EEE-2023-65061 EXAM III

A new venture team

group of founders, key employees, and advisers that move a new venture from an idea to a fully functioning firm.

Liability of newness

refers to the fact that companies often falter because the people who start them lack the skills needed to adjust quickly enough to their new roles and because the firm lacks a “track record” with outside buyers and suppliers.

Founding team

A team of individuals who launch a new venture together. Some believe that teams of entrepreneurs, rather than a single entrepreneur, bring more talent, resources, ideas, and professional contacts to a new venture than does a sole entrepreneur.

Heterogeneous

that they are diverse in terms of their abilities and experiences

Homogeneous

areas of expertise are very similar to one another

Prior entrepreneurial experience

is one of the most consistent predictors of future entrepreneurial performance

Relevant industry experience

on an entrepreneur’s ability to successfully launch and grow a firm is another topic that researchers study.21 Entrepreneurs with experience in the same industry as their current venture have a more mature network of industry contacts and better understand the subtleties of their respective industries

Networking

is building and maintaining relationships with people whose interests are similar or whose relationship could bring advantages to a firm.

Skills profile

is a chart that depicts the most important skills a venture needs and where skills gaps exist.

Employee

is someone who works for a business, at the business’s location or virtually, utilizing the business’s tools and equipment and according to the business’s policies and procedures.

Intern

is a person who works for a business as an apprentice or trainee to obtain practical experience.

Freelancer

is a person who is in business for themselves, works on their own time with their own tools and equipment, and performs services for several clients

Virtual assistant is a freelancer who provides administrative, technical, or creative assistance to clients remotely from a home office.

Board of directors

a panel of individuals that a corporation’s shareholders elect to oversee the management of the firm.

inside director

is a person who is also an officer of the firm

outside director

is a nonemployee.

Signaling

The act of a high-quality individual agreeing to serve on a company’s board of directors, indicating that the individual believes that the company has the potential to be successful.

advisory board

is a panel of experts who are asked by a firm’s managers to provide counsel and advice on an ongoing basis. Unlike a board of directors, an advisory board possesses no legal responsibility for the firm and gives nonbinding advice.

consultant

is an individual who gives professional or expert advice. New ventures vary in terms of how much they rely on business consultants for direction.

burn rate

is the rate at which it is spending its capital until it reaches profitability

Sweat equity

which is the value of the time and effort that a founder puts into a new venture,10 is also important. Because many founders do not have a substantial amount of cash to invest in their ventures, sweat equity is often what makes the most difference.

promissory note

details the terms of a loan agreement.

Bootstrapping

is finding ways to avoid the need for external financing or funding through creativity, ingenuity, thriftiness, cost-cutting, or any means necessary

Equity financing

(or funding) means exchanging partial ownership of a firm, usually in the form of stock, in return for funding.

liquidity event

which is an occurrence that converts some or all of a company’s stock into cash

Debt financing

is securing a loan. Commercial bank and Small Business Administration (SBA) guaranteed loans are the most common sources of debt financing.

elevator speech (or pitch)

a brief, carefully constructed statement that outlines a business opportunity’s merits.

Business angels

are individuals who invest their personal capital directly in startups.

yield rate

is the percentage of investment opportunities that people bring to the attention of investors that results in an investment

Venture capital

is money that venture capital firms invest in startups and small businesses deemed to have exceptional growth potential.

limited partners

Investors who invest in venture capital funds

general partners

venture capitalists who manage the fund. General partners receive an annual management fee in addition to 20 to 25 percent of the profits the fund earns.

Carry

percentage of the profits the venture capitalists receive

Rounds

(or stages) will not receive the money all at once after investing in a startup. Instead, the investor will invest their money in.

Follow-on funding

is the term describing money the startup receives after the initial investment.

due-diligence process

is one where individuals investigate the merits of a potential venture and verify the key claims made in the business plan

corporate venture capital

This type of capital is like traditional venture capital except that the money comes from corporations that invest in startups related to their areas of interest.

initial public offering (IPO)

is the first sale of stock by a firm to the public.

secondary market offering

is when a firm issues shares after the IPO

Sarbanes-Oxley Act

of 2002, a federal law that passed in response to corporate accounting scandals involving prominent corporations, such as Enron and WorldCom.

investment bank

is an institution that acts as an underwriter or agent for a firm issuing securities.

preliminary prospectus

A document the investment bank issues while the Securities and Exchange Commission investigates the potential offering; describes the potential offering to the general public.

road show

which is a whirlwind tour consisting of meetings in key cities, where the firm presents its business plan to groups of investors.

private placement

which is the direct sale of an issue of securities to a large institutional investor

single-purpose loan

in which a firm borrows a specific amount of money that it must repay in a fixed amount of time, with interest

line of credit

in which there is a borrowing “cap” and borrowers can use the credit at their discretion. Lines of credit require periodic interest payments.

SBA Guaranteed Loan Program

Commercial banks, savings and loans, credit unions, and other specialized lenders are eligible to participate.

7(A) Loan Guaranty Program

The most notable SBA program available to small businesses is the This program accounts for 90 percent of the SBA’s loan activity.

Peer-to-peer lenders

underwrite borrowers but do not fund the loans directly. Instead, they act as intermediaries between borrowers and individuals or borrowers and institutional investors

Vendor credit

(also known as trade credit) is credit a vendor extends to a business to allow it to buy its products up front but defer payment until later.

Factoring

is a financial transaction whereby a business sells its accounts receivable to a third party, called a factor, at a discount in exchange for cash

Crowdfunding

is the practice of funding a project or new venture by raising money from many people (i.e., the crowd), typically via the Internet.

Rewards-based crowdfunding

finds entrepreneurs raising money in exchange for some type of amenity or reward.

Equity-based crowdfunding

helps businesses raise money by tapping individuals and professional investors who provide funding in exchange for equity in the business.

accredited investor

is a person allowed to invest in higher-risk investments such as business startups

Lease

is a written agreement in which the owner of a piece of property allows an individual or business to use the property for a specified time in exchange for payments.

venture-leasing firms

that act as brokers, bringing parties together to form a lease. These firms have lists of companies that make specialized equipment.

SBIR program

is a competitive grant program that provides over $2.5 billion per year to small businesses for early-stage and development projects.

STTR program

is a variation of the SBIR for collaborative research projects involving small businesses and research organizations, such as universities or federal laboratories.

Market segmentation

Market segmentation is important because a new firm typically has only enough resources to target one market segment, at least initially

Niche market

is a place within a market segment that represents a narrow group of customers with similar interests

Product attribute map

which illustrates its positioning strategy relative to its major rivals.

Tagline

is a catchy phrase that a firm uses consistently in its literature, advertisements, stationery, social media platforms, and even invoices.

Brand

is the set of attributes—positive or negative—that people associate with a company

Brand management

a program firms use to protect the image and value of their brand in consumers’ minds.

Buzz

means creating awareness and a sense of anticipation about a company and its offerings

Brand equity

is the term that denotes the set of assets and liabilities linked with a firm’s brand that result in an increase in its valuation

Marketing mix

is the set of controllable, tactical marketing tools that it uses to produce the response it wants in the target market.

Product

in the context of its marketing mix, is the good or service it offers to its target market.

Service

an activity or benefit that is intangible and does not take on a physical form, such as an airplane trip or advice from an attorney.

Reference account

is an early user of a firm’s product who is willing to give a testimonial regarding their experience with the product.

Price

is the amount of money consumers pay to buy a product. It is the only marketing mix element that produces revenue; all other elements generate costs.

Cost-based pricing

firms determine the list price for a product by adding a markup percentage to its fixed and variable costs.

Value-based pricing

a firm determines the price of its product by estimating what consumers are willing to pay for it, then backs off a bit to provide a cushion.

Price–quality attribution

This means that consumers naturally assume that the higher-priced product is also the better-quality product.

Promotion

is a set of marketing activities designed to increase awareness, sales, and the visibility of a product, service, or company.

Digital marketing

is a form of marketing that uses digital technologies to promote a firm’s products.

Social media marketing

is the use of social networks as a marketing and sales tool.

Digital analytics

is the collection, analysis, and interpretation of data from digital sources (such as search engine ads or social media sites) so firms have insights about the outcomes of their digital marketing initiatives

Public relations

is a set of actions firms take to establish and maintain their desired image with the public.

Press kit

is a folder containing background information about the company and a list of its most recent accomplishments.

Trade show

is an event at which firms from a specific industry exhibit and demonstrate how to use their products.

Influencer

is a person with the ability to affect the purchasing decision of others because of their authority, knowledge, position, or relationship with their audience.

Social media influencer

is someone who is prominent on a particular social media platform and has built a reputation in a certain area

Viral marketing

facilitates and encourages people to pass along a marketing message about a product.

Guerrilla marketing

is a low-budget approach to marketing that relies on ingenuity, cleverness, and surprise rather than traditional techniques.

Place, or distribution, encompasses all the activities that move a firm’s product from its place of origin to the consumer.

Distribution channel

is the route a product takes from its place of origin to the customer, who is the end-user.

Exclusive distribution arrangements

give a retailer or other intermediary the exclusive rights to sell a company’s products.

Sales process

is the set of steps a firm takes to identify prospects and close sales.

Intellectual property

is any product of human intellect that is intangible but has value in the marketplace.

Patent

is a grant from the federal government conferring the rights to exclude others from making, selling, or using an invention for the term of the patent

Utility patents

are the most common type of patent and cover what we generally think of as new inventions.

One year after first use deadline

The requirement that you must file a patent application within one year of these milestones

Business method patent

is a patent that protects an invention that is, or facilitates, a method of doing business.

Design patents

are the second most common type of patent and cover the invention of new, original, and ornamental designs for manufactured products

Plant patents

protect new varieties of plants that can be reproduced asexually. While only a small fraction of the patents applied for each year are plant patents, these provide essential protection for companies specializing in plant genetics and related areas.

Assignment of invention agreement

First, if an invention is made during the inventor’s employment with a firm, the employer typically receives the right to apply for the patent through this, signed by the employee as part of the employment agreement

Provisional patent application

file USPTO allows investors to file for. For utility patents, pending the preparation and filing of a complete application.

Patent infringement

takes place when one party engages in the unauthorized use of another party’s patent.