chapter 10

preparing elevator speech purpose

An elevator speech is a brief, carefully constructed statement that outlines the merits of a business opportunity. There are many occasions when a carefully constructed elevator speech might come in handy. Most elevator speeches are around 60 seconds long

Lengthy Product Development Cycles

Some products are under development for years before they generate earnings. The up-front costs often exceed a firm's ability to fund these activities on its own.

Peer-to-Peer Lenders

underwrite borrowers but don't fund the loans directly. Instead, they act as intermediaries between borrowers and individuals or borrowers and institutional investors.

Online Lenders

There is a group of online lenders, including OnDeck, Kabbage, and BlueVine that provide loans to businesses. Depending on the company, loans are available from $2,000 to $2 million. Interest rates are normally higher than charged by a commercial bank, so it is advisable to check the terms carefully.

finding business angel

To find a business angel, an entrepreneur should discreetly work his/her network of acquaintances to see if anyone can make an appropriate introduction

advantage of venture capital

are extremely well-connected in the business world and can offer a firm considerable assistance beyond funding. An important part of obtaining venture capital funding is going through the due diligence process, which refers to the process of investigating the merits of a potential venture and verifying the key claims made in the business plan

SBA Guaranteed Loans

are for small businesses that are unable to secure financing on reasonable terms through normal lending channels. The SBA can guarantee as much as 85% on loans up to $150,000 and 75% on loans for more than $150,000. An SBA guaranteed loan can be used for almost any legitimate business purpose.

venture capital funds

are limited partnerships of money managers who raise money in "funds" to invest in start-ups and growing firms. The funds, or pools of money, are raised from high-net-worth individuals, pension plans, university endowments, foreign investors, and similar sources.

commercial banks

banks have not been viewed as a practical source of financing for start-up firms. This sentiment is not a knock against banks; it is just that banks are risk averse, and financing start-ups is a risky business. Banks are interested in firms that have a strong cash flow, low leverage, audited financials, good management, and a healthy balance sheet.

Debt Financing

getting a loan

Equity-based crowdfunding

helps businesses raise money by tapping individuals and investors who provide funding in exchange for equity in the business.

cashflow challenges

inventory must be purchased, employees must be trained and paid and advertising must be paid before cash is generated from sales

Initial Public Offering

is a company's first sale of stock to the public. When a company goes public, its stock is traded on one of the major stock exchanges. Most entrepreneurial firms that go public trade on the NASDAQ, which is weighted heavily toward technology, biotech, and small-company stocks.

Venture Capital (

is money that is invested by venture capital firms in start-ups and small businesses with exceptional growth potential. A distinct difference between angel investors and venture capital firms is that angels tend to invest earlier in the life of a company, whereas venture capitalists come in later.

Leasing

lease is a written agreement in which the owner of a piece of property allows an individual or business to use the property for a specified period of time in exchange for payments.

Strategic Partners

partners are another source of capital for new ventures. Many partnerships are formed to share the costs of product or service development, to gain access to particular resources, or to facilitate speed to market.

SBIR and STTR Programs

programs are two important sources of early-stage funding for technology firms. These programs provide cash grants to entrepreneurs who are working on projects in specific areas. The main difference between the SBIR and the STTR programs is that the STTR program requires the participation of researchers working at universities or other research institutions.

capital investment

the cost of buying real estate and purchasing equipment typically exceeds a firms ability to provide funds for these needs on its own

steps to prepare elevator speech

1. Describe the opportunity or problem that needs to be solved. 20 seconds 2. Describe how your product meets the opportunity or solves the problem 20 seconds 3. Describe your qualifications. 10 seconds 4. describe your market 10 seconds

Reasons that Motivate Firms to Go Public

1. Is a way to raise equity capital to fund current and future operations 2. Raises a firm's public profile, making it easier to attract high-quality customers and business partners. 3. Is a liquidity event that provides a means for a company's investors to recoup their investments. 4. Creates a form of currency that can be used to grow the company via acquisitions.

number of angel investors

304,900

Bootstrapping

A third source of seed money for a new venture is referred to as bootstrapping. Bootstrapping is finding ways to avoid the need for external financing or funding through creativity, ingenuity, thriftiness, cost cutting, or any means necessary. Many entrepreneurs bootstrap out of necessity.

Vendor Credit

Also known as trade credit, is when a vendor extends credit to a business in order to allow the business to buy its products and/or services up front but defer payment until later.

Business Angels

Are individuals who invest their personal capital directly in start-ups. The prototypical business angel is about 50 years old, has high income and wealth, is well educated, has succeeded as an entrepreneur, and invests in companies that are in the region where he or she lives.

Sources of Equity Funding

Business Angels Venture Capital Initial Public Offerings

Sources of Debt Financing

Commercial Banks SBA Guaranteed Loans

what questions do companies ask for venture capital

Do the venture capitalists have experience in our industry? Do they take a highly active or passive management role? Are the personalities on both sides of the table compatible?

The Nature of the Funding and Financing Process

Few people deal with the process of raising investment capital until they need to raise capital for their own firm.As a result, many entrepreneurs go about the task of raising capital haphazardly because they lack experience in this area.q

Friends and Family

Friends and family are the second source of funds for many new ventures.

Factoring

Is a financial transaction whereby a business sells its accounts receivable to a third party, called a factor, at a discount in exchange for cash.

Equity Funding

Means exchanging partial ownership in a firm, usually in the form of stock, for funding.

Alternatives for Raising Money for a New Venture

Personal Funds Debt Financing Equity Capital Creative Sources

Preparing to Raise Debt or Equity Financing (

Step 1: Determine precisely how much money is needed Step 2: Determine the type of financing or funding that is the most appropriate Step 3: Develop a strategy for engaging potential investors or bankers

Personal Funds

The vast majority of founders contribute personal funds, along with sweat equity, to their ventures. Sweat equity represents the value of the time and effort that a founder puts into a new venture

Private Grants

There are a limited number of grant programs available to entrepreneurs. Getting grants takes a little detective work. Granting agencies are low key, and must be sought out.

business angel groups

There are organized groups of business angels. These groups typically consist of 10 to 150 angel investors in a local area that meet regularly to listen to business plan presentations.

Why Most New Ventures Need Funding

There are three reasons most new ventures need to raise money during their early life.The three reasons are shown on the following slide.

Crowdfunding

the practice of funding a project or new venture by raising monetary contributions from a large number of people (the "crowd") typically via the Internet. Two Types of Crowdfunding Programs Rewards-based crowdfunding allows entrepreneurs to raise money in exchange for some type of amenity or reward. Kickstarter and Indiegogo are the most popular rewards-based crowdfunding sites.