ENT3003 Exam 4

How does discrimination impact entrepreneurs like Daymond?

Daymond faced discrimination when he tried to sell his products to large retailers that did not want to be associated w/ the hip-hop community. He remained true to his brand and to his impact statement, and he was able to perserve. Eventually, the same retailers that had not wanted to be associated w/ the brand changed their minds and came back, calling on FUBU for orders.

Why was Gravyty more attractive to investors than OvenAlly?

Even though OvenAlly was an attractive concept, it was clear that Rich lacked the experience and expertise to deal w/ the legal and operational problems associated w/ running the business. This was made even more clear when he tried and failed. In contrast, Rich and Adam had a thorough understanding of the problems that Gravyty was trying to solve, and they were better able to explain to investors how they would navigate those problems.

Would FUBU be a good candidate for crowdfunding if it was being started today?

FUBU would be a great candidate for crowdsurfing, particularly in an environment where the BLM movement has gained such prominence.

Exit strategy

How and when the venture capital firm will exit the investment

Accredited investors

Investors who either have a net worth of more than $1 million or earnn an annual income of more than $200,000. EX: Google, Apple, Netscape

debt financing

Involves borrowing money that must be paid back with interest

What does it mean to look at problems from a first-person basis?

It means thoroughly understanding the problem b/c you've experienced it. Entrepreneurs who have significant experience in a field, such as predictive analysis or fundraising, are more likely to be able to create opporutnities that lead to successful businesses. the experience and expertise to deal

Equity Crowdfunding

Provides investors with the opportunity to truly invest in an early-stage company in exchange for ownership or a promise of future returns.

Bootstrapping

Starting a business with little or no outside funding or support. Ex: Nastygal

Cash runway

The amount of time the business can operate without running out of money

Initial public offering

The company's first opportunity to sell stock to members of the general public on the stock market

Buyback

The entrepreneur can buy the venture capital firm's stock at cost plus a premium. This strategy is rare b/c young companies usually don't have the cash to buy their investors out.

Sweat equity

The entrepreneur's non-monetary investment of time and effort that increases the value of his or her ownership interest Ex: Entrepreneur might save money on designers or manufacturers by developing his own prototype

Why did Gravyty succeed when Rich's other ventures failed?

The key reason is that Rich had a first-person perspective of the problems he was trying to solve w/ Gravyty, whereas he didn't have that first-person perspective in his other ventures, including OvenAlly

Due diligence

The process of rigorously evaluating an investment opportunity before signing the contract

Post-money valuation

The valuation of the company after receiving financing

Pre-money valuation

The valuation of the company before receiving financing

Angel Investors

Use their money to help startups run by individuals who are not their friends or family

Crowdsourcing

Uses the internet to attract, collect, and manage inexpensive or free labor from enthusiastic customers and other like-minded individuals. EX: LEGO uses this by allowing its users to submit new ideas for new LEGO sets

Unicorns

tech startups that are valued at more than $1 billion, as determined by private or public investment

Equity financing

-A means of raising money by selling shares of stock in the venture -Provides capital to help the business grow, but it requires the entrepreneur to give up a portion of his or her ownership of the business

Advantages of Crowdfunding for Global Entrepreneurs

-Allows entrepreneurs to raise startup capital w/o necessarily having to give up equity or control of the business -Allows entrepreneurs to gauge customer interest early on, saving marketing costs -Allows entrepreneurs to test ideas and gather customer feedback w/ very little cost -Allows entrepreneurs to build relationships w/ consumers who are likely to be potential customers when the product is launched. Committed customers are more likely to use word-of-mouth and their own social networks to promote the product -Allows entrepreneurs to make contacts, build their brand, attract customers, raise awareness, and create a buzz before the product ever goes to market

Most banks require the following to secure a loan:

-Capital -Collateral -Capacity -Credit rating

Case Study: Rich Palmer (Gravyty)

-Co-founder and CTO of Gravyty, an artificial intelligence company that helps non-profits raise money more effectively. - Created OvenAlly: an online marketplace for homemade food that allowed buyers and sellers to interact across the country. However, had to close to pursue other opportunities. -Received his MBA at Babson, met Adam Martel and started Gravyty

Strategies for Bootstrapping

-DIY -Bartering -Ham-and-egging: gaining an advantage over others by being somewhat conniving or unscrupulous in your negotions.

Drawbacks of using convertible debt

-Early lenders face the risk that the conversion event does not happen or that the company will file for bankruptcy -Entrepreneurs may be hesitant to take on a lot of debt at the beginning of the business -A lawyer is typically needed to isse convertible debt, and this can be costly

5 types of business angels

-Entreprenurial angels: These individuals have already started their own business and have a steady flow of income that allows them to take risks on investments in other businesses. Tend to be the most valuable b/c of personal experience and knowledge. -Corporate angels: Typically former business executives who want to invest using their current income or savings. Typically want to play a role in the business, and they often seek a paid position.Can be controlling, which can lead to fricition between the investor and the entrepreneur. -Professional angels: Professionals whow want to invest in entrepreneurial ventures using their income and savings. Usually silent investors, though some may want paid positions as advisors. -Enthusiast angels: Independentley wealthy individuals who invest in startups as a hobby. Usually do not take a management role. -Micromanagement angels: Have a track record of success and want to be involved in the ventures in which they invest. Often want a position on the board of advisors or board of directors and they want to be regularly updated on the running of the company. If the company does not perform to expectations, they will personally intervene to set things right.

Guest Speaker: Sheldon Barrett (Cocovana)

-Founder and CEO of Cocovana, a company that sells a tool used to safely open fresh coconuts in seconds. -Won UF's Big Idea Gator Business Plan Competition in 2020 -Graduated from UF w/ a degree in industrial engineering -Working to grow his business by partnering w/ Lowes -Value Prop: The Coconut Twist will allow you to safely and easily open any green coconut off the tree and all of the Thai coconuts found at the major retailers, such as Whole Foods, Kroger, Walmart, Publix, health food stores, Latin food stores, and Asian food stores. -Sheldon read The Everything Patent Book...interviewed 10 patent attorneys and picked one to write and submit the patent application, received a utility patent, gives him exclusive right to sell, use, modify, and license his invention for a period of at least 20 years. -Biggest mistake: trying to have product made in the US -Biggest challenge: Manufacturing -Book recs: Rich Dad, Poor Dad by Robert Kiyosaki and How to Win Friends and Influence People by Dale Carnegie -Podcasts: How I Built This w/ Guy Raz -Advice to Students: If you have a business idea, start it now, while you are in school.

Case Study: Daymond John (FUBU)

-Founder of FUBU, a world-famous hip-hop fashion line. -

In what ways did Daymond engage in bootstrapping?

-He used his own cash to buy the company's earliest products, and he reinvested his earnings in the company -He intially made all these products himself, at home -He kept his day job at Red Lobster while working on his business -He sold products on consignment so he didnt have to have a storefront -He used credit card debt and borrowed from friends, family, and fools to get the money he needed to get started. -His distribution of large-sized shirts to bouncers was a creative, low-cost means of marketing and promoting the brand. -His creative approach to selling product at the Las Vegas convention generated a lot of orders w/o the cost of an actual booth at the convention -Even when Daymond ramped up production after the convention, he made products from his mother's home rather than buying manufacturing space. -He ultimately found a major investor--Samsung textiles--w/ a simple classified ad.

Guest Speaker: Wade Swinkle (2 College Brothers)

-Owner of 2 College Brothers, a moving and storage company w/ offices in Gville and Tampa. -Won Gville Chamber of Commerce's Small Business of the Year Award in 2016 -Currently in the process of setting up a franchise program, providing franchises the right to operate under the 2 College Brothers brand name in exchange for an up-front franchise fee and royalty payment that is a percentage of top-line sales. -Original business was organized as Florida LLC, the structure has not changed...company's legal name is still Smarter Moving Solutions, LLC -Wade did not acquire the 2 College Brothers corporation, he didn't acquire any of the debts of the company. Only purchased assets, including its brand, website, phone #, trucks, equipment, and customer list. -Offers storage services in Tampa, FL. -Company does long-distance moves as well -Markets his business thru word-of-mouth, website, social media, and direct mail. -Biggest challenge: dealing w/ customers and employees -Wade follows Grant Cardone and Gary Vaynerchuck on instagram, also follows a moving-specific coach and mentor named Louis Massaro. Authors Dave Asprey and Ben Greenfield have influenced him as well. -Book recs: The 10x Rule by Grant Cardone, Unlimited Power by Tony Robbins, and Rich Dad, Poor Dad by Robert Kiyosaki -Advice for Students: Focus on achieving a healthy body and mind. Surround yourself w/ successful people who can be a positive influence to your life. Take action, expect to fail, learn from your mistakes, and take responsibility for your failures.

Venture Capitalists

-Professional investors who invest in early-stage companies, late-stage companies, and startups in order to take advantage of the perceived potential for long-term growth. -More likely to invest in early- to late-stage companies than startups -Looking for great teams, big markets, and unique and innovative ideas

Stages of Equity Financing

-Seed-stage financing: the business recieves a small amt of capital in order to prove a concept. -Startup financing: entrepreneurs recieve money to implement the idea by funding research and development -Early-stage financing: funds are provided to companies w/ a team and a tested product or service, but little or no revenue

2 reasons why venture capitalists refuse to invest:

-The opportunity doesn't meet the fund's criteria -The opportunity didn't come as a referral

What Professional Investors Care About

-The team -Users -Distribution channels -Industry type

CASE STUDY: Drew Stuerman (halo potato donuts)

-Went to santa fe then transferred to UF. -Didn't get into sports management program so he went into business. -He loved donuts in ohio and realized there were no donut shops in gville so he started one. -He had zero baking experience but learned through youtube videos. -He researched and found that the potato donut from "the holy donut" was the best in the nation. -He started a donut food truck called Halo Potato Donuts. -He now has two food trucks and an actual store. -Advice to students is to test as much as you can.

Benefits of using convertible debt

-You do not have to immediately value the company; he or she can wait until after the first round of financing, when more data and info are available -If the company is successful, investors usually enjoy a discount off the share price. This discount is given upfront as an incentive to commit to provide funds in exchange for convertible debt -Issuing convertible debt does not immediately dilute the entrepreneur's ownership interest, so the entrepreneur can retain control over the company

10 Suggestions for Successful Crowdfunding

1. Ensure that you are solving a real problem 2. Refine and test the idea 3. Prepare to deliver 4. Take advice from others 5. Start promoting the product before launching your campaign 6. Focus on cash 7. Develop a good pitch 8. Take advantage of non-monetary benefits 9. Commit to managing the campaign 10. Deliver your promises

Convertible debt

A short-term loan that can be turned into equity when future financing is issued

Mergers or acquisitions

An acquisition occurs when a larger company buys a smaller company. This is a way for the larger company to increase profitability and, in some cases, do away with competition.

Patronage Model:

Backers make contributions w/o any expectation of a direct return. EX: Patreon is a platform where patrons donate to podcasters, authors, musicians, and other independent creators.

Investor Model

Backers provide funding in exchange for an equity stake in the business.

Lending Model

Backers provide funds as loans that they expect will be eventually repaid once the project begins to generate revenue or becomes profitable.

Reward-Based Model

Backers support a project in exchange for some kind of reward or incentive. EX: Food truck may reward backers by offering a cooking class or recipe books