MGT3960 Entrepreneurship Management Fall 2015

There are many ways to fund your company at an early-stage.

1. Self-funding
2. Moonlighting and consulting
3. Bootstrapping
4. Family and Friends / Angels
5. Micro-Equity and Micro-Loans
6. Personally secured bank loans
7. Factoring and supplier financing
8. Government programs

Virtual company is a company that has no offices, very few employees loaded with associated costs and benefits, no communication costs, low legal costs and so forth. A virtual company will use providers like Skype for video conferencing, BaseCamp for project tea and document management, ADP for payroll and tax management, online basic legal documents for protection, and Salesforce.com for sales tracking.

Bootstrapping is a type of self-funding often applied in a small business, can reduce costs from the current operation and overhead. It is usually overlooked as a source to business owners. The process of analyzing the operation to save and improve efficiencies will also allow the entrepreneur to learn more about the company.

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

• Self-Funding: use personal resources to launch venture
• Moonlighting & part time consulting: founder is working a full time job to support self and business
• Bootstraping: being cost conscious (example; no/low rent, renting, used equipment, outsourcing)
• Family & Friends: not as worried about quick profits as professional investors are
• Micro-equity and Micro-loans: trade small ownership for substanable cash and connections to loaners network of entrepreneurs
• Bank loans: Borrow money, payed back with interest
• Factoring & supplier funding: Receive funds from a private lender, you secure those funds using purchase orders as security loans. Charge high interest.

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

• A virtual company is one that has no offices, no communication costs, low legal costs and so forth. They use providers such as Skype for video conferencing, Basecamp for team projects, and other sophisticated, free or low pay, tools to help function. Theyre a good resource to entrepreneurs without taking on long term liabilities.

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

• No or Low Rent
• Cooperative Purchases
• Outsourcing
• Bartering for Goods and Services
• Renting or Leasing Equipment
• Used Equipment
• Trading Intellectual Property Rights

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

• (a) can reduce costs from operations and overhead allowing the entrepreneur to become more proficient with their companies costs
• (b) by becoming more efficient and cost conscious the entrepreneur will be put in a stronger position to qualify for additional fundings from investors

5. What is meant by factoring of purchase orders?

• Using the purchase orders from customer to secure funding from private lenders. They receive the money from the customer and you get whats remaining after fees and interest has been applied.

6. How can suppliers help in providing working capital?

• Suppliers help because they give you a line of credit for your purchase orders. The mini case example showed that the company had a 150 day pay cycle allowing them to receive payments from customers before paying the supplier. They were able to use the suppliers cash to fund the company essentially.

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

Self-funding, moonlighting and consulting (bootstrapping), family and friends, angels, micro-equity and micro loans, banks loans, factoring and supplier funding, personally secured bank loans, government sources of funding .

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, no communication costs, low legal costs. Companies like these highly rely on tools from the internet (skills, software, social media).For the entrepreneur,  the aim is to reduce the level of monthly fixed costs to a minimum, and be more flexible.

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

• No or low rent: for example working from home, co-working space/incubator
• Bartering for goods and service: offer something in exchange of something else
• Trading intellectual property rights
• Renting or leasing equipment
• Used equipment
• Access to expensive equipment: university or government labs
• Outsourcing 

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

Bootstrapping is important for closely held companies because this way, they keep costs lower and the company can grow without any investors and the owner(s) doesn’t lose control of the business. It is an organic way of growing. However, bootstrapping might also be important for early-stage high-growth companies seeking equity investors because you can show the investors how viable the project is and they are more likely to invest in something they know the owner takes seriously and has been able to keep growing on his own.

5. What is meant by factoring of purchase orders? 

You get funding for operations from a private lender securing these loans with the orders you already have. When you customers pay you, the cash goes directly to the lender. He then takes back the amount plus interest and hands you back cash, if any left.

6. How can suppliers help in providing working capital?

If you make sure you will purchase from them, they might offer a credit.

The funding’s that are available for entrepreneurs in the early stage of the company are:

• Self-Funding – This option is available to entrepreneurs who are highly motivated and committed to using personal resources to launch a company.
• Moonlight and Part-Time Consulting – this is a very important option where the entrepreneur may not want to quit their full time position, as the income from the job can help support the owner during negative or low cash flow and provide working capital to expand the business cash flow.
• Bootstrapping – is a self-funding often can be used by small businesses. It can reduce costs from the current operation and overhead.
• Friends and Family – this source of funding is very popular because they are not as worried about quick profits as professional investors are.
• Micro-equity and micro-loans – this is a new form of help organization for entrepreneurs. For a small percentage of ownership of your company, they will provide you with sufficient money to live for a few months near their offices.
• Bank loans – this source of funding allows the entrepreneur to not have to give up any part of ownership to receive the funds.
• Factory and Supplier Funding – if you are unable or willing to provide personal or asset-backed guarantees, but you have purchase orders from reputable customers, you maybe possible to use these orders to secure funding rom factors.
• Government funding – this funding is available to small businesses.

A virtual company is a company that has no offices and few employees loaded with benefis, no communication costs, low video conferencing. They allow the entrepreneurs to conserve cash and maintain flexibility in their plans, where monthly fixed costs are minimized.

The seven bootstrapping techniques are:

• No or Low Rent
• Bartering for Goods and Services
• Trading Intellectual Property Rights
• Renting or Leasing Equipment
• Used Equipment
• Cooperative Purchases
• Outsourcing

Bootstrapping is very important because it allows the entrepreneur to own the whole company without giving anything up. This method also allows them to show what determination they have to starting up a company with no outside help.

Factoring a purchase order is taking on a full loan from a bank, but they charge high interest.

Suppliers can help in providing working capital to an entrepreneur in ways where they see that the company will become a hit and may provide a line of credit to them as the company is starting up.

1) WHAT SOURCES OF FUNDING ARE AVAILABLE TO ENTREPRENEURS AT THE EARLY STAGE OF THE COMPANY?

The sources of funding that are available to entrepreneurs at the early stage of the company are:

• Self-funding
• Moonlighting and consulting
• Bootstrapping
• Family and friends/angels
• Micro-equity, Micro-loans
• Personally secured bank loans
• Factoring and supplier financing
• Government programs

2) WHAT ARE “VIRTUAL” COMPANIES? WHAT TOOLS HELP THEM FUNCTION? WHY ARE THEY OF INTEREST TO AN ENTREPRENEUR?

Virtual companies are companies that move quickly, change direction without disruption, and use the best resources without taking on long-term liabilities. They  have no offices, and have very few employees, no communication costs, and also low legal costs. Some tools that help them function are some virtual applications such as Skype for video conferencing, BaseCamp for project team and document management, ADP for payroll and tax management. Virtual companies are of interest to an entrepreneur because they help conserve cash, help reduce the level of fixed costs to a minimum while also maintaining flexibility, and  help the entrepreneur collect validated learning about customer with the least effort.

3) DESCRIBE SEVEN TECHNIQUES FOR BOOTSTRAPPING THAT YOU COULD USE IF YOU STARTED A COMPANY.

Some techniques for bootstrapping that could be used when starting a company are:1) No or low rent: saving money by trying to minimize  rent expenditure and keeping it to a minimum, 2) Renting of leasing equipment: some equipment are only needed at the start-up phase, it is better to rent than buy in this kind of case, 3) Used equipment: reduce expenses by using used equipment that help achieve the same results as a new equipment would instead of spending more money buying a new equipment. 4) Contingent litigation: a lot of money can be saved if we can find a law firm that would take the case “on contingency,” 5) Access to expensive equipment: access to equipment can be obtained through the programs offered at universities and government labs. 6) Outsourcing: some services needed for the company can be obtained  by outsourcing; activities such as bookkeeping, tax-return preparation, payrol services. 7) Cooperative purchases: companies can work with small companies and create a buyer’s club and this could help reduce some costs in certain areas such health insurance costs for example.

4) WHY IS BOOTSTRAPPING IMPORTANT FOR (A) CLOSELY HELD COMPANIES AND (B) EARLY-STAGE, HIGH-GROWTH COMPANIES SEEKING EQUITY INVESTORS?

Bootstrapping is important for closely held companies and also early-stage, high-growth companies seeking equity investors because it can reduce costs from the current operation and overhead, helps become more efficient and costs conscious. Bootstrapping will help the entrepreneurs  to be in a stronger position to qualify for additional financing and in this way they can get through the early stages either to defer the search for equity funding or to retain control of the company.

5) WHAT IS MEANT BY FACTORING OF PURCHASE ORDERS?

Factoring of purchase orders consists in using purchase orders from reputable customers as security for a loan.  This method is an alternative to conventional bank loans and the lenders are private, they lend only a percentage of the sales order and charge high interest rates.

6) HOW CAN SUPPLIERS HELP IN PROVIDING WORKING CAPITAL?

Suppliers can help in providing working capital by sharing market data, reports, access to experts, access to supplies of test materials, access to theirs customer networks, technical support, all with the hopes that in the future, that the company becomes a major customer to them.

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.