1. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © Chapter 10 Raising Money for Starting and Growing Businesses

2. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © Ways of raising money Turning to family and friends Approaching business angels Going PublicBeing Acquired Looking for Venture Capital

3. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © Four basic ways of evaluating a business   Earning-capitalization valuation   Present value of future cash flows   Market-comparable valuation   Asset-based valuation

4. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © Earnings Capitalization Method: Company value = Net Income/ Capitalization Rate Present Value of Future Cash Flows: PV = PV of the future free CF + the residual (terminal) value of the firm Market-comparable Valuation (Multiple of earnings): Total Equity Valuation = NI x P/E

5. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © Asset-based Valuation Modified (adjusted) book valueReplacement value Liquidation value

6. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © External Financing External Financing Services at reduced rates Vendor financing Leased equipment Government programs Reduced rent Customer financing

7. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © Finding business angels 1.Formal angel groups Pros: Easy to find Cons: May charge you for presentation or even business plan submission; Few in number (several thousand) 2. Individual angels Pros: Several hundred thousand Cons: Hard to find and approach – the best way is through your network

8. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © Types of Business Angels Entrepreneurial Angels Corporate angels Professional Angels Enthusiast Angels Micromanagement Angels Can be invaluable advisors and mentors Can take over or ruin your company Silent partners Passive investors Intervene in the business

9. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © Target Market Product/ Service Competitive Positioning Financial Returns Business Plan Management Team Top 6 factors according to VCs VCs may help you hire a Team Fragmented, accessible, and growing rapidly Better and protected No dominance, distribution channels are open 7X return in 5 years Competent written business plan

10. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © Assessing a VC Value added Patience Deep pockets Accessibility Board of directors

11. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © Harvesting (exiting) investments ► Initial Public Offering (IPO) ► An acquisition ► A buyback of the investor’s stock Very Unlikely

12. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © Pros and Cons of an IPO Financing High Expenses Follow-On Financing Public Fish Bowl Realizing Prior Investments Short-Term Time Horizon Prestige and Visibility Post-IPO Compliance Costs Compensation for Employees Management’s Time Acquiring Other Companies Takeover Target Employee Disenchantment UpsidesDownsides

13. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © Advantages and disadvantages of an acquisition for the seller Management Founder and CEO Company Investors Converting stock Employment Agreement Culture Expenses and Commissions Managers can stay focused on building the company Selling a “baby” can be traumatic The buyer usually has big pockets Investors easily exit their investments If it is a cash transaction, the entrepreneurs and employees get cash immediately Key employees sign non-competing agreement There is a risk there will be a clash of cultures The expenses are lower for an acquisition than for an IPO