1. What are various sources of equity investment?

Public Stock:

Holding shares in publicly traded companies. Usually associated with larger corporations such as Ford Motors, Nike, Citibank. They can trade freely on the New York Exchange and NASDAQ. Smaller companies also trade on these exchanges. The company can sell or buy stocks. It is no longer a private held company.

Private Equity:

• Venture Capital: Capital invested in a project in which there is a substantial element of risk, typically a new or expanding business.

• Leveraged Buyout: The purchase of a controlling share in a company by its management, using outside capital.

• Growth Capital: Usually a minority investment, in relatively mature companies that are looking for capital to expand or restructure operations, enter new markets or finance a significant acquisition without a change of control of the business

• Special Situations: Usually referred to a company where value can be unlocked as a result of a one-time opportunity (e.g. change in government regulations or market dislocation).

• Mezzanine Capital: Any subordinated debt or preferred equity instrument that represents a claim on a company’s assets which is senior only to that of the common shares

2. What guidelines should entrepreneurs follow when they are selecting a venture capitalist?

The textbook mentions 6 different guidelines to follow when selecting the appropriate venture capitalist:

1. Scrutinize your business with a critical eye: Work out solid financial projections to prove the results to the venture capitalist.
2. Beef up management: Hire staffers who can make up the deficits.
3. Keep a high profile so the VCs will visit: Make your company look good inside and out to attract potential investors.
4. Target the search: Look for firms that specialize in the industry and the size of investment.
5. Keep a lookout: Look for smaller VC firms that may be more flexible and more receptive to investing in a company.
6. Investigate possible venture partners: Find out what the needs are for the venture capitalist so when a visit is made, the meeting can be more successful. 

7. What are the differences between a single-hit and a home-run business?

A single hit business is one that does not have a sustainable business model or product. A good example of this would be the selfie-stick. A home-run business, on the other hand, would be one like Apple, which is built on a firm foundation and builds off of its products. 

8. What are the four key factors that a banker seeks before providing a corporate loan? 

The four Cs of lending are:

1. Characters: That includes traits such as talent, reliability, and honesty.
2. Cash Flow: To cover debt throughout the term of the obligation.
3. Collateral: To support at least part of the loan if the company is unable to meet its obligations.
4. Contribution: By the entrepreneur towards the funding requirement.

1. What sources of funding are available to entrepreneurs at the early stage of the company?

The following eight sources are available, and mostly suited for entrepreneurs, who want to secure an early stage funding:

1. Self-Funding: The majority of new business are usually started with funds that come from personal savings or various forms of personal equity of the founder(s).

2. Moonlighting and Consulting: It might be a wise idea not to quit your full-time job. You could work part-time and still be engaged to your venture idea. You could also offer freelance consulting jobs to other startups or companies. Maybe you have expertise other companies could benefit from.

3. Bootstrapping: It is often applied in small business, and is a form of self-funding. It allows to analyze the operation process to save and improve efficiencies that will help and allow the entrepreneur to learn more about the company.

4. Family and Friends/Angels: An entrepreneur usually sees friends and family as a great source to go to when asking for funding. To guard themselves as well as their friends/family, the entrepreneur should treat them as he/she would if they were a “real” investor. It’s important to document any loans that come from friends or family. Angels often represent the best method to pursue when friends/family is not a viable option. Angels are high-net-worth individuals who have some funds they are willing to risk in startup companies.

4. Micro-Equity, Micro-Loans: Usually the entrepreneur receives a small amount of money to get by for a few months, and in return gives up a few percent of the company – usually 4%.

6. Personally Secured Bank Loans: The primary advantage of debt financing is that the entrepreneur does not have to give up any part of ownership to receive the funds.

7. Factoring and Supplier Financing: If you are unable or unwilling to provide personal or asset-backed guarantees but you have purchase orders from reputable customers, it may be possible to use these orders to secure funding from so-called factors.

8. Government Programs: The Small Business Administration agency, a government program, works with intermediaries, banks, and other lending institutions to provide loans and venture capital financing to small businesses unable to secure financing though normal lending channels.

2. What are “virtual” companies? What tools help them function? Why are they of interest to an entrepreneur?

A virtual company is a company that has no office, very few employees loaded with associated costs and benefits, no communication costs, low legal costs etc. A virtual company will use other services to get through the work day, for example, conference calls are held via Skype, BaseCamp for project team and document management, ADP for payroll and tax management, and Salesforce.com for sales tracking etc. The move to so-called cloud computing provides start-ups with access to highly sophisticated management tools on a free or a low pay-as-you-go basis. Virtual companies move quickly, change direction without disruption, and use the best resources without taking on long-term liabilities.

3. Describe the seven techniques for bootstrapping that you could use if you started a company.

1. Cooperative Purchases: There are often ways to work with other small companies to create a buyers’ club.

2. Access to Expensive Equipment: Schools sometimes have programs to help small business and allow accessing their equipment.

3. Outsourcing: To save money, it could be ideal to outsource activities such as bookkeeping, payroll services, and tax return services.

4. Credit Cards: The entrepreneur may contact major credit card companies to compare prices and options to see what company can offer the best deal.
5. Bartering for Goods and Services: You may have skills you can trade for skills you don’t have.

6. Renting or Leasing Equipment: Especially expensive equipment you only need in the start-up phase is best rented or leased.
7. Used Equipment: It is often possible to find inexpensive used equipment that with a little work will fill short-term needs.

4. Why is bootstrapping important for (a) closely held companies and (b) early-stage, high-growth companies seeking equity investors?

1. Bootstrapping is one of the few forms that give up no ownership.
2. Bootstrapping shows potential investors that you have “sweat equity” in the business and wont give up easily.

5. What is meant by factoring of purchase orders?

Factoring is an alternative to taking on a full loan from the bank, these are private lenders that provide funds for operations based on a percentage of sales but they charge a very high interest.

6. How can suppliers help in providing working capital?

While trying to gain capital supplies may be able to help. If they trust that the operations will be successful they may be inclined to open up a line of credit with their company.

1. What financial measurements should be prepared to measure company performance?

There are three main financial documents that need to be prepared to measure the economically performance of your company:

1. The balance sheet
2. The income statement; and
3. The statement of cash flows

2. What are the categories and steps in preparing a financial budget?

1. Prepare Financial Projections
   1. Measuring sales volume
   2. Measuring profits
   3. Measuring cash generated

2. Preparing An Annual Budget
   1. Sales
   2. Cost of goods sold
   3. Gross profit
   4. Operating expenses
   5. Operating profit/loss
   6. Other income and expenses
   7. Pretax income
   8. Income taxes
   9. Net income
   10. Earnings before interest expenses, interest income, and income taxes (EBIT)
   11. Earning before interest expense, interest income, income taxes, and amortization (EBITDA)

3. Preparing A Cash Flow Forecast
   1. Consider cash flow revenues
   2. Consider cash flow disbursements
   3. Reconcile the revenues and disbursements

3. Describe the breakeven technique in the decision-making model to determinate profit and loss.

 The break-even point is the point where the business’s sales have generated enough income to cover all of its fixed costs and expenses. At that point, all of the business’s incoming revenue is profit as long as the expenses and costs are not increased and the sales amounts are not reduced. To use this technique you only need to know the fixed costs of operations, variable costs of production, and price per unit.

The break-even point identifies the total amount of sales the business needs before profit can be earned. When analyzed closely, the break-even analysis also helps the business to identify excessive fixed costs. Since the break-even point is directly related to the fixed costs, reducing and controlling these costs aids the business in achieving a lower break-even point for quicker profitability.

4. Why is building a corporate culture to match a company’s mission important?

Every organization, from small businesses to large corporations, has a culture. The culture refers to the values and attitudes of employees in the business or organization. In a business with an unhealthy culture, employees act as individuals, performing their duties to meet their own needs, such as a paycheck or health benefits. A healthy corporate culture values each employee in the organization regardless of his job duties, which results in employees working as a team to meet the company’s and their own personal needs. Healthy corporate culture improves the performance of a business in a number of areas.

Your company culture defines the way in which your organization interacts with one another and how the team interacts with the outside world, specifically your partners and suppliers. It’s the formula that guides the team, as well as inspires and motivates employees. It is also responsible for attracting and attaining great talent, as well as creating a fun, happy and exciting work environment.

A great company culture also attracts a great partner, which, in turn, creates great success. People will want to do business with you because of what you believe in and stand for, rather than solely on your products alone.

5. Select six leadership attributes that you feel are the most important when building a strong culture. Why?

1. Honesty – Whatever ethical plane you hold yourself to, when you are responsible for a team of people, its important to raise the bar even higher. Your business and its employees are a reflection of yourself, and if you make honest and ethical behavior a key value, your team will follow suit.
2. Organized – Are you prepared for meetings, presentations, events and confident that people around you are prepared and organized as well? You are a reflection of your company, and your employees see and evaluate you as much, if not even more, as you do them. Be organized.
3. Evaluative – Evaluation of events and programs is essential for an organization/group to improve and progress. An exceptional leader will constantly evaluate and change programs and policies that are not working.
4. Respectful – Treating others with respect will ultimately earn respect.
5. Well Educated – Knowledge is power. Work to be well educated on community policies, procedures, organizational norms, etc. Further, your knowledge of issues and information will only increase your success in leading others.
6. Communicative – Being able to clearly and succinctly describe what you want done is extremely important. If you can’t relate your vision to your team, you won’t all be working towards the same goal.

6. Name three important factors that you must take into account when hiring key people.

1. Work experience – Work experience might be one of the most important considerations you have for key jobs at your company.
2. Skills set – The specific skills set of potential key employees is a critical factor that can often determine who you hire and who you do not.
3. Confidence – An applicant who approaches you with a confident attitude makes a good first impression. This is also probably the way this person will approach your clients. An applicant who exudes self-confidence believes in him-/herself. (S)he will believe (s)he can handle the job and exceed expectations. Self-belief is important for facing and succeeding in challenges. Your workplace will benefit from the hiring of individuals who are confident they can learn and perform as needed.

Name three factors that impact how a new technological innovation fits existing market conditions.

1. Early users’ experience is rewarding and immediate
2. Early users discussing the needs and problems of the product with peers
3. Involving your early users in product or service development

Name two factors that impact “the market window of opportunity.”

1. Experiment with early adapters as you polish your marketing plan
2. Know where you are on the hype cycle as you promote your innovation

Name a product that is currently being used by early adopters only.

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