Creating a Winning E-Business Second Edition Getting Your E-Business Off The Ground Chapter 4

Creating a Winning E-Business Second Edition, 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

Creating a Winning E-Business Second Edition, Chapter 4 3 Learning Objectives (continued)  Pitch your e-business idea to investors  Discuss the advantages and disadvantages of business incubators

Creating a Winning E-Business Second Edition, Chapter 4 4  Starting a new e-business : –building a Web site prototype, –conducting market research, –renting office space, –buying or leasing equipment, –hiring employees —that require funds

Creating a Winning E-Business Second Edition, Chapter 4 5 Startup Financing  Bootstrapping –Self-funding –Sweat equity Invest your own time, effort, money, even re-mortgage and personal loan –Finding unique and inventive ways to acquire resources without borrowing money  Informal investors –Friends –Family members –Angel investors

Creating a Winning E-Business Second Edition, Chapter 4 6 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

Creating a Winning E-Business Second Edition, Chapter 4 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

Creating a Winning E-Business Second Edition, Chapter 4 8 Startup Financing (continued)

Creating a Winning E-Business Second Edition, Chapter 4 9

10 Cast study  Read the “Of Angels and ” case.  How did Sendmail get its start?  Do you think it was difficult or easy to get angel investors to look at the Sendmail e-business idea? Why?  Why do you think the Sendmail e-business idea was attractive to the members of Band of Angels and the co-founders of Sun Microsystems?

Creating a Winning E-Business Second Edition, Chapter 4 11 Startup Financing (continued)

Creating a Winning E-Business Second Edition, Chapter 4 12  人 们往往注意美国的纳斯达克市场、风险投资市场如何 发达，但却忽视了美国大量的商业天使的存在。  著名的商业天使就有作为微软公司创始人之一的保 · 艾伦 （ PaulAllen ）等。  据介绍，其实高风险与高收益总是孪生体，天使投资一般 投资具有高成长性的科技型项目，其收益率普遍在 50 倍以 上，超过万倍的回 报也不少见。 –1992 年，美国苹果公司刚创办时一笔 9.1 万美元的投资， 6 年后实现了 1.54 亿美元的回报。 – 搜狐网站当初创办时，张朝阳身无分文，其导师 尼葛洛庞 帝和一位同学投资了 22 万美元，后来也实现了上百倍回报。

Creating a Winning E-Business Second Edition, Chapter 4 13 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

Creating a Winning E-Business Second Edition, Chapter 4 14 Start up financing  Venture capital investors: –Have to give up a large equity stake (20-40%) –One or more seats on board of directors –Have experienced management team member –Offer knowledge and contact

Creating a Winning E-Business Second Edition, Chapter 4 15 Startup Financing (continued)  Venture capitalist investors (VCs) (continued) –Take many forms Traditional partnerships Government-sponsored investment companies Corporate funding programs by high-tech companies

Creating a Winning E-Business Second Edition, Chapter 4 16 Startup Financing (continued)

Creating a Winning E-Business Second Edition, Chapter 4 17 Startup Financing (continued)

Creating a Winning E-Business Second Edition, Chapter 4 18 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

Creating a Winning E-Business Second Edition, Chapter 4 19 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

Creating a Winning E-Business Second Edition, Chapter 4 20 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

Creating a Winning E-Business Second Edition, Chapter 4 21 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

Creating a Winning E-Business Second Edition, Chapter 4 22 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)

Creating a Winning E-Business Second Edition, Chapter 4 23 Business Incubators (continued)

Creating a Winning E-Business Second Edition, Chapter 4 24 Business Incubators (continued)

Creating a Winning E-Business Second Edition, Chapter 4 25 Business Incubators (continued)

Creating a Winning E-Business Second Edition, Chapter 4 26 Business Incubators (continued)

Creating a Winning E-Business Second Edition, Chapter 4 27 Business Incubators (continued)

Creating a Winning E-Business Second Edition, Chapter 4 28 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

Creating a Winning E-Business Second Edition, Chapter 4 29 Business Incubators (continued)

Creating a Winning E-Business Second Edition, Chapter 4 30 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

Creating a Winning E-Business Second Edition, Chapter 4 31 Sponsoring Entities  8% Academic Institutions  40% Government  28% Economic Development Organizations  4% For-Profit Entities (Corporations)  8% Hybrid  12% Not Applicable

Creating a Winning E-Business Second Edition, Chapter 4 32 Pitching your e-business idea  The first sales meeting with angel investors or VCs  To get potential investors excited and interested in further discussion  One hour brief presentation  Hand out two to three pages based on Executive Summery of your business plan

Creating a Winning E-Business Second Edition, Chapter 4 33 Pitch presentation  Define your product or service  Highlight the market need  Explain how your e-business meets that need  Potential profits  How your e-business’s management team can make it all happen  Make your proposal presentation

Creating a Winning E-Business Second Edition, Chapter 4 34 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

Creating a Winning E-Business Second Edition, Chapter 4 35 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

Creating a Winning E-Business Second Edition, Chapter 4 36 How to be a good speaker  I will not waste your time.  I know who you are and I know why you came.  I am well organized.  I will deliver this speech in an interesting, conversational way.  I know my subject.  Here are my most important points.  I am finished. From How to Give a Terrific Presentation by Karen Kalish (AMACOM, 1996).

Creating a Winning E-Business Second Edition, Chapter 4 37

Creating a Winning E-Business Second Edition, Chapter 4 38

Creating a Winning E-Business Second Edition, Chapter 4 39 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

Creating a Winning E-Business Second Edition, Chapter 4 40 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

Creating a Winning E-Business Second Edition, Chapter 4 41 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