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52 Cards in this Set
- Front
- Back
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A marketing strategy, enabled by the Internet, whereby affiliates can earn commissions by linking their website to another that is selling complementary products or services
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Affiliate Program
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The process of acquiring customers for a new venture.
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Business Development
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Arrangement between two companies with complementary products or services to market their offerings together.
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Co-marketing
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The process of examining a company prior to making an investment.
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Due Dilligence
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A brief version of a company's business plan that can quickly be scanned and read by a qualified investor.
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Investors Executive Summary
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A person, employed by a lending institution, who is responsible for assisting customers in the loan application process.
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Loan Officer
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The procedures associated with securing a loan from a lending institution, such as a bank is the..
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Loan Origination Process
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A monetary limit below which the loan officer is allowed to make the lending decision.
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Low-credit limit
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Equity held in a limited liability company (LLC).
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Membership Shares
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Agreements often required to be signed by investors in firms that have proprietary intellectual property so as to prevent those investors from disclosing proprietary information to others.
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Nondisclosure Agreement
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An introduction to a potential investor by someone who already knows the investor.
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Refferal
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Money that has been earmarked by a venture firm or venture capitalist for investment in high-risk, high-return ventures.
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Risk Capital
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A document that an investor signs to indicate intent to invest in a stock offering.
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Subscription Agreement
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A company that is in the same market as another company, offering different but complementary products, and that may be able to market the other company's products in addition to its own.
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Value Added Resellers (VAR's)
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Funds provided to rapid-growth firms in exchange for a share of the ownership and frequently requiring control
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Venture Capitalist
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An investing firm usually organized by one or more venture capitalists.
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Venture Firm
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A pool of money organized by a venture firm to invest in ventures with high growth potential.
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Venture Fund
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Entrepreneurs should understand that the loan officers are the decision makers for all bank loans.
(T or F) |
False
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Entrepreneurs should approach angel investors through referrals. (T or F)
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True
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In contemporary parlance, a company's ability to generate steady revenues is called leverage. ( T or F)
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False
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Friends and family who provide money are also known as angel investors. (T or F)
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False
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Subscription agreements for angel investors include information such as voting rights and rights to sell or purchase additional stock.
(T or F) |
True
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An investor's executive summary is a very short document, usually less than one page, with no financial information. (T or F)
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False
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The right of first refusal is when angel investors are given the first option to participate in the next round of financing. (T or F)
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True
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Alliance partners should be firms whose business interests and models are complementary to those of the new venture. (T or F)
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True
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Venture firms are only interested in businesses that will reach liquidity in more than ten years.(T or F)
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False
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Since the crash of the dot-com entrepreneurs, venture capitalists have been more liberal with their investments
(T or F) |
False
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Which of the following terms describes the situation in which people stopping to get gas at Chevron are able to get food from McDonald's?
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Co-marketing
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Which of the following would not be what angel investors purchase for their investment?
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Convertible bonds
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A PPM (private placement memorandum) has to specify how a new venture's offering fits within the laws set by the
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SEC
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An entrepreneur who wants to raise equity through angel financing would be wise to consider which of the following issues in structuring the deal?
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A) type of securities
B) board of director representation C)negative covenants D)All of the above |
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Components of due diligence include all of the following except:
- Nondisclosure agreements. - The exchange of financial statements. - Marketing materials |
A PPM (private placement memorandum).
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_____ referst to ownership shares in a venture
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Equity
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If the venture has been organized as a corporation, the angel would purchase either common stock or _________ stock.
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Preferred
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As a rule of thumb, an interesting deal to a VC has three to four of the following qualities:
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- Consists of one or more great people.
- Targets a big (>$500 million - Avoids being too early or late into the market. - Requires modest capital to demonstrate that a feasible business exists (e.g., $1 million to $5 million -Possesses or can develop some form of sustainable competitive advantage. -Describes a believable and attractive business model. |
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______ is money provided to companies that need to determine the feasibility of the business concept.
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Seed funding
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___________ is late-stage capital that may be needed to position the firm for a merger or acquisition or for listing on a public exchange such as NASDAQ or the New York Stock Exchange via an initial public offering (IPO) of stock.
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Mezzanine Financing
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Successful entrepreneurs establish such mutually beneficial business alliances not only by promoting the value of their own venture's products or services but also by negotiating a contract that provides incentives for the VAR. The contract that governs this alliance may include such terms as:
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- Sharing a percentage of the revenue from each sale
- Allowing the VAR to have right of first refusal to install and integrate the new software for a fee to be charged to the client - Enabling the VAR to market and sell maintenance or service contracts to the client - Training the VAR to represent the venture's products to potential clients - Offering an exclusive license to represent the venture's products in a specified region or to a specified vertical industry |
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Angels often purchase common stock. Some angels ask for preferred stock with certain rights and liquidation preferences over the common stock. Some even ask for convertible debt or redeemable preferred stock, which provides a clearer exit strategy for the investor but also places the company at the risk of repaying the investment plus interest. If the angel asks for preferred stock or convertible debt, the entrepreneur needs to consider the ability to repay the investment as well as the possible impact of the investment in future financing rounds. For example, a venture capital source is not likely to want its investment being used to bail out prior investors
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Types of Securities
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Some angels ask for a right of first refusal to participate in the next round of financing. This right makes sense because the entrepreneur will want to reward the investors who took the most risk. At the same time, such rights may be cumbersome if the next round of investors wants to control the participants in that round.
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Rights of First Refusal
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Angels often serve on the board of directors following an investment. As the company raises future rounds of financing, the issue arises as to how long the angel should continue to have the right to be elected to the board. One alternative is to have the angel's board right disappear once the company raises a certain amount of equity financing or once the angel's ownership percentage falls below a certain level.
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Board of Director Representation
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In order to protect their investment, angels often ask the company to agree to not take certain actions without the angel investors' approval. These actions may include selling all or substantially all the company's assets, issuing additional stock to existing management, selling stock below prices paid by the investors, or creating classes of stock with liquidation preferences or other rights senior to the angels' class of security.
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Negative Covenants
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- To understand the expectations that a bank places on the entrepreneur seeking a loan, it is helpful to understand the structure of the loan origination process.
- Loan officers who meet with and discuss loan options with the entrepreneur are not the decision makers. - Most loan officers have a specific low-credit limit for which they can make a decision on their own A bank has no resources of its own. * The loan officer must be convinced that his or her career will be advanced by securing a loan for the new venture. |
Lending Institutions
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- A professional business plan
- The entrepreneur’s résumé, and résumés of all other executive officers - A completed loan package - Venture collateral material - A brief executive summary of the venture |
Presentations to the bank
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Typically wealthy individuals who allocate a small part of their net worth to investments in high risk/high reward early-stage businesses or businesses that are more mature but have smaller capital needs than more traditional venture capital deals
* They are far less formal than a lending institution and require different documentation * An entrepreneur may seek angel investors for loans or equity investments * In most cases, the entrepreneur should approach an angel investor through a referral * Angel investors often meet face-to-face with entrepreneurs, but not always - The angel and the team may decide on whether to make an investment and how large an investment to make without even meeting with the entrepreneur. * Angel investors require a complete business plan in order to make a determination about whether to invest. * Other documents that the entrepreneur includes with the business plan when attempting to sell stock to an angel investor include: - A subscription agreement - A private placement memorandum (PPM) - A very brief version of the business plan known as an investor’s executive summary |
Angel Investors
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Venture firms are usually partnerships formed by one or more venture capitalists (VCs).
* Partners in the firm raise money to form a venture fund. The investors in the fund are limited partners, or LPs. * All VCs must be concerned with making money for their limited partners. VCs will only be interested in an entrepreneur’s business if it promises to make a lot of money and reach liquidity within a three- to six-year period. * VCs also care about creating value, developing new markets and products, participating in the formation and growth of important companies, working with entrepreneurs to build new businesses, and supporting the growth of the economy. Venture capital funds rarely provide capital to start-up ventures. * A drop-off in venture capital funding was evident in the wake of the dot-com crash beginning in early 2000. Entrepreneurs will find greater success in obtaining venture capital if they can demonstrate a successful track record of sales to the company’s target market. * The ability to generate steady revenues is called traction. Like other industries, the venture fund industry is segmented. * Seed funding is money provided to companies that need to determine the feasibility of the business concept. * It can be very difficult to find VC funds interested in funding ventures of this type. |
Venture Capital
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Entrepreneurs may also need a well-developed plan to entice potential alliance partners to participate with them in joint business ventures.
- A new venture often lacks market “identity”—its primary market may not recognize its brand. * One way to mitigate that problem is for emerging ventures to become associated with well-recognized and respected brands. * Entrepreneurs stand to gain tremendous benefits through alignment with well-known and respected brands. * To prevent potential to underestimate venture’s contribution to the relationship, the new venture’s business plan should include the benefits it will bring to its partners Another type of business alignment is associated with the acquisition of customers, referred to as business development. - A software venture may align itself with firms that are already selling software products to organizations. Such firms are often called valued added resellers, or VARs. - Successful entrepreneurs establish such mutually beneficial business alliances not only by promoting the value of their own venture’s products or services but also by negotiating a contract that provides incentives for the VAR. In a third type of business alliance, a growth-oriented firm or one that has reached the mature stage develops deeper relationships with other business ventures To be successful, strategic alliances require their own business plan. * When a firm is approached to consider a joint venture undertaking, the firm takes time to study the offer, the venture making the offer, and the management team running it. * Process of developing a deeper understanding of the potential joint venture partner is known as due diligence. * Firms also exchange financial information to determine each company’s solvency and ability to support the joint venture. * A business plan is an essential part of the formation stage of a joint venture |
Seeking Partners
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In addition to VAR relationships and joint ventures, many firms today are prospering from so-called co-marketing arrangements.
* Consumers commonly can pick up fast food from a major brand, such as McDonald’s, at their favorite gasoline station, such as a Chevron station. * An entrepreneur with a new and emerging brand can gain rapid awareness and market penetration through a careful co-marketing arrangement. A co-marketing arrangement, like a VAR approach, must provide benefits to both parties to the agreement. * A well-crafted business plan is the cornerstone of the established brand’s due diligence process. Finally, all business is about results measured in financial terms. * The new venture’s business plan includes marketing information relevant to prospective co-marketing partners. * It also projects the benefits that will accrue to marketing partners through a co-marketing arrangement. All entrepreneurs want their own venture to benefit, but the prospective partner’s primary viewpoint is self-interest. Among businesses that are primarily centered on the Internet or have extensive Internet distribution models, the term affiliate program is often used in place of co-marketing. |
Co-Marketing
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Two primary resource types require a business plan: (2)
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- Human Capital
- Office Space |
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Human capital are top-level executives and board members.
* In addition to recruiting executive officers, the venture may want to establish a board of directors or an advisory board. * Although most board members are protected from liability through the firm’s insurance, well-qualified board candidates take their board duties seriously and will not want their reputation affected by a poorly planned venture. * Most potential board candidates require a business plan to review in order to evaluate their willingness and ability to assist the entrepreneur |
Human Capital
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Because early-stage ventures often have difficulty with cash flow, they will on occasion have trouble paying regular monthly bills.
- Landlords know this, and they attempt to ward off problems with lease payments through several well-known tactics. - Entrepreneurs should be prepared with an up-to-date business plan when seeking office space. The ability to produce a business plan demonstrates to the landlord that the business is organized and well managed. |
Office Space
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The ablity to generate steady revenues is called
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Traction
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