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Creating a Winning E-Business Second Edition. Getting Your E-Business Off The Ground Chapter 4. Learning Objectives. Describe the financing issues associated with an e-business startup Discuss the role of informal investors in an e-business startup

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creating a winning e business second edition

Creating a Winning E-BusinessSecond Edition

Getting Your E-BusinessOff The Ground

Chapter 4

learning objectives
Learning Objectives
  • Describe the financing issues associated with an e-business startup
  • Discuss the role of informal investors in ane-business startup
  • Identify issues important to venture capital investors
learning objectives continued
Learning Objectives(continued)
  • Pitch your e-business idea to investors
  • Discuss the advantages and disadvantages of business incubators
startup financing
Startup Financing
  • Bootstrapping
    • Self-funding
    • Finding unique and inventive ways to acquire resources without borrowing money
  • Informal investors
    • Friends
    • Family members
    • Angel investors
startup financing continued
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
startup financing continued6
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
startup financing continued9
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
startup financing continued10
Startup Financing (continued)
  • Venture capitalist investors (VCs) (continued)
    • Take many forms
      • Traditional partnerships
      • Government-sponsored investment companies
      • Corporate funding programs by high-tech companies
startup financing continued13
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
pitching your e business to investors
Pitching Your E-Business To Investors
  • First meeting with investors is a sales meeting
  • Bring a pitch document
    • Short marketing document based on Executive Summary portion of business plan
      • Highlights market need
      • Shows how startup meets that need
      • Indicates potential profits
      • Shows how management team can make it happen
pitching your e business to investors continued
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
pitching your e business to investors continued16
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
business incubators
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
business incubators continued
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
business incubators continued19
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
business incubators continued20
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)
business incubators continued26
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
business incubators continued28
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
chapter summary
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
chapter summary continued
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
chapter summary continued31
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