Chapter 9. Building a New-Venture Team
A.
Liability of Newness as a Challenge
The high failure rate is due in part to
what is known as the liability of newness. Another way to overcome the
liability of newness is by attending entrepreneurship=focused workshops and
events.
B.
Creating a New-Venture Team
The way a founder builds a new-venture team
sends an important signal to potential investors, partners, and employees.
1.
The Founder or Founders
a)
Size of the Founding Team
b)
Qualities of the Founders
2.
The Management Team and Key Employees
One technique available to entrepreneurs to help prioritize their hiring
needs is to maintain a skills profile. An employee is someone who works for a
business, at the business’ location or virtually.
3.
The Roles of the Board of Directors
If a new venture organizes as a corporation, it is legally required to
have a board of directors. There are 2 kind of director;
·
Inside director : a person who is also an
officer of the firm
·
Outside director : someone who is not employed
by the firm
C.
Rounding out the team : The Role of Professional
Advisers
1.
Board of Advisors
An advisory board is a panel of experts who are asked by a firm’s
managers to provide counsel and advice on an ongoing basis.
2.
Lenders and Investors
As emphasized throughout this book, lenders and investors have a vested
interest in the companies they finance, often causing these individuals to
become very involved in helping the firms they fund.
D.
Other Professionals
1.
Consultants
Consultant is an individual who gives professional or expert advice. New
venture vary in terms of how much they rely on business consultants for
direction.
A.
The Importance of Getting Financing or Funding
Few people deal with the process of raising
investment capital until they need to raise capital for their own firms. The
need to raise money surprises a number of entrepreneurs, in that many of them
launch their firms with the intention of funding all their needs internally.
B.
Why Most New Ventures Need Funding
There are 3 reason why most entrepreneurial
ventures need to raise money during their early life:
1.
Cash Flow Challenges
2.
Capital Investments
3.
Lenghthy Product Development Cycles
C.
Sources of personal financing
1.
Personal Funds
The vast majority of founders contribute personal funds along with sweat
equity to their ventures.
2.
Friends and Family
Friends and family are the second source of funds for many new ventures.
3.
Bootsrapping
Boostrapping is a third source of seed money for new ventures.
Boostrapping is finding ways to avoid the need for external financing or
funding through creativity, ingenuity, thriftiness, cost-cutting, or any means
necessary.
D.
Preparing to Raise Debt or Equity Financing
These are the steps involved in properly
preparing to raise debt or equity financing;
1.
Step 1 : Determine precisely how much money the
company needs.
2.
Step 2 : Determine the most appropriate type of
financing or funding.
3.
Step 3 : Developing a strategy for engaging
potential investors or bankers.
E.
Sources of Equity Funding
1.
Business Angles
Business angels are individuals who invest their personal capital
directly in stat-ups
2.
Venture Capital
Venture capital is money that is invested by venture capital firms in
stat-ups and small businesses with exceptional growth potential. The investors
who invest in venture capital funds are called limited partners. The venture
capitalists, who manage the fund, are called general partners.
3.
Initial Public Offering
Another source of equity funding is to sell stock to the public by
staging an initial public offering. Any later public issuance of shares is
referred to as a secondary market offering.
F.
Sources of Debt Financing
There are two common types of loans. The
first is a single-purpose loan. The second is a line of credit, in which a
borrowing cap is established and borrowers can use the credit at their
discretion.
1.
Commercial Banks
Commercial banks have not been viewed as practical sources of financing
for start-up firms. When it comes to start-ups, some banks are rethinking their
lending standards and are beginning to focus on cash flow and the strength of
the management team rather than on collateral and the strength of the balance
sheet.
2.
SBA Guaranteed Loans
Approximately 50 percent of the 9000 banks in the United States
participate in the SBA Guaranteed Loan Program. The most notable SBA program
available to small businesses is the 7(A) Loan Guaranty Program.
3.
Other Sources of Debt Financing
There are a variety of other avenues business owners can pursue to borrow
money or obtain cash. Vendor credit is when a vendor extends credit to a
business in order to allow the businesses as well.
G.
Creative Sources of Financing and Funding
1.
Crowdfunding
Popular creative source of funding for new business is crowdfunding.
Crowdfunding is the practice of funding a project or new venture by raising
monetary contributions from a large number of people, typically via the
Internet.
2.
Leasing
A lease is a written agreement in which the owner of a piece of property
allows an individual or business to use the property for a specified period of
time in exchange for payments.
3.
SBIR and STTR Grant Programs
The SBIR Program is a competitive grant program that provides over $2.5
billion per year to small businesses for early-stage and development projects.
The STTR Program is a variation of the SBIR for collaborative research projects
that involve small businesses and research organizations.
4.
Other Grant Programs
There are a limited number of other grant programs available to
entrepreneurs. The federal government has grant programs beyond the SBIR and
STTR programs.
5.
Strategic Partners
Strategic partners are another source of capital for new ventures.
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