MGT 337 Final Exam

Bootstrapping

Creative ways to access resources without outside investments

Crowdfunding

Usually done on the internet, but its small amounts of money from many people like family, friends, and fools

What are venture capitalists?

They are private equity investors who provide funding to startups and companies with high growth potential, typically in exchange for an equity stake. Fund goes through 10-year cycle

What are sharktank people?

Venture Capitalists

Equity financing

Sales of shares for cash

What are the five stages of equity financing

Seed-stage funding: Small proof of concept

Startup financing: implement idea

Early-stage financing: to achieve revenue

Second-stage or late-stage financing: growth

Going public through IPO: selling to public

Angel Investors v. VC

• They work alone and are individuals that have a net worth higher than $1 million

• invest 25k-100k in personal funds

• Fund seed or early stage companies

• carry out INformal due diligence

• Not significantly involved but will offer advice and guidance

• Responsible for own decisions

• Exit with returns on personal investment

Venture Capitalists v. AI

• They are part of companies that manage various funds

• Invest 500k+ in funding, avg. amount is 7mil

• Fun from early- to late-stage companies

• Conduct formal due diligence

• Will provide strategic support, recruit senior-level executives, and will often assume a board seat

• Decisions made by committee

• Exit with returns to fund’s partners

What do investors look for when contemplating an investment?

Product, competition, growth potential, financial management, team, value add, and exit plan

How can entrepreneurs value their companies?

• Anticipated future cash flow

• Very few overnight successes (trajectory of comparable firms)

• Check similar companies in industry

• True valuation between owners and investors

How do investors value startups?

• Position of your company in the marketplace

• Pre-money valuation (Post-money minus investment)

• Post-money valuation (value asked for in deal

What is convertible debt?

Short term loan turned into equity and debt converts to stock shares.

What are two benefits to convertible debt?

Does not require a valuation and investors get a discount at conversion

What are two disadvantages to convertible debt?

The entrepreneur might have to pay back the loan and could require an expensive lawyer

Entrepreneurial Angels

Experienced entrepreneurs willing to take bigger risks and provide mentors

Corporate Angels

Commonly former business executives looking for a paid position in a new venture, may clash with startup culture, looking for hands-on involvement in new ventures

Porfessional Angels

Professionals from other fields (doctors, lawyers, etc), commonly silent investors, may want to become paid advisors

Enthusiast Angels

Independently wealthy, retired entrepreneurs or executives, investing is a hobby

Angel groups

Pooling funds to invest together, meet regularly to hear pitches, tend to specialize in areas, WOMEN ARE BETTER INVESTORS; few angels are from marginalized backgrounds; milestones for angel investment

How does venture capital work?

Specific investment portfolio, smart, talented, well-respected people, goals aligned with theirs, A team with B idea

Why might venture capitalists say no to your business?

negative founder or team dynamics, dont have a clear mission, lack of focus, dishonesty, founding team works in different locations, too much investment needed, poor-quality presentation and pitch, Licensing or IP issues, unclear value proposition

Debt financing

Startups are risky; entrepreneur needs capital and collateral, owners’ capacityand credit rating, mostly used for growth phase of businesses with low scalability

Due Diligence

Process to evaluate investment opportunity, trying to mitigate risk, vigorous appraisal, backgrounds are verified, angel investors are less involved, essential to building trust

SCORE Association

Service Corps of Retired Executives

Sole Proprietorship

Business owned by one person, completely controlled by owner, personally exposed to all liabilities

General Partnership

Business owned by two or more, profits reported on individual returns, a formal agreement between partners, partners are liable for business

C Corporation

Separate legal entity, corporation is legally liable, investment is most shareholders can lose, transferable ownership, continuous existence, corporations easy to set up, profits often paid to owners, tax calculated separately

S Corporation

Corporation eligible for special taxation, no more than 100 shareholders, income passed to company’s shareholders, corporations losing money in the short term

Limited liability Company

Taxation of partnership, liability benefits of corporation, profits and losses reported by individual, owenrship agreements advisable

Limited Partnership and Limited Liability Partnership

LP is pass-through tax entity (silent investors); LLP gets form of limited liability, which is mostly replaced by LLCs

Benefit Corporation

Strict standards of social and environmental performance, ensures company fulfills social mission and social benefits goals in its charter, balance between profit and social benefit

Not-for-Profit Entities

Exempt from income tax, some for profits can receive benefits; no earnings can benefit individuals, and profits must be reinvested

Intellectual Property

Intangible property created by humans, intellectual property rights, IP is essential to business survival; innovation drives creative destruction, does not transfer countries

Four types of IPs

• Copyright for creative works

• Trademark and service mark

• Trade secrets

• Patents for inventions

Required employee benefits in the United States

• Social security and medicare

• Unemployment insurance

• Workers’ compensation insurance

• Family and Medical Leave Act protections

Traditional Marketing

Creating, communicating, delivering offerings, communicating value proposition, implementing delivery, and maintaining customer relationships

New venture marketing

New message (no maintenance marketing), resource-constrained environment, learning curve

The marketing mix

Framework that defines the brand, product, place, promotion, place, people, packaging, and position

Reframing the four Ps: The SAVE framework

Solution, access, value, education done by the Harvard Business school study

Five core characteristics of Entrepreneurial Marketing

Growth and scale, resource constraints, speed and experimentation, integrated communications, and brand building

What is the easiest and least expensive way to market a new venture?

digital marketing because it uses digital channels to reach customers and is key to reaching a wider audience

Even though your business may not currently be profitable, investors will want to know how many customers you have, primarily because it will show the potential ____________

To scale the business

In general, entrepreneurs may raise what amount through the 3 Fs?

Between $1,000 and $100,000

Today’s VCs do not readily invest in what stage of ventures as much as they once did, given the higher risk level?

Seed

What is the general rule of thumb for new startups in relation to funding?

Avoid seeking investments for as lon as possible

How often will additional funding be awarded by a venture capitalist, assuming the company is growing?

One to two years

The term ____ refers to a rigorous process that evaluates an investment opportunity prior to a deal being finalized

Due diligence

A company receives funds from an investor after having put a team in place and having piloted a product. They needed funding because they were still showing little or no revenue. Which type of funding is this?

Early-stage

An angel investor has started a series of successful businesses. Although they still have a hand in running a few of their own startups, they decided they would like to invest some of their own capital into early-stage, higher-risk startups. What type of angel investor is this?

Corporate

An entrepreneur is asking $1 million for 30% of his company. What is the entrepreneur’s post-money valuation?

$3.33 million

After filing for a provisional patent, how long do you have before developing the idea into a prototype?

One year

Any word, name, symbol, or device used in business to identify and promote a product is called a ________

Trademark

How many years does a federally registered trademark last before it must be renewed?

10

What business entity term refers to a business owner who has not formed a separate entity to run the business?

Sole proprietorship

If an entrepreneur is esspecially inerested in maintaining IP protection for their products, which action would be best to take?

Keep production of the products local to the place where IP protection was awarded

Typically, limited liability partnerships (LLPs) are only popular amongst what type of business?

Professional practices

What two characteristics should a lawyer have when working with a startup?

Industry knowledge and a familiarity and comfort working with startups

Which of the following conditions is applicable to all not-for-profit organizations?

Profit must be reinvested and used for the organization’s exempt purpose

What step might be taken in the US if some disclosure of your product is necessary in order to obtain funding, obtain raw materials, or otherwise develop the product?

File for a provisional patent

Which social media channel receives the biggest expenditure by brands for influencer marketing as of 2022?

Instagram