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Entrepreneurial marketing
This document discusses various pathways for entrepreneurs to start new ventures, including creating a new venture, acquiring an existing venture, or obtaining a franchise. It covers topics like emerging business opportunities, sources of ideas, financial considerations, acquiring a business, franchising, legal issues, and types of intellectual property protection including patents, copyrights, and trademarks. The document provides information to help entrepreneurs evaluate opportunities and protect their business concepts.
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Entrepreneurial marketing
- 1. ENTREPRENEURIAL MARKETING METHODOLOGY LEGAL CAPITAL By: MBA, SajadNazari nazary_sajjad@yahoo.com 1
- 2. The Pathways toNew Ventures for Entrepreneurs Acquiring an Existing Venture Creating the New Venture Obtaining a Franchise Pathways to New Ventures 2
- 3. Creating New Ventures Approachesto Creating a New Venture New-New Approach New-Old Approach 3
- 4. Emerging Opportunities Green Products Organicfoods Organic fibers/textiles Alternative Energy Solar Biofuel Fuel cells Energy conservation Health Care Healthy food School and govt.- sponsored programs Exercise Yoga Niche gyms Children Nonmedical Pre-assisted living Assisted living transition services Niche Consumables Wine Chocolate Burgers Coffee houses Exotic salads Home Automation and Media Storage Lighting control Security systems Energy management Comfort management Entertainment systems Networked kitchen appliances Emerging Internet Opportunities Emerging Technology Opportunities Mobile Advertising Cell phones PDAs Concierge Services Niche Social Networks Seniors Music fans Groups of local users Pet owners Dating groups Virtual Economies Online auctions Educational Tutoring Human Resources Services Matchmaking Virtual HR Online Staffing Nanotechnology Wireless Technology Trends Creating Business Opportunities 4
- 5. Sources of NewBusiness IdeasAmong Men and Women 5
- 6. Examination of theFinancial 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 the amount of money risked. 6
- 7. Acquisition of aBusiness Venture Acquiring a Business Venture Asking Key Questions Examination of Opportunities Evaluation of the Venture Personal Preferences 7
- 8. Advantages of Acquiringan Ongoing Venture Buying an Ongoing Venture Purchasing at a Good Price Reduced Time and Effort Less Fear about Successful Future Operation 8
- 9. Evaluation of theSelected Venture Factors Affecting Sale of the Venture Assets of the Venture Profits, Sales, and Operating Ratios The Business Environment 9
- 10. Key Questions toAsk • 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 Deal FactorsAffecting Negotiations Alternatives Time Pressure Information 11
- 12. 1. Have aseller retain a minority interest in the business. 2. Never rely on oral statements. 3. Have an accountant examine the books and check the cash 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 or services. • Franchisee • A purchaser of a franchise • Franchisor • The seller of the franchise 13
- 14. How a FranchiseWorks • Franchisee Obligations: 1. Make a financial investment in the operation. 2. Obtain and maintain a standardized inventory and/or equipment 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 gross revenues. 5. Engage in a continuing business relationship. 14
- 15. How a FranchiseWorks (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 independent unit’s staff. 4. Sale of merchandise necessary for the unit’s operation, equipment to run the operation, and the food or materials needed for the final product. 5. Financial assistance, if needed. 6. Continuing aid and guidance to ensure that everything is done in accordance with the contract. 15
- 16. Franchising • Advantages • Trainingand guidance • Brand-name appeal • A proven track record • Financial assistance • Disadvantages • Franchise fees • Franchisor control • Unfulfilled promises of franchisor 16
- 17. 1. The basicfranchising fee 2. Insurance 3. Opening product inventory 4. Remodeling and leasehold improvements. 5. Utility charges 6. Payroll 7. Debt service 8. Bookkeeping and accounting fees 9. Legal and professional fees 10. State and local licenses, permits, and certificates The Cost of Franchising 17
- 18. Franchise Law • TheUniform Franchise Offering Circular (UFOC) • Is divided into 23 items that provide different segments of information for prospective franchisees. • Was developed to provide guidance in complying with the Franchise Disclosure Rule that requires franchisors to make full presale disclosure about their franchises. 18
- 19. - The Decision toPurchase a Franchise: Process Model 19
- 20. Evaluating the FranchiseOpportunity Seeking Professional Help Investigating the Franchisor Finding Reliable Information The Franchise Opportunity Decision 20
- 21. Legal Challenges forEntrepreneurial Ventures 21
- 22. Legal Challenges forthe Entrepreneurial Venture Growth and Continuity of the Venture Legal Concepts Inception of the Venture The Ongoing Venture 22
- 23. Major Legal Conceptsand 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 questions 23
- 24. Major Legal Conceptsand Entrepreneurial Ventures • II. Ongoing Venture: Business Development and Transactions • 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. Leases 24
- 25. Major Legal Conceptsand 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. Bankruptcy 25
- 26. Intellectual Property Protection:Patents • Patent • Provides the owner with exclusive rights to hold, transfer, and license the production and sale of the product or process as an intellectual 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 existing items. 26
- 27. Securing a Patent •Rule 1: Pursue patents that are broad, are commercially significant, and offer a strong position. • Rule 2: Prepare a patent plan in detail. • Rule 3: Have your actions relate to your original patent plan. • Rule 4: Establish an infringement budget. • Rule 5: Evaluate the patent plan strategically. 27
- 28. Intellectual Property Protection:Patents • Patent Application 1. Specification: the text of a patent and may include any accompanying 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, its differences 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 a particular feature or combination of features that is protected by the patent. 28
- 29. Continued on following slide ThePatent Process: FromApplication toAllowance and Issue 29
- 30. Continued on following slide ThePatent Process: FromApplication toAllowance and Issue (cont’d) 30
- 31. The Patent Process:FromApplicationtoAllowance and Issue (cont’d) 31
- 32. Intellectual Property Protection:Copyrights • Copyright • Provides exclusive rights to creative individuals for the protection of their 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 rights 32
- 33. Intellectual Property Protection:Copyrights • Copyright Protection • The material must be in a tangible form so it can be communicated or reproduced. • It also must be the author’s own work and thus the product of his or her skill or judgment. • Formal registration of a copyright is with the Copyright Office of the Library of Congress. 33
- 34. Copyrights (cont’d) • FairUse Doctrine • Reproduction of a copyright work for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research is not an infringement of copyright. • 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 is described, explained, illustrated, or embodied.‖ 34
- 35. Intellectual Property Protection:Trademarks • Trademark • A distinctive name, mark, symbol, or motto identified with a company’s product(s) and registered at the Patent and Trademark Office • 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 years 35
- 36. Intellectual Property Protection:Trademarks • Trademark Duration • Current registrations are good for 10 years with the possibility for continuous renewal every 10 years. • A trademark may be invalidated in four specific ways: • Cancellation proceedings • Cleaning-out procedure • Abandonment • Generic meaning 36
- 37. Trademarks (cont’d) • Avoidingthe Trademark Pitfalls • Rule 1: Never select a corporate name or a mark without first doing a trademark search. • Rule 2: If your attorney says you have a potential problem with a mark, trust his or her judgment. • Rule 3: Seek a coined or a fanciful name or mark before you settle for a descriptive or a highly suggestive one. • Rule 4: Whenever marketing or other considerations dictate the use of a name or a mark that is highly suggestive of the product, select a distinctive logotype for the descriptive or suggestive words. • Rule 5: Avoid abbreviations and acronyms wherever possible, and when no alternative is acceptable, select a distinctive logotype in which the abbreviation or acronym appears. 37
- 38. Trade Secrets • TradeSecret • Business processes and information that cannot be patented, copyrighted, or trademarked but makes an individual company unique 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 to obtain it. • If the owner has taken reasonable steps to protect the secret from disclosure. 38
- 39. Trade Secrets • Examplesof Trade Secrets: • Customer lists • Strategic plans • Research and development • Pricing information • Marketing techniques • Production techniques 39
- 40. Trademark Protection onthe 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 name may constitute trademark infringement. 40
- 41. Identifying Legal Structures •A legal structure that will best suits the demands of the venture addresses: • Changing tax laws • Liability situations • The availability of capital • The complexity of business formation. • Three primary legal forms of organization • Sole proprietorship • Partnership • Corporation 41
- 42. Sole Proprietorships • SoleProprietorship • A business that is owned and operated by one person. The enterprise has no existence apart from its owner. • To establish a sole proprietorship, a person merely needs to obtain whatever local and state licenses are necessary to begin operations. 42
- 43. Sole Proprietorships (cont’d) •Advantages • Ease of formation • Sole ownership of profits • Decision making and control vested in one owner • Flexibility • Relative freedom from governmental control • Freedom from corporate business taxes • Disadvantages • Unlimited liability • Lack of continuity • Less available capital • Relative difficulty obtaining long-term financing • Relatively limited viewpoint and experience 43
- 44. Partnerships • Partnership • Anassociation of two or more persons acting as co-owners of a business for profit. • The Revised Uniform Partnership Act (RUPA) acts the guide for legal requirements in forming partnerships. • Articles of Partnership • Clearly outline the financial and managerial contributions of the partners and carefully delineate the roles in the partnership relationship. 44
- 45. Articles of PartnershipItems • Name, purpose, domicile • Duration of agreement • Character of partners (general or limited, active or silent) • Contributions by partners (at inception, at later date) • Division of profits and losses • Draws or salaries • Rights of continuing partner(s) • Death of a partner (dissolution and windup) • Release of debts • Business expenses (method of handling) • Separate debts • Authority (individual partner’s authority on business conduct) • Books, records, and method of accounting • Sale of partnership interest • Arbitration • Settlement of disputes • Additions, alterations, or modifications of partnership • Required and prohibited acts • Absence and disability • Employee management 45
- 46. Partnerships (cont’d) • Advantages •Ease of formation • Direct rewards • Growth and performance facilitated • Flexibility • Relative freedom from governmental control and regulation • Possible tax advantage • Disadvantages • Unlimited liability of at least one partner • Lack of continuity • Relative difficulty obtaining large sums of capital • Bound by the acts of just one partner • Difficulty of disposing of partnership interest 46
- 47. Corporations • Corporation • ―Anartificial being, invisible, intangible, and existing only in contemplation of the law‖. –Supreme Court Justice John Marshall • As such, a corporation is a separate legal entity apart from the individuals who own it. • Forming a Corporation • Subscriptions for capital stock must be taken and a tentative organization created. • Approval (a charter) must be obtained from the secretary of state in the state in which the corporation is to be formed. 47
- 48. Corporations (cont’d) • Advantages •Limited liability • Transfer of ownership • Unlimited life • Relative ease of securing capital in large amounts • Increased ability and expertise • Disadvantages • Activity restrictions • Lack of representation • Regulation • Organizing expenses • Double taxation 48
- 49. Specific Forms ofPartnerships 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 taxed similarly to a partnership. • Avoids the imposition of income taxes at the corporate level yet retain the benefits of a corporate form (especially the limited liability). 49
- 50. Guidelines for SCorporations • The corporation must be a domestic corporation. • The corporation must not be a member of an affiliated group of corporations. • The shareholders of the corporation must be individuals, estates, or certain trusts. • Corporations, partnerships, and nonqualifying trusts cannot be shareholders. • The corporation must have 100 or fewer shareholders. • Only one class of stock, although not all shareholders may have the same voting rights. • No shareholder may be a nonresident alien. 50
- 51. Specific Forms ofPartnerships and Corporations • Limited Partnerships • Have two or more partners without responsibility for management and without liability for losses beyond their investment with the right to share in the profits. • Formed under The Uniform Limited Partnership Act (ULPA). • Limited Liability Partnership (LLP) • Allows professionals the tax benefits of a partnership while avoiding personal liability for the malpractice of other partners. 51
- 52. Specific Forms ofPartnerships and Corporations (cont’d) • Limited Liability Limited Partnership (LLLP) • has elected limited liability status for all of its partners, including general partners. • Limited Liability Company (LLC) • A hybrid form of business enterprise that offers the limited liability of a corporation but the tax advantages of a partnership. • Disadvantage is that LLC statutes differ from state to state, and thus any firm engaged in multi-state operations may face difficulties. 52
- 53. 1. A limitedpartnership or LLLP may be created only in accordance with a statute. 2. A limited partnership or LLLP has two types of partners: general partners and limited 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 obligations of the business. A general partner in an LLLP, however, has liability limited to his capital contribution. 5. Each general partner has a right to manage the business, and she is an agent of the limited partnership or LLLP. A limited partner has no right to manage the business or to act as its agent, but he does have the right to vote on fundamental matters. A limited partner they manage the business, yet retain limited liability for partnership obligations. 6. General partners, as agents, are fiduciaries of the business. Limited partners are not fiduciaries. 7. A partner’s rights in a limited partnership or LLLP are not freely transferable. A transferee of a general or limited partnership interest in not a partner, but is entitled only 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 or LLLP, 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 LLLPs 53
- 54. Understanding Bankruptcy • Bankruptcy •When a venture’s financial obligations are greater than its assets and it is unable to meet its obligations. • The Bankruptcy Act • A federal law that provides for specific procedures for handling insolvent debtors—those who are unable to pay debts as they become due. • Ensures that the property of the debtor is distributed fairly to the creditors. • Protects creditors from having debtors unreasonably diminish their assets. • Protects debtors from extreme demands by creditors. 54
- 55. The search forentrepreneurial capital 55
- 56. Source: ―Successful AngelInvesting,‖ 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 the funds plus a fee (interest for the use of the money). • Equity Financing • Involves the sale (exchange) of some of the ownership interest in the venture in return for an unsecured investment in the firm. 57
- 58. Debt Financing • CommercialBanks • 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 of ownership is required. • More borrowing allows for potentially greater return on equity. • During periods of low interest rates, the opportunity cost is justified since the cost of borrowing is low. • Disadvantages • Regular (monthly) interest payments are required. • Continual cash-flow problems can be intensified because of payback responsibility. • Heavy use of debt can inhibit growth and development. 59
- 60. Business Type FinancedFinancing Term Debt Source Start-Up Firm Existing Firm Short Term Intermediate Term Long Term Trade credit Yes Yes Yes No No Commercial banks Sometimes, but only if strong capital or collateral exists Yes Frequently Sometimes Seldom Finance companies Seldom Yes Most frequent Yes Seldom Factors Seldom Yes Most frequent Seldom No Leasing companies Seldom Yes No Most frequent Occasionally Mutual savings banks and savings-and-loan associations Seldom Real estate ventures only No No Real estate ventures only Insurance companies Rarely Yes No No Yes Common Debt Sources 60
- 61. Other Debt FinancingSources • Trade Credit • Credit given by suppliers who sell goods on account. • Accounts Receivable Financing • Short-term financing that involves either the pledge of receivables as collateral for a loan or the sale of receivables at a discounted value (factoring). • Finance Companies • Asset-based lenders that lend money against assets such as receivables, inventory, and equipment. 61
- 62. Other Debt FinancingSources (cont’d) • Equity Instruments • Give investors a share of the ownership. • Loan with warrants provide the investor with the right to buy stock at a fixed price at some future date. • Convertible debentures are unsecured loans that can be converted into stock. • Preferred stock is equity that gives investors a preferred place among the creditors in the event the venture is dissolved. • Common stock is the most basic form of ownership and is often are sold through public or private offerings. 62
- 63. Equity Financing • EquityFinancing • Money invested in the venture with no legal obligation for entrepreneurs 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 the sale of securities on the stock markets. • Initial Public Offerings (IPOs): new issues of common stock 63
- 64. Public Offerings • Advantages •Size of capital amount • Liquidity • Value • Image • Disadvantages • Costs • Disclosure • Requirements • Shareholder pressure 64
- 65. Investors • ―Sophisticated‖ Investors •Wealthy individuals who invest regularly in new and early- and late- stage ventures and are knowledgeable about the technical and commercial opportunities and risks of the business in which they invest. 65
- 66. The Venture CapitalMarket • Venture Capitalists • Are valuable and powerful source of equity funding for new ventures 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 regulations 66
- 67. Stage Amount Deals Expansion$10.8 billion 1,235 Later Stage $12.2 billion 1,168 Early Stage $5.2 billion 995 Start up/ Seed $1.2 billion 415 **data from 2007 Venture Capital Investments Comparison by Stages 67
- 68. Recent Developments inVenture Capital More-Experienced Venture Investors Emergence of Feeder Funds Decrease in Small Start-up Investments More Sophisticated Legal Environment More-Specialized Venture Funds 68
- 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 damages 69
- 70. Dispelling Venture CapitalMyths • Myth 1: Venture capital firms want to own control of your company and tell you how to run the business. • Myth 2: Venture capitalists are satisfied with a reasonable return on investment. • Myth 3: Venture capitalists are quick to invest. • Myth 4: Venture capitalists are interested in backing new ideas or high-technology inventions— management is a secondary consideration. • Myth 5: Venture capitalists need only basic summary information before they make an investment. 70
- 71. Venture Capitalists andBusiness Plans Proposal Size Investment Recovery Competitive Advantage Company Management Financial Projections 71
- 72. Factors in SuccessfulFunding of Ventures Success in Seeking Funding (Demand Side) Characteristics of the Enterprise Characteristics of the Request Sources of Advice Characteristics of the Entrepreneurs 72
- 73. Level 4 Fully developedproduct/service Established market Satisfied users 4/1 4/2 4/3 4/4 Level 3 Fully developed product/service Few users as of yet Market assumed 3/1 3/2 3/3 3/4 Level 2 Operable pilot or prototype Not yet developed for production Market assumed 2/1 2/2 2/3 2/4 Level 1 Product/service idea Not yet operable Market assumed 1/1 1/2 1/3 1/4 Level 1 Individual founder/ entrepreneur Level 2 Two founders Other personnel not yet identified Level 3 Partial management team—members identified to join company when funding received Level 4 Fully staffed, experienced management team Riskiest Riskiest Status of Management StatusofProduct/Service VentureCapitalist System of Evaluating Product/Serviceand Management 73
- 74. Criteria for EvaluatingNew-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 team 74
- 75. Venture Capital FirmRequirements • Must fit within lending guidelines of venture firm for stage and size of investment • Proposed business must be within geographic area of interest • Prefer proposals recommended by someone known to venture capitalist • Proposed industry must be kind of industry invested in by venture firm Nature of the Proposed Business • Projected growth should be relatively large within five years of investment Economic Environment of Proposed Industry • Industry must be capable of long-term growth and profitability • Economic environment should be favorable to a new entrant Proposed Business Strategy • Selection of distribution channel(s) must be feasible • Product must demonstrate defendable competitive position Financial Information on the Proposed Business • Financial projections should be realistic Proposal Characteristics • Must have full information • Should be a reasonable length, be easy to scan, have an executive summary, and be professionally presented • Proposal must contain a balanced presentation • Use graphics and large print to emphasize key points Entrepreneur/Team Characteristics • Must have relevant experience • Should have a balanced management team in place • Management must be willing to work with venture partners • Entrepreneur who has successfully started previous business given special consideration Venture Capitalists’ Screening Criteria 75
- 76. Venture Capitalist EvaluationProcess • Stage 1: Initial Screening • This is a quick review of the basic venture to see if it meets the venture capitalist’s particular interests. • Stage 2: Evaluation of the Business Plan • This is where a detailed reading of the plan is done in order to evaluate the factors mentioned earlier. • Stage 3: Oral Presentation • The entrepreneur verbally presents the plan to the venture capitalist. • Stage 4: Final Evaluation • After analyzing the plan and visiting with suppliers, customers, consultants, and others, the venture capitalist makes a final decision. 76
- 77. TEAM MUST: • Beable 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 industry unless the company is a start-up or seed investment PRODUCT MUST: • Be real and work • Be unique • Be proprietary • Meet a well-defined need in the marketplace • Demonstrate potential for product expansion, to avoid being a one-product company • Emphasize usability • Solve a problem or improve a process significantly • Be for mass production with potential for cost reduction MARKET 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 the marketplace • Have potential to become a market leader • Outline any barriers to entry BUSINESS 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 of your 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 strategy Essential Elements for a Successful Presentation to a Venture Capitalist 77
- 78. Informal Risk Capital •Business Angel Financing • Wealthy individuals in the United States are looking for investment opportunities. • They are referred to as ―business angels‖ or informal risk capitalists. • Types of Angel Investors • Corporate angels • Entrepreneurial angels • Enthusiast angles • Micromanagement angels • Professional angels 78
- 79. Main Differences BusinessAngels Venture Capitalists Personal Entrepreneurs Investors Firms funded Small, early-stage Large, mature Due diligence done Minimal Extensive Location of investment Of concern Not important Contract used Simple Comprehensive Monitoring after investment Active, hands-on Strategic Exiting the firm Of lesser concern Highly important Rate of return Of lesser concern Highly important Main Differences Between BusinessAngels and Venture Capitalists 79
- 80.