creating a winning e-business second edition getting your e-business off the ground chapter 4

Creating a Winning E-BusinessSecond Edition

Getting Your E-BusinessOff The Ground

Chapter 4

2

Learning Objectives

• Describe the financing issues associated

with an e-business startup

• Discuss the role of informal investors in an

e-business startup

• Identify issues important to venture capital

investors

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Learning Objectives(continued)

• Pitch your e-business idea to investors

• Discuss the advantages and

disadvantages of business incubators

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Startup Financing• Bootstrapping

– Self-funding– Finding unique and inventive ways to acquire

resources without borrowing money

• Informal investors– Friends– Family members– Angel investors

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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

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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

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Startup Financing (continued)

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Startup Financing (continued)

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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

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Startup Financing (continued)

• Venture capitalist investors (VCs) (continued)– Take many forms

• Traditional partnerships• Government-sponsored investment companies• Corporate funding programs by high-tech

companies

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Startup Financing (continued)

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Startup Financing (continued)

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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

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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

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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

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Pitching Your E-Business To Investors (continued)

• During the pitch meeting– Be on time– Be prepared– Be enthusiastic– Bring all necessary equipment and documents– Differentiate yourself and management team from

your competitors– Create the feeling that your e-business idea is a

viable, exciting investor opportunity

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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

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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

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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

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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)

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Business Incubators (continued)

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Business Incubators (continued)

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Business Incubators (continued)

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Business Incubators (continued)

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Business Incubators (continued)

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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

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Business Incubators (continued)

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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

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Chapter Summary

• An entrepreneur should expect to invest personal funds in a startup

• Informal investors include friends and family members and angel investors

• Angel investor – A wealthy individual who enjoys investing in startups

• Venture capitalist – A professional investor

31

Chapter Summary(continued)

• Meeting with investors– First meeting is a “pitch” or sales meeting– Use a carefully prepared pitch document– Anticipate questions– Be on time, be prepared, and be enthusiastic

• Pitch document – A brief sales document based on the Executive Summary portion of the business plan

32

Chapter Summary(continued)

• Non-profit and commercial business incubators offer access to resources in exchange for fees and an equity position

• Self-incubation offers access to some resources without paying fees or giving up equity