Raising Entrepreneurial Capital

Raising Entrepreneurial Capital begins where entrepreneurship books leave off. This book provides a broad, high-level discussion of the financing decisions that companies must make to achieve success. With a focus on classic capital raising, the text covers the debt vs. equity decision, as well as the options available to smaller businesses. It also describes the factors that lead to rapid growth, including venture capital, IPOs, angels, incubators, and much more.

Combining solid theory with practitioner's experience and insights, this book should increase student understanding of how to raise entrepreneurial capital. It explains how your company should position itself to attract private equity investment, and what steps you can take to improve your company's marketability. It includes several chapters on worldwide regional variations on forms and availability of pre-seed capital, incubators, and the business plans they create, with case-studies from Europe, Latin America, and the Pacific Rim. It also effectively differentiates between venture capital and entrepreneurial capital.

This book will appeal to entrepreneurs and to students in Entrepreneurship programs, particularly entrepreneurial finance courses.

• Combines solid theory with practitioner's experience and insights
• Case studies illustrate theory throughout the book
• Describes worldwide and regional variations in capital raising strategies

Students in Entrepreneurship programs, particularly entrepreneurial finance courses, Entrepreneurs

Chapter 1: Introduction- In the Beginning

A. Introduction

1. Understanding the Characteristics of Small Businesses
2. The Home Based Alternative
3. Assessing the Risks

B. Organizational Form

1. Sole Proprietorship
2. General Partnership
3. Limited Partnerships
4. S Corporation
5. LLC- Limited Liability Companies
6. C Corporation
7. Ownership Structure and Capitalization

C. Creative Sources of Capital

1. Initial Sources of Capital
2. Small Firms Typical Use of Financial Services
3. Bootstrap Strategies

D. Experts Explain How Small Businesses Fail

1. Glocal Advantage Company Perspective
2. U.S. SBA's Small Business Failures: A Framework for Analysis
3. Joseph M. Sherlock, Management Consultant Perspective
4. Business Bankruptcy Project

E. Organization of the Book

Summary

Case 1A. New Tech: Overview

1. The Company
2. Challenge: How to Grow?
3. An Advisor
4. Study Questions Tables

Exhibit

References

Bibliography Chapter 2: Options in Venture Financing- Debt Capital

A. Introduction

1. Lending Sources
2. SBA Loans- Profile of a provider
3. Loan Brokers- Online Screening Form

B. Debt Capital Considerations

C. Approaching Prospective Leaders

1. The Loan Package
2. The Lender's Perspective

D. Debt Capital Terms and Options E. Term of Loan

1. Loans may be secured or unsecured
2. Venture Banking
3. Asset-based financing
4. Trade credit
5. Case 1: SPS (A). Financing strategy

F. Estimating Financing Requirements

1. Case2: MDO Products, Inc. (A): Startup Financing
2. Break-Even Analysis

G. Estimating Asset Requirements

1. Current assets
2. Fixed assets
3. Other assets
4. Indirect increases in assets
5. Capital Requirements as Percent of Sales

H. Estimating the Liabilities and Equity

1. Current Liabilities
2. Long-Term Debt
3. Equity
4. Case 3: Cajun Yachts, Inc: Startup Financing Summary

Tables

1. Table 1: Sources of Credit for Small Business
2. Table 2: New Tech Industry Group

Discussion Questions

Bibliography Case 2-1 New Tech: Introduction The Challenge: Determining Needs The Challenge: Financial Projections Cost of a new Production Facility Working Capital Requirements Earnings Break-Even Point The Solution: Financial Needs Appendix- New Tech Case Story: 1. Financial Statements Income Statements Balance Sheets Appendix- New Tech Case Story: 2. Financial Ratios Leverage Ratios Profitability Ratios Appendix- New Tech Case Story: 3. Key Assumptions Chapter 3: Options in Venture Financing- Early Stage Equity Capital

A. Introduction

B. Angel Investors

1. Early Stage Investing
2. In Practice
3. Characteristics C. Other Sources of Early Stage Funding
4. The Small Business Administration
5. Differing Perspectives
6. Valuation Isues

D. Stages, Or "Rounds," of Funding

1. Getting "Off the Ground"
2. Rapid Growth
3. Maturity

Summary

Case 3A. New Tech: Where Will the Money Come From?

Case 3B. New Tech: Are They Worth An Investor's Time? Case 3C. Ecoturista

Executive Summary: As Distributed in the Fall of 1999

Bibliography Chapter 4: Determining the Amount Needed

A. The Business Plan

1. Introduction
2. The Executive Summary
3. Vision Statement/Business Description
4. The Market Analysis
5. Competitive Analysis
6. The Venture Team
7. Sales and Marketing
8. Financial Projections
9. Legal Entanglements
10. Are the Risks Properly Assessed?
11. Is the Exit Strategy Feasible? B. The Investor's Perspective

C. The Financial Projections'

1. Pro Forma Financial Statements
2. Case Study: Amazon.com
3. Analysis

Summary

Questions Case 4A. New Tech: Is Management Ready?

Case 4B. New Tech: Web Wired Web Wired Executive Summary Company Technology, Products and Benefits Market, Growth and Competitive Overview Sales, Marketing and Revenue Management Financial Projections Investment Needs Business Plans Opportunity Marketing Sales

Bibliography

Appendix

Sample Business Plan Template Chapter 5: Valuation: Survey of Methods

A. Introduction: Valuation Methodologies

B. Asset-Based Valuation

1. Liquidation Value
2. Replacement Value
3. Modified Book Value

C. Market Multiples

1. Comparables
2. Valuing service businesses
3. Mathematical relationships
4. Woodridge Corporation
5. Superior Plumbing Supply
6. Appropriateness of methods
7. Valuation: Example

D. Capitalization Rates

E. Excess Earnings Approach

1. Defined
2. Example Free Cash Flow Valuation
3. Defined
4. Illustrating the Free Cash Flow Model
5. Woodridge Corporation
6. Application notes
7. Determining the Discount Rate

Summary

Questions

Case 5A. New Tech: What's the Company Worth? Valuation- The Company's Perspective Discounted Cash Flow Methods Finding the Value at the End of the Investment Period Valuation - the Investor's Perspective To Do: Case Study Questions Appendix: New Tech's Financial Forecast

Appendix Liquidity Ratios Asset Management Debt Ratios Profitability Industry Average Data Summary

Chapter 6: Venture Capital

Chapter Goals:

A. Introduction

B. The Venture Capital Industry

1. Venture Capital Partnerships
2. Types of Funds
3. Investment Characteristics

C. Credible Financial Proposals

1. Amount and staging of interest
2. Financial projections
3. Investor's Expectations

D. Approaching Private Investors

E. Presentation

1. Develop the context for the meeting
2. Set objectives
3. Prepare for success

F. Due Diligence

G. The VC Process

1. Letter of Intent
2. Valuation Issues
3. Structure and terms of the deal

H. The Term Sheet

1. Objective
2. Key Term Sheet Clauses Summary

Case 6. New Tech: Getting Investors' Attention

Bibliography

Appendix

Sample Term Sheet Chapter 7: Exit Strategies

Chapter Goals

A. Components of the Exit Strategy

1. Importance of the exit strategy
2. Differing Perspectives
3. Valuation by revenue multiples
4. Comparison of returns by exit type

B. Likeliest Options for Exit

1. Acquisition
2. Earn-Out
3. Debt-Equity Swap
4. Merger
5. Management Buy Out
6. Liquidation

C. Other Potential Buyers

1. Individual buyers
2. Equity group buyers
3. Partners and employees
4. Family members D. Going Public
5. The lure of going public
6. Constraints
7. Candidates for a public offering
8. Listing requirements for national stock exchanges
9. Comparing the exchanges
10. Alternative forms of listings

E. Initial Public Offering (IPO)

1. Overview
2. Building the team
3. The prospectus
4. Finding buyers for the offering

F. Open IPOs Alternative Methods of Going Public

1. The "reverse merger"
2. Direct Public Offering
3. Considerations related to alternative methods

H. Forms of DPOs

1. Risks across all forms
2. SCOR offerings
3. SB-2 Offerings
4. Regulation A
5. Regulation D- Rule 504

Summary

Discussion Questions:

Sidebars

Charts

Bibliography Chapter 8: Executing the Exit Strategy

Chapter Goals

A. New Tech Case- Finding Compatible Investors

1. Key Tasks 2. The Challenge: Building a Short List 3. The Challenge: Ranking Possible Investors 4. Evaluation of Investors 5. The Solution: Targeting Preferred Investors

Next Steps

7. What New Tech Learned

B. New Tech Case- Getting Ready

1. Key Tasks 2. The Challenge: Dress Rehearsal 3. The Solution: The Meeting and After 4. What New Tech Learned

C. New Tech Case- Choosing an Offer

1. key Tasks
2. The Challenge: Negotiating Terms
3. The Solution: Striking a Deal
4. What New Tech Learned The Solution: Final Term Sheet

D. New Tech Case- Closing the Deal

1. Key Tasks 2. The Challenge: The Due Diligence Review
2. The Solution: Future Growth
3. What New Tech Learned Chapter 9: Franchising

A. Introduction

1. Franchising Basics
2. Types of Franchises
3. The Costs
4. Due Diligence

B. A Tale of Two Franchises

1. The McDonald's Model
2. Great Harvest Bread Company

C. Franchising Opportunity Financing the Franchise

1. Franchisers
2. Non Bank Lenders
3. The SBA

Summary

Questions

Case Study 9-1: Franchising the Neighborhood Restaurant

1. Introduction

Kelly O'Bryan's Neighborhood Restaurant

Bibliography

Chapter 10: Internal Financial Management

A. Introduction

B. The Cash Conversion Cycle

C. The Cost of Trade Credit

D. The Cash Budget Sources of Short-Term Financing

1. Lines of Credit
2. Asset Backed Loans
3. Factoring
4. Customers

F. Cash Management

1. Lockboxes
2. Bank Cash Management Services Conclusion

Questions:

Case 10-1 New Tech: Monthly Cash Budget

1. Cash budget 2. Sensitivity Analysis

Bibliography

Chapter 11: Essentials of Risk Management

Introduction

B. Defining Risk and Risk Management

C. Relationship of Risk Management to Financial Management

D. The Risk Management Process Step 1- Determination of risk management objectives Step 2- Identification of exposures to loss Step 3- Analysis of exposures to loss Step 4- Selection of Implementation of risk treatment methods Step 5- Administration of the risk management program

E. Some Core Risk Management Principles

1. Risk management is a process, not an event 2. Exposure identification is the key to successful risk management 3. Loss control efforts will pay for themselves 4. Pre-loss planning is the key to post-loss survival 5. Bearing some loss can be rational

F. Common Exposures to Loss

1. Direct property exposures 2. Consequential property exposures 3. Liability exposures 4. Human resources exposures

5. Financial exposures 6. Operational exposures 7. Strategic exposures

G. Fundamentals of Risk Control

1. Avoidance 2. Loss control 3. Non-insurance transfer 4. Overall risk control

H. Fundamentals of Risk Financing

1. Retention 2. Insurance 3. Derivatives

I. Advantages of Outsourcing Risk Management

J. Summary K. Resources

1. Books 2. Websites

Chapter 12: Opportunities to Do Business and Raise Capital Globally

A. The Global Mindset

1. Basic Considerations 2. A Few Words About Communications

B. Finding and Working With International Partners

1. Basic Considerations 2. Sources of Information and Assistance 3. Testing the Market 4. Working with Partners

C. Raising Equity Capital from International Sources

1. Basic Considerations 2. Angels and Venture Capitalists 3. What Investors Want

D. Due Diligence

1. Screening 2. Valuation and Monitoring 3. Exit Strategies 4. Regional Considerations

E. Listing on a Stock Exchange Outside the U.S.

Acknowledgement