Creating a Winning E-Business Second Edition

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Creating a Winning E-BusinessSecond Edition

• Getting Your E-BusinessOff The Ground
• Chapter 4

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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

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Learning Objectives(continued)

• Pitch your e-business idea to investors
• Discuss the advantages and disadvantages of
  business incubators

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• Starting a new e-business
• building a Web site prototype,
• conducting market research,
• renting office space,
• buying or leasing equipment,
• hiring employees
• that require funds

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Startup Financing

• Bootstrapping
• Self-funding
• Sweat equity
• Invest your own time, effort, money, even
  re-mortgage and personal loan
• Finding unique and inventive ways to acquire
  resources without borrowing money
• Informal investors
• Friends
• Family members
• Angel investors

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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

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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

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Startup Financing (continued)
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Cast study

• Read the Of Angels and E-Mail case.
• How did Sendmail get its start?
• Do you think it was difficult or easy to get
  angel investors to look at the Sendmail
  e-business idea? Why?
• Why do you think the Sendmail e-business idea was
  attractive to the members of Band of Angels and
  the co-founders of Sun Microsystems?

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Startup Financing (continued)
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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

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Start up financing

• Venture capital investors
• Have to give up a large equity stake (20-40)
• One or more seats on board of directors
• Have experienced management team member
• Offer knowledge and contact

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Startup Financing (continued)

• Venture capitalist investors (VCs) (continued)
• Take many forms
• Traditional partnerships
• Government-sponsored investment companies
• Corporate funding programs by high-tech companies

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Startup Financing (continued)
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Startup Financing (continued)
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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

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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

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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

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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

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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)
• Womens Technology Cluster (WTC)

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Business Incubators (continued)
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Business Incubators (continued)
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Business Incubators (continued)
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Business Incubators (continued)
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Business Incubators (continued)
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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

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Business Incubators (continued)
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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

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Sponsoring Entities 

• 8 Academic Institutions
• 40 Government
• 28 Economic Development Organizations
• 4 For-Profit Entities (Corporations)
• 8 Hybrid
• 12 Not Applicable

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Pitching your e-business idea

• The first sales meeting with angel investors or
  VCs
• To get potential investors excited and interested
  in further discussion
• One hour brief presentation
• Hand out two to three pages based on Executive
  Summery of your business plan

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Pitch presentation

• Define your product or service
• Highlight the market need
• Explain how your e-business meets that need
• Potential profits
• How your e-businesss management team can make it
  all happen
• Make your proposal presentation

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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 dont know, simply
  say so and move on

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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

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How to be a good speaker

• I will not waste your time. 
• I know who you are and I know why you came. 
• I am well organized. 
• I will deliver this speech in an interesting,
  conversational way. 
• I know my subject. 
• Here are my most important points. 
• I am finished.
• From How to Give a Terrific Presentation by
  Karen Kalish (AMACOM, 1996).

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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

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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

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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