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  1. 1. Getting Your E-Business off the Ground Chapter 5
  2. 2. Startup Financing <ul><li>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 . </li></ul>
  3. 3. Personal Assets <ul><li>Sweat Equity- You put in your time and effort </li></ul><ul><li>Mortgage Personal Assets –you put up property as collateral to a bank </li></ul><ul><li>Personal loans – you take a loan without collateral (higher interest rate). </li></ul><ul><li>Credit card/credit line advance –similar to a personal loan. (Usually a high interest rate.) </li></ul>
  4. 4. Friends and Family <ul><li>Friends and family investors are family members or friends who invest in a business. </li></ul><ul><li>Many entrepreneurs successfully solicit startup money from their network of friends and family. </li></ul><ul><li>A network of potential friends and family investors extends beyond immediate family members and friends to their families and friends and their families and friends. </li></ul>
  5. 5. Friends and Family <ul><li>Advantage: It may be the easiest money you’ll ever get. </li></ul><ul><li>Disadvantage: You are getting money from Friends or Family and putting their MONEY at RISK. </li></ul>
  6. 6. Angel Investors <ul><li>The term angel investor originally referred to wealthy investors in Broadway theatrical productions. </li></ul><ul><li>In this context it refers to any individual with the assets and interest to invest in a startup business. </li></ul><ul><li>Not the same as a Venture Capitalist </li></ul><ul><li>May be members of an Investment club. </li></ul>
  7. 7. Touched by an Angel <ul><li>Angels can be difficult to find. </li></ul><ul><li>Angels sometimes appear unexpectedly. </li></ul><ul><li>The key is networking and research. </li></ul>
  8. 8. An Angel Investment Club
  9. 9. Venture Capital Investors <ul><li>Venture capital (VC) firms are organized to invest specifically in new business startups. </li></ul><ul><li>Typically they take a significant equity interest in the firm with in exchange for providing startup capital. </li></ul>
  10. 10. Venture Capital Investors <ul><li>They may also provide expertise. </li></ul><ul><li>They 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. </li></ul><ul><li>There are many established VC firms. </li></ul>
  11. 11. Venture Capital Firm
  12. 12. Business Incubators <ul><li>Business incubators have traditionally been government- or university-supported nonprofit organizations that nurture new businesses. </li></ul><ul><li>Provide startup companies with management advice, office space, networking opportunities, and other critical startup services. </li></ul>
  13. 13. Business Incubators <ul><li>Commercial business incubators offer startup e-businesses access to the same services offered by nonprofit incubators. </li></ul><ul><li>Commercial business incubators are primarily interested in high-technology businesses that can become financially viable quickly and leave the incubator within six months to a year. </li></ul>
  14. 14. NASA Ames Incubator
  15. 15. Batavia Industrial Center
  16. 16. Incubators <ul><li>May take an equity interest as well as charge for services. </li></ul><ul><li>Not for profit incubators may use returns from equity to reinvest. </li></ul>
  17. 17. Idealab!
  18. 18. Internet Accelerators <ul><li>Some e-business incubators such as iStart ventures and Katalyst style themselves as internet accelerators. </li></ul><ul><li>An internet accelerator is a commercial business incubator whose goal is to get a new e-business up and running quickly. </li></ul>
  19. 19. Keiretsu Providers <ul><li>Keiretsu is a Japanese term that refers to a network of businesses that do business with each other as a means of mutual security. </li></ul><ul><li>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 . </li></ul>
  20. 20. Questions to Ask and Answer <ul><li>Does the business incubator offer seed money or venture capital funds linked to the incubator? </li></ul><ul><li>What specifically will the business incubator do to help your e-business? </li></ul><ul><li>What is the business incubator’s track record with other e-business startups? </li></ul>
  21. 21. Questions to Ask and Answer <ul><li>How much will it cost your e-business—in cash and equity—to be incubated? </li></ul><ul><li>How long is the incubation period? </li></ul><ul><li>How do you feel about the business incubator’s environment? </li></ul>
  22. 22. Self Incubation <ul><li>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. </li></ul>
  23. 23. Pitching Your Idea <ul><li>The first meeting with angel investors or VCs is a sales meeting. </li></ul><ul><li>Your immediate objective in a first meeting is to get potential investors excited about your e-business idea. </li></ul>
  24. 24. And Here’s the Pitch <ul><li>Define your product or service </li></ul><ul><li>Define who will buy your product or service and how much they will pay for it </li></ul><ul><li>Define your key industry competitors </li></ul><ul><li>E xplain how much it will cost to provide the product or service </li></ul>
  25. 25. And Here’s the Pitch <ul><li>Explain when the investors can expect your e-business to be profitable </li></ul><ul><li>Illustrate the planned exit strategies both for investors and for your e-business principals </li></ul><ul><li>Detail how much money you are looking for, and how it will be spent </li></ul>