Getting Your E-Business off the Ground


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Getting Your E-Business off the Ground

  1. 1. Getting Your E-Business off the Ground Chapter 5
  2. 2. The Entrepreneurial Process
  3. 3. 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><ul><li>Private placement memorandum (p. 173) </li></ul><ul><ul><li>Fed/state securities may require an attorney to prepare </li></ul></ul><ul><ul><li>Discloses the benefits and risks of an investment in your e-business to potential private investors </li></ul></ul>
  4. 4. Personal Assets <ul><li>Sweat Equity: putting in time and effort </li></ul><ul><li>Mortgage Personal Assets: put up property as collateral to a bank </li></ul><ul><li>Personal loans: taking 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>
  5. 5. 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>
  6. 6. <ul><li>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 . </li></ul><ul><li>Advantages? </li></ul><ul><li>Disadvantage? </li></ul>Friends and Family (cont’d)
  7. 7. 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>
  8. 8. “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 keys are networking and research. </li></ul><ul><li>Usually provide small-medium investments </li></ul><ul><ul><li>$10,000 up to $300,000 </li></ul></ul><ul><ul><li>May want to become involved in the business </li></ul></ul><ul><ul><li>May want an equity position in the business </li></ul></ul>
  9. 9. An Angel Investment Club <ul><li> </li></ul><ul><li>4/2000 – 85 members - $6M investment pool </li></ul><ul><li>Waiting list of 50 potential members </li></ul>
  10. 10. An Angel Investment Club <ul><li>Must quality as an accredited investor </li></ul><ul><ul><li>Min. net worth of $1M </li></ul></ul><ul><ul><li>Individual income of min. $200,000 per year </li></ul></ul><ul><ul><li>Household income of min. $300,000 per year </li></ul></ul><ul><li>Band of Angels </li></ul><ul><ul><li>140 high-tech executives </li></ul></ul><ul><ul><li>$60.5 M in 109 companies </li></ul></ul>
  11. 11. Venture Capital Investors <ul><li>Venture Capital (VC) firms are organized to invest specifically in new business startups. </li></ul><ul><li>Typically take a significant equity interest (perhaps 20-40%) in the firm with in exchange for providing startup capital. </li></ul>
  12. 12. Venture Capital Investors <ul><li>May also provide expertise </li></ul><ul><li>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>
  13. 13. Venture Capital Firm
  14. 14. Business Incubators <ul><li>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><ul><li> </li></ul>
  15. 15. Commercial Business Incubators <ul><li>Offer startup e-businesses access to the same services offered by nonprofit incubators </li></ul><ul><li>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><ul><li> </li></ul>
  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><ul><li> </li></ul>
  17. 17. 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>
  18. 18. 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>
  19. 19. 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>
  20. 20. 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>
  21. 21. 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>
  22. 22. Pitching Your Idea <ul><li>The first meeting with angel investors or VCs is a ________ meeting. </li></ul><ul><li>Your immediate objective in a first meeting is to get potential investors ________ about your e-business idea. </li></ul><ul><li>Be brief </li></ul><ul><li>Present a brief pitch document (short marketing document) </li></ul>
  23. 23. “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>Explain how much it will cost to provide the product or service. </li></ul>
  24. 24. <ul><li>Explain when the investors can expect your e-business to be profitable. </li></ul><ul><li>Illustrate the planned exit strategies. </li></ul><ul><li>Detail how much money you are looking for, and how it will be spent. </li></ul>“Here’s the Pitch…” (cont’d)
  25. 25. “Here’s the Pitch…” (cont’d) <ul><li>Potential investors will try to determine how well you understand your: </li></ul><ul><ul><li>E-business </li></ul></ul><ul><ul><li>Target market </li></ul></ul><ul><ul><li>Competitors </li></ul></ul><ul><ul><li>Critical marketplace issues </li></ul></ul><ul><li>During your presentation, you should: </li></ul><ul><ul><li>Differentiate yourself </li></ul></ul><ul><ul><li>Show a real commitment </li></ul></ul><ul><ul><li>Create the feeling of viable, exciting opportunity </li></ul></ul>
  26. 26. Term Sheet <ul><li>List of the major points of the proposed financing being offered by the investor, and is used to start negotiations for the investment deal </li></ul><ul><li>Example: </li></ul><ul><ul><li>Invest $200,000 for 10% equity, then the investor values your e-business at $2 M </li></ul></ul><ul><li>May include other demands </li></ul><ul><li>Have reviewed by a qualified attorney </li></ul>