Getting Your E-Business off the Ground Chapter 5

Startup Financing As an entrepreneur starting a new e- business, you must be prepared to invest time, effort, and your own money to get your new e-business off the ground.

Personal Assets Sweat Equity- You put in your time and effort Mortgage Personal Assets –you put up property as collateral to a bank Personal loans – you take a loan without collateral (higher interest rate). Credit card/credit line advance –similar to a personal loan. (Usually a high interest rate.)

Friends and Family Friends and family investors are family members or friends who invest in a business. Many entrepreneurs successfully solicit startup money from their network of friends and family. A network of potential friends and family investors extends beyond immediate family members and friends to their families and friends and their families and friends.

Friends and Family Advantage:It may be the easiest money you’ll ever get. Disadvantage:You are getting money from Friends or Family and putting their MONEY at RISK.

Angel Investors The term angel investor originally referred to wealthy investors in Broadway theatrical productions. In this context it refers to any individual with the assets and interest to invest in a startup business. Not the same as a Venture Capitalist May be members of an Investment club.

Touched by an Angel Angels can be difficult to find. Angels sometimes appear unexpectedly. The key is networking and research.

An Angel Investment Club

Venture Capital Investors Venture capital (VC) firms are organized to invest specifically in new business startups. Typically they take a significant equity interest in the firm with in exchange for providing startup capital.

Venture Capital Investors They may also provide expertise. They typically do not invest for the long term but expect to “cash out” after the business establishes a successful track record and can be sold or acquired by others. There are many established VC firms.

Venture Capital Firm

Business Incubators Business incubators have traditionally been government- or university- supported nonprofit organizations that nurture new businesses. Provide startup companies with management advice, office space, networking opportunities, and other critical startup services.

Business Incubators Commercial business incubators offer startup e-businesses access to the same services offered by nonprofit incubators. Commercial business incubators are primarily interested in high-technology businesses that can become financially viable quickly and leave the incubator within six months to a year.

NASA Ames Incubator

Batavia Industrial Center

Incubators May take an equity interest as well as charge for services. Not for profit incubators may use returns from equity to reinvest.

Idealab!

Internet Accelerators Some e-business incubators such as iStart ventures and Katalyst style themselves as internet accelerators. An internet accelerator is a commercial business incubator whose goal is to get a new e-business up and running quickly.

Keiretsu Providers Keiretsu is a Japanese term that refers to a network of businesses that do business with each other as a means of mutual security. Incubators that use the keiretsu model offer entry into a network of companies that do business with one another with the goal of serving the overall interest of the network.

Questions to Ask and Answer Does the business incubator offer seed money or venture capital funds linked to the incubator? What specifically will the business incubator do to help your e-business? What is the business incubator’s track record with other e-business startups?

Questions to Ask and Answer How much will it cost your e-business— in cash and equity—to be incubated? How long is the incubation period? How do you feel about the business incubator’s environment?

Self Incubation Some e-business startups like the idea of sharing office space with other entrepreneurs, exchanging ideas with others going through the startup process, and taking advantage of a mutual network of advisors.

Pitching Your Idea The first meeting with angel investors or VCs is a sales meeting. Your immediate objective in a first meeting is to get potential investors excited about your e-business idea.

And Here’s the Pitch Define your product or service Define who will buy your product or service and how much they will pay for it Define your key industry competitors Explain how much it will cost to provide the product or service

And Here’s the Pitch Explain when the investors can expect your e-business to be profitable Illustrate the planned exit strategies both for investors and for your e- business principals Detail how much money you are looking for, and how it will be spent