48
  • 49. Specific Forms of Partnerships and Corporations (cont’d)• S Corporation• Takes its name from Subchapter S of the Internal Revenue Code.• Is commonly known as a ―tax option corporation‖—it is taxedsimilarly to a partnership.• Avoids the imposition of income taxes at the corporate level yetretain the benefits of a corporate form (especially the limitedliability).49
  • 50. Guidelines for S Corporations• The corporation must be a domestic corporation.• The corporation must not be a member of an affiliatedgroup of corporations.• The shareholders of the corporation must be individuals,estates, or certain trusts.• Corporations, partnerships, and nonqualifying trustscannot be shareholders.• The corporation must have 100 or fewer shareholders.• Only one class of stock, although not all shareholdersmay have the same voting rights.• No shareholder may be a nonresident alien.50
  • 51. Specific Forms of Partnerships and Corporations• Limited Partnerships• Have two or more partners without responsibility for managementand without liability for losses beyond their investment with the rightto share in the profits.• Formed under The Uniform Limited Partnership Act (ULPA).• Limited Liability Partnership (LLP)• Allows professionals the tax benefits of a partnership whileavoiding personal liability for the malpractice of other partners.51
  • 52. Specific Forms of Partnerships and Corporations (cont’d)• Limited Liability Limited Partnership (LLLP)• has elected limited liability status for all of its partners, includinggeneral partners.• Limited Liability Company (LLC)• A hybrid form of business enterprise that offers the limited liability ofa corporation but the tax advantages of a partnership.• Disadvantage is that LLC statutes differ from state to state, andthus any firm engaged in multi-state operations may facedifficulties.52
  • 53. 1. A limited partnership or LLLP may be created only in accordance with a statute.2. A limited partnership or LLLP has two types of partners: general partners andlimited partners. It must have one or more of each type.3. All partners, limited and general, share the profits of the business.4. Each limited partner has liability limited to his capital contribution to the business.Each general partner of a limited partnership has unlimited liability for the obligationsof the business. A general partner in an LLLP, however, has liability limited to hiscapital contribution.5. Each general partner has a right to manage the business, and she is an agent of thelimited partnership or LLLP. A limited partner has no right to manage the business orto act as its agent, but he does have the right to vote on fundamental matters. Alimited partner they manage the business, yet retain limited liability for partnershipobligations.6. General partners, as agents, are fiduciaries of the business. Limited partners arenot fiduciaries.7. A partner’s rights in a limited partnership or LLLP are not freely transferable. Atransferee of a general or limited partnership interest in not a partner, but is entitledonly to the transferring partner’s share of capital and profits.8. The death or other withdrawal of a partner does not dissolve a limited partnership orLLLP, unless there is no surviving general partner.9. Usually, a limited partnership or LLLP is taxed like a partnership.Principal Characteristics of Limited Partnerships and LLLPs53
  • 54. Understanding Bankruptcy• Bankruptcy• When a venture’s financial obligations are greater than its assetsand it is unable to meet its obligations.• The Bankruptcy Act• A federal law that provides for specific procedures for handlinginsolvent debtors—those who are unable to pay debts as theybecome due.• Ensures that the property of the debtor is distributed fairly to thecreditors.• Protects creditors from having debtors unreasonably diminish theirassets.• Protects debtors from extreme demands by creditors.54
  • 55. The search for entrepreneurial capital55
  • 56. Source: ―Successful Angel Investing,‖ Indiana Venture Center, March 2008.Who Is Funding Entrepreneurial Start-Up Companies?56
  • 57. Debt Versus Equity• Debt Financing• Secured financing of a new venture that involves a payback of thefunds plus a fee (interest for the use of the money).• Equity Financing• Involves the sale (exchange) of some of the ownership interest inthe venture in return for an unsecured investment in the firm.57
  • 58. Debt Financing• Commercial Banks• Make 1-5 year intermediate-term loans secured by collateral(receivables, inventories, or other assets).• Questions in securing a loan:• What do you plan to do with the money?• How much do you need?• When do you need it?• How long will you need it?• How will you repay the loan?58
  • 59. Debt Financing (cont’d)• Advantages• No relinquishment ofownership is required.• More borrowing allowsfor potentially greaterreturn on equity.• During periods of lowinterest rates, theopportunity cost isjustified since the cost ofborrowing is low.• Disadvantages• Regular (monthly)interest payments arerequired.• Continual cash-flowproblems can beintensified because ofpayback responsibility.• Heavy use of debt caninhibit growth anddevelopment.59
  • 60. Business Type Financed Financing TermDebtSourceStart-UpFirmExistingFirmShortTermIntermediateTermLongTermTrade credit Yes Yes Yes No NoCommercialbanksSometimes, butonly if strongcapital orcollateral existsYes Frequently Sometimes SeldomFinancecompaniesSeldom Yes Most frequent Yes SeldomFactors Seldom Yes Most frequent Seldom NoLeasingcompaniesSeldom Yes No Most frequent OccasionallyMutual savingsbanks andsavings-and-loanassociationsSeldom Real estateventures onlyNo No Real estateventures onlyInsurancecompaniesRarely Yes No No YesCommon Debt Sources60
  • 61. Other Debt Financing Sources• Trade Credit• Credit given by suppliers who sell goods on account.• Accounts Receivable Financing• Short-term financing that involves either the pledge of receivablesas collateral for a loan or the sale of receivables at a discountedvalue (factoring).• Finance Companies• Asset-based lenders that lend money against assets such asreceivables, inventory, and equipment.61
  • 62. Other Debt Financing Sources (cont’d)• Equity Instruments• Give investors a share of the ownership.• Loan with warrants provide the investor with the right to buy stock at afixed price at some future date.• Convertible debentures are unsecured loans that can be convertedinto stock.• Preferred stock is equity that gives investors a preferred place amongthe creditors in the event the venture is dissolved.• Common stock is the most basic form of ownership and is often aresold through public or private offerings.62
  • 63. Equity Financing• Equity Financing• Money invested in the venture with no legal obligation forentrepreneurs to repay the principal amount or pay interest on it.• Funding sources: public offering and private placement• Public Offering• ―Going public‖ refers to a corporation’s raising capital through thesale of securities on the stock markets.• Initial Public Offerings (IPOs): new issues of common stock63
  • 64. Public Offerings• Advantages• Size of capital amount• Liquidity• Value• Image• Disadvantages• Costs• Disclosure• Requirements• Shareholder pressure64
  • 65. Investors• ―Sophisticated‖ Investors• Wealthy individuals who invest regularly in new and early- and late-stage ventures and are knowledgeable about the technical andcommercial opportunities and risks of the business in which theyinvest.65
  • 66. The Venture Capital Market• Venture Capitalists• Are valuable and powerful source of equity funding for newventures that provide:• Capital for start-ups and expansion• Market research and strategy• Management-consulting, audits and evaluation• Contacts—customers, suppliers, and businesspeople• Assistance in negotiating technical agreements• Help in establishing management and accounting controls• Help in employee recruitment and employee agreements• Help in risk management and with insurance programs• Counseling and guidance in complying with government regulations66
  • 67. Stage Amount DealsExpansion $10.8 billion 1,235Later Stage $12.2 billion 1,168Early Stage $5.2 billion 995Start up/ Seed $1.2 billion 415**data from 2007Venture Capital Investments Comparison by Stages67
  • 68. Recent Developments in Venture CapitalMore-ExperiencedVenture InvestorsEmergence ofFeeder FundsDecrease in SmallStart-upInvestmentsMore SophisticatedLegal EnvironmentMore-SpecializedVenture Funds68
  • 69. Investment Agreement Provisions• Choice of securities• Preferred stock, common stock, convertible debt, and so forth• Control issues• Who maintains voting power• Evaluation issues and financial covenants• Ability to proceed with mergers and acquisitions• Remedies for breach of contract• Rescission of the contract or monetary damages69
  • 70. Dispelling Venture Capital Myths• Myth 1: Venture capital firms want to own control of yourcompany and tell you how to run the business.• Myth 2: Venture capitalists are satisfied with areasonable return on investment.• Myth 3: Venture capitalists are quick to invest.• Myth 4: Venture capitalists are interested in backing newideas or high-technology inventions—management is a secondary consideration.• Myth 5: Venture capitalists need only basic summaryinformation before they make an investment.70
  • 71. Venture Capitalists and Business PlansProposalSizeInvestmentRecoveryCompetitiveAdvantageCompanyManagementFinancialProjections71
  • 72. Factors in Successful Funding of VenturesSuccess in SeekingFunding(Demand Side)Characteristics ofthe EnterpriseCharacteristicsof theRequestSources ofAdviceCharacteristics ofthe Entrepreneurs72
  • 73. Level 4Fully developed product/serviceEstablished marketSatisfied users4/1 4/2 4/3 4/4Level 3Fully developed product/serviceFew users as of yetMarket assumed3/1 3/2 3/3 3/4Level 2Operable pilot or prototypeNot yet developed for productionMarket assumed2/1 2/2 2/3 2/4Level 1Product/service ideaNot yet operableMarket assumed1/1 1/2 1/3 1/4Level 1Individual founder/entrepreneurLevel 2Two foundersOther personnel notyet identifiedLevel 3Partial managementteam—membersidentified to joincompany whenfunding receivedLevel 4Fully staffed,experiencedmanagement teamRiskiestRiskiestStatus of ManagementStatusofProduct/ServiceVentureCapitalist System of Evaluating Product/Serviceand Management73
  • 74. Criteria for Evaluating New-Venture Proposals• Major Categories of Venture Capitalist Screening Criteria:• Entrepreneur’s personality• Entrepreneur’s experience• Product or service characteristics• Market characteristics• Financial considerations• Nature of the venture team74
  • 75. Venture Capital Firm Requirements• Must fit within lending guidelines of venture firmfor stage and size of investment• Proposed business must be within geographicarea of interest• Prefer proposals recommended by someoneknown to venture capitalist• Proposed industry must be kind of industryinvested in by venture firmNature of the Proposed Business• Projected growth should be relatively large withinfive years of investmentEconomic Environment of Proposed Industry• Industry must be capable of long-term growthand profitability• Economic environment should be favorable to anew entrantProposed Business Strategy• Selection of distribution channel(s) must befeasible• Product must demonstrate defendablecompetitive positionFinancial Information on the ProposedBusiness• Financial projections should be realisticProposal Characteristics• Must have full information• Should be a reasonable length, be easy toscan, have an executive summary, and beprofessionally presented• Proposal must contain a balancedpresentation• Use graphics and large print to emphasizekey pointsEntrepreneur/Team Characteristics• Must have relevant experience• Should have a balanced management teamin place• Management must be willing to work withventure partners• Entrepreneur who has successfully startedprevious business given specialconsiderationVenture Capitalists’ Screening Criteria75
  • 76. Venture Capitalist Evaluation Process• Stage 1: Initial Screening• This is a quick review of the basic venture to see if it meets theventure capitalist’s particular interests.• Stage 2: Evaluation of the Business Plan• This is where a detailed reading of the plan is done in order toevaluate the factors mentioned earlier.• Stage 3: Oral Presentation• The entrepreneur verbally presents the plan to the venturecapitalist.• Stage 4: Final Evaluation• After analyzing the plan and visiting with suppliers, customers,consultants, and others, the venture capitalist makes a finaldecision.76
  • 77. TEAM MUST:• Be able to adapt• Know the competition• Be able to manage rapid growth• Be able to manage an industry leader• Have relevant background and industry experience• Show financial commitment to firm, not just sweat equity• Be strong with a proven track record in the industryunless the company is a start-up or seed investmentPRODUCT MUST:• Be real and work• Be unique• Be proprietary• Meet a well-defined need in the marketplace• Demonstrate potential for product expansion, to avoidbeing a one-product company• Emphasize usability• Solve a problem or improve a process significantly• Be for mass production with potential for cost reductionMARKET MUST:• Have current customers and the potential for many more• Grow rapidly (25% to 45% per year)• Have a potential market size in excess of $250 million• Show where and how you are competing in themarketplace• Have potential to become a market leader• Outline any barriers to entryBUSINESS PLAN MUST:• Tell the full story, not just one chapter• Promote a company, not just a product• Be compelling• Show the potential for rapid growth and knowledge ofyour industry, especially competition and market vision• Include milestones for measuring performance• Show how you plan to beat or exceed those milestones• Address all of the key areas• Detail projections and assumptions; be realistic• Serve as a sales document• Include a strong and well-written executive summary• Show excitement and color• Show superior rate of return (a minimum of 30% to 40%per year) with a clear exit strategyEssential Elements for a Successful Presentation to aVenture Capitalist77
  • 78. Informal Risk Capital• Business Angel Financing• Wealthy individuals in the United States are looking for investmentopportunities.• They are referred to as ―business angels‖ or informalrisk capitalists.• Types of Angel Investors• Corporate angels• Entrepreneurial angels• Enthusiast angles• Micromanagement angels• Professional angels78
  • 79. Main Differences Business Angels Venture CapitalistsPersonal Entrepreneurs InvestorsFirms funded Small, early-stage Large, matureDue diligence done Minimal ExtensiveLocation of investment Of concern Not importantContract used Simple ComprehensiveMonitoring after investment Active, hands-on StrategicExiting the firm Of lesser concern Highly importantRate of return Of lesser concern Highly importantMain Differences Between BusinessAngels andVenture Capitalists79
  • 80. Thank you80

×