MGT 472 CHAPTER 10

initial public offering (IPO)

An IPO is the first sale of stock by a firm to the public. Any later public issuance of shares is referred to as a secondary market offering

Bootstrapping

Finding ways to avoid the need for external financing through creativity, ingenuity, thriftiness, cost-cutting, obtaining grants, or any other means.

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.

Rewards-based crowdfunding

allows entrepreneurs to raise money in exchange for some type of amenity or reward

Business angels

are individuals who invest their personal capital directly in start-ups. The term angel was first used in conjunction with finance to describe wealthy New Yorkers who invested in Broadway plays.

Promissory Note

details the terms of a loan agreement.

Equity- based crowdfunding

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

SBIR Program (Small Business Innovation Research)

is a competitive grant program that provides over $2.5 billion per year to small businesses for early-stage and development projects.

An accredited investor

is a person who is permitted to invest in higher-risk investments such as business start-ups

The STTR Program

is a variation of the SBIR for collaborative research projects that involve small businesses and research organizations, such as universities or federal laboratories. Other grant programs:

A 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

Debt financing

is getting a loan. The most common sources of debt financing are commercial banks and Small Business Administration (SBA) guaranteed loans.

Venture capital

is money that is invested by venture capital firms in start- ups and small businesses with exceptional growth potential.

Crowdfunding

is the practice of funding a project or new venture by raising monetary contributions from a large number of people, typically via the Internet.

Sweat equity

is the unpaid labor employees and cash-strapped entrepreneurs put into a project.

Peer to Peer Lending

they act as intermediaries between borrowers and individuals or borrowers and institutional investors. (Funding Circle, Lending Club), Online Lending (OnDeck, Kabbage, Blue Vine), Continued.

Strategic partners:

Strategic 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. •Strategic partnerships that capture these types of benefits can help new ventures lessen their need for funding or financing.

Cash Flow Challenges

Inventory must be purchased, employees must be trained and paid, and advertising must be paid for before cash is generated from sales.

Identify and describe the three sources of personal financing available to entrepreneurs.

There are three categories of sources of money in this area: personal funds, friends and family, and bootstrapping.

Explain why most entrepreneurial ventures need to raise money during their early life.

There are three reasons that most entrepreneurial ventures need to raise money during their early life: cash flow challenges, capital investments, and lengthy product development cycles.

Equity financing

(or funding) means exchanging partial ownership of a firm, usually in the form of stock, in return for funding.

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.

explain the three steps involved in properly preparing to raise debt or equity financing.

•Step1 •Determine precisely how much money is needed •Step 2 •Determine the most appropriate type of financing or funding •Step 3 •Develop a strategy for engaging potentail investors or bankers.

SBA Guaranteed Loans:

The SBA Guaranteed loan program enables banks to loan money to qualified entrepreneurs to start or grow their businesses. This young entrepreneur received a $150,000 SBA guaranteed loan through a commercial bank to finance her florist shop.

Capital Investments

The cost of buying real estate, building facilities, and purchasing equipment typically exceedsa firm's ability to provide fundsfor these needs on its own.

Other Government Grants

The federal government has grant programs beyond the SBIR and STTR programs

4Cs

Capital: Contracts: Additional funding Similar businesses, suppliers, customers Competence: Suitable board members Advice to portfolio companies: Major VC activity Credibility If the VC is known, it opens several doors.

Personal Funds

Involves both financial resources and sweat equity. Sweat equity represents the value of the time and effort that a founder puts into a firm

Friends and Family

Often comes in the form of loans or investments, but can also involve outright gifts, foregone or delayed compensation, or reduced or free rent.

Describe common sources of debt financing entrepreneurial firms use.

The first is a single-purpose loan, in which a specific amount of money is borrowed that must be repaid in a fixed amount of time with interest. The second is a line of credit, in which a borrowing "cap" is established and borrowers can use the credit at their discretion. Lines of credit require periodic interest payments. Commercial Banks: