Entrepreneurship Final Exam

Small Business Innovation Research (SBIR) Grant

Provides uniform method of soliciting, evaluating, and selecting research proposals.

Acquisitions

Purchasing all or part of a company

Leveraged Buyout (LBO)

Purchasing an existing venture by any employee group

Asset Base for Loans

usually accounts receivable, inventory, equipment, or real estate

Distribution Task

Negotiating how the benefits of the relationship will be allocated between the parties

Net Profit Margin Formula

Net Profit/ Net Sales

Return on Investment Formula

Net Profit/ Total Assets

Quiet Period

Ninety-day period in going public when no new company information should be released

Factors in Valuation

Nonmonetary aspects that affect the fund valuation of a company

Horizontal Integration

Occurs at the same level of the value added chain but simply involves a different, but complementary, value-added chain

Early-stage Financing

One of the first financings obtained by a company

Venture-Capital Market

One of the risk-capital markets consisting of formal firms

Public-Equity Market

One of the risk-capital markets consisting of publicly owned stocks of companies

Brokers

People who sell companies

Principle of Reanalysis

Periodic review of one's time management process

Red Herring

Preliminary prospectus of a potential public offering

Research and Development Limited Partnerships

established between a sponsoring company developing the technology with funds provided by a limited partnership of individual investors. Particularly good when the project involves a high degree of risk or significant expense.

Phase 3 of SBIR

funds from other sources, such as the private sector or regular government contracts, are needed to commercialize the developed technologies.

Bootstrap Financing

important at start up and early years of the venture when capital form dent financing or equity financing is more expensive

Conventional Bank Loans

include lines of credit, installment loans, strait commercial loans, long-term loans, and character loans

Debt Financing

involves an interest bearing instrument, usually a loan, payment of which is only indirectly related to sales and profits

Consignment Financing

involves placing a standing order for the entire amount of goods but taking shipment and making payment only as needed.

Equity Financing

offers the investor some form of ownership position in the venture

Sources of Capital

personal funds, family and friends, commercial banks

Small Business Administration(SBA)

primarily a guarantor of loans made by private and other institutions.

Inventory Turnover Formula

COGS/ Inv.

Principle of Prioritized Planning

Categorization of tasks by their degree of importance and then the allocation of time to tasks based on this categorization

Managing Underwriter

Lead financial firm in selling stock to the public

Final Approval

A document showing the final terms of the deal

Principle of Effectiveness

A focus on the most important issues

State-Sponsored Venture-Capital Fund

A fund containing state government money that invests primarily in companies in the state

Comment Letter

A letter from the SEC to a company indicating corrections that need to be made in the submitted prospectus

Business angels

A name for individuals in the informal risk-capital market

Principle of Desire

A recognition of the need to change personal attitudes and habits regarding the allocation of time

Backward Integration

A step back (up) in the value-added chain toward the raw materials

Forward Integration

A step forward (down) on the value added chain toward the customers

Product Development Strategy

A strategy to grow by developing and selling new products to people who are already purchasing the firm's existing products

Penetration Strategy

A strategy to grow by encouraging existing customers to buy more of the firm's current products

Diversification Strategy

A strategy to grow by selling a new product to a new market

Private Venture-Capital Firms

A type of venture-capital firm having general and limited partners

Average Collection Period Formula

AR/ Avg. Daily Sales

Principle of Teamwork

Acknowledgement that only a small amount of time is actually under one's control and that most of one's time is taken up by others

Aftermarket Support

Actions of underwriters to help support the price of stock following the public offering

Pricing Amendment

Additional information on price and distribution submitted to the SEC to develop the final prospectus

Franchising

An arrangement whereby a franchisor gives exclusive rights of local distribution to a franchisee in return for payment of royalties and conformance to standardized operating procedures

Informal risk-capital market

Area of risk-capital markets consisting mainly of individuals

Acid Test Ratio Formula

CA- Inv./CL

Current Ratio Formula

CA/CL

Financial Ratios

Control mechanisms to test the financial strength of the new venture

Earnings Approach

Determining the worth of a company by looking at its present and future earnings

Prospectus

Document for distribution to prospective buyers of a public offering

Integration Task

Exploring possible mutual benefits from the relationship so that the "size of the pie" can be increased

The Small Business Technology Transfer (STTR)

Federal agencies with budgets over $1 billion are required to set aside 0.3% for small businesses.

Acquisition financing

Financing to buy another company

Development Financing

Financing to rapidly expand the business

Form S-1

Form for registration for most initial public offerings of stock

Underwriting Syndicate

Group of firms involved in selling stock to the public

Preliminary Screening

Initial evaluation of a deal

Merger

Joining two or more companies

Blue Sky Laws

Laws of each state regulating public sale of stock

Risk-Capital Markets

Markets providing debt and equity to nonsecure financing situations

Registration Statement

Materials submitted to the SEC for approval to sell stock to the public

General Valuation Approaches

Methods for determining the worth of a company

Equity Pool

Money raised by venture capitalists to invest

Going Public

Selling some part of the company by registering with the SEC

Significant Capital Appreciation

Significant capital appreciation is the increases in value of the organization during a specific period of time

SBIC Firms

Small companies with some government money that invest in other companies

Market Development Strategy

Strategy to grow by selling the firm's existing products to new groups of customers

Equity Participation

Taking an ownership position

Internal Funds

These funds come from sources within the company, such as profits, sale of assets, reduction in working capital, extended payment terms, and accounts receivable.

Replacement Value

The cost of replacing all assets of a company

Venture-Capital Process

The decision procedure of a venture-capital firm

Initial Public Offering (IPO)

The first public registration and sale of a company's stock

Deal Structure

The form of the transaction when money is obtained by a company

Book Value

The indicated worth of the assets of a company

Participative Style of Management

The manager involves others in the decision- making process

Full and Fair Disclosure

The nature of all material submitted to the SEC for approval

Franchisor

The person offering the franchise

Franchisee

The person who purchases the franchise

Reservation Price

The price (the bundle of resources from the agreement) at which the entrepreneur is indifferent about whether to accept the agreement or choose the alternative

Due Diligence

The process of deal evaluation

Time Management

The process of improving an individual's productivity through more efficient use of time

Bargaining Zone

The range of outcomes between the entrepreneur's reservation price and the reservation price of the other party

Debt to Equity Ratio Formula

Total Liabilities/ SHE

Debt Ratio Formula

Total Liabilities/Total Assets

Joint Venture

Two or more companies forming a new company

Principle of Analysis

Understanding how time is currently being allocated, and where it is being inefficiently invested

Factor Approach

Using the major aspects of a company to determine its worth

Present Value of Future Cash Flow

Valuing a company based on its future sales and profits

Referral Sources

Ways individual investors find out about potential deals

Liquidation Value

Worth of a company if everything was sold today

Private Placement

another source of funds with investors who may be family and friends or wealthy individuals

Phase 1 of SBIR

awards are up to $100,000 for six months of feasibility-related experimental or theoretical research.

Phase 2 of SBIR

awards are up to $750,000 for 24 months of further research and development. The money is to be used to develop prototype products.