Entrepreneurship 1: Lecture 9 Sources of Funding

1. Entrepreneurship 1: Lecture 9Sources of Funding Avimanyu (Avi) Datta, Ph.D.

2. Some Hard Facts • Few Entrepreneurs have all the money they need • Entrepreneurs have to be willing to accept risks • Don’t expect to get a loan from the bank. • Are you credit/Investment worthy • Have to give up something to get something

3. Some Hard Facts • Raising money takes considerable time • You will need to be a salesperson to get funding • Raising funds also takes resilience • Not all money is alike: Smart Vs Dumb • You need an “F-plan”

4. Startup Financing • Bootstrapping • Self-funding • Finding unique and inventive ways to acquire resources without borrowing money • Informal investors • Friends • Family members • Angel investors

5. Startup Financing (continued) • Friends and family members • Know and trust entrepreneur • Stand by during tough times • Invest in entrepreneur rather than business idea • Downside is potential risk to relationships • Business misunderstandings • Business failure

6. Startup Financing (continued)

7. Startup Financing (continued) • Angel investors • Individuals with money and time who enjoy the excitement of early-stage investing • Not averse to taking risks • Primarily interested in business idea • Angel investment club members • Accredited investors with minimum net worth of $1M or annual income of $200,000 or household income of $300,000 over the last two years

8. Startup Financing (continued)

9. Startup Financing (continued) • Venture capitalist investors (VCs) • Professional investment company • Provide funds for startup businesses in exchange for equity position • Raise funds from endowments, insurance companies, and pension funds

10. Startup Financing (continued) • Venture capitalist investors (VCs) (continued) • Take many forms • Traditional partnerships • Government-sponsored investment companies • Corporate funding programs by high-tech companies

11. Startup Financing (continued) • Venture capitalist investors (VCs) (continued) • E-business startup VC funding examples • Draper Fisher Jurvetson (DFJ) and Hotmail • Kleiner Perkins Caufield & Byers and Google • Small Business Investment Companies (SBIC)and America Online

12. Startup Financing (continued)

13. Pitching Your E-Business To Investors • First meeting with investors is a sales meeting • Bring a pitch document • Short marketing document based on Executive Summary portion of business plan • Highlights market need • Shows how startup meets that need • Indicates potential profits • Shows how management team can make it happen

14. Pitching Your E-Business To Investors (continued) • Learn as much as possible about potential investors before the pitch meeting • Be prepared for investor questions about • Business idea • Target market • Competitors • Critical marketplace issues • Do not fake answers; if you don’t know, simply say so and move on

15. Pitching Your E-Business To Investors (continued) • During the pitch meeting • Be on time • Be prepared • Be enthusiastic • Bring all necessary equipment and documents • Use a pitch document (a brief marketing document based on the executive summary portion of the e-business plan) to direct the meeting. • Differentiate yourself and management team from your competitors • Create the feeling that your e-business idea is a viable, exciting investor opportunity

16. Business Incubators • Nurture startup businesses • Offer development, administrative, and support services • Office space • Telecommunication hookups • Reception and conference room facilities • Computer networks • Advisory services • Access to potential investors • Web site design and hosting • Clerical support

17. Business Incubators (continued) • Non-profit organizations or commercial businesses • Offer a quick “leg up” for entrepreneurs needing administrative and support services • Provide access to knowledgeable professionals, advisors, potential investors • Cost to entrepreneur • Fees for services • Loss of equity

18. Business Incubators (continued) • Advantages • “One-stop solution” for many startup problems • Easy access to professional advice • Venue for interacting with other startups • Disadvantages • May be hefty fees for services • Giving up share of ownership equity to others

19. Business Incubators (continued) • Non-profit business incubators • Generally cooperative venture between a university and local community • Examples • Austin Technology Incubator (ATI) • Advanced Technology Development Center (ATDC) • Houston Technology Center • Illinois Technology Enterprise Center (ITEC) • Women’s Technology Cluster (WTC)

20. Business Incubators (continued) • Commercial business incubators • Businesses that provide incubation services for a fee and usually a large equity position • Examples • Batavia Industrial Center (BIC) • Idealab • eCompanies

21. Business Incubators (continued) • Self-incubation • Participating in a members-only group of entrepreneurs • Share practical experience • Access to contacts • Sell or barter products and services with members • Example • Starve Ups

22. Business Incubators (continued) • Self-incubation • Participating in a members-only group of entrepreneurs • Share practical experience • Access to contacts • Sell or barter products and services with members • Example • Starve Ups