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10-1Chapter 10Entrepreneurship: Successfully Launching New Ventures, 2/eBruce R. BarringerR. Duane Ireland

Case Study: S-Core IT Solutions A software solution provider to more than 140 clinics.Aiming for > 1000 clinics by the end of 2015Awarded with the Cradle Funds (an agency under Ministry of Finance, Malaysia), the CIP500 Grant in September 2010Awarded MSC Status August 201110-2

Founded by Zaidi and Shahrulnizam home-based since 2004Specialises in Clinic and Hospital Management System

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1. The Importance of Getting FundingFew people know - deal with the process of raising investment capital for their start-up.Many go about task of raising capital haphazardly (unsystematically):Lack experience and dont know much about their choices.

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2. Why Most New Ventures Need Funding

10-5Three Reasons

3. Alternatives for Raising Money - PEDO10-6Personal FundsEquity CapitalDebt FinancingOther Creative Sourcesa. Personal FinancingVast majority of founders contribute personal funds - along with sweat equitySweat equity - value of time and effort

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Friends and Family2nd source of funds:friendly loans or investments outright giftsdelayed compensation reduced or free rent E.g. Founder of Gateway computer got his start with a USD10,000 loan from his grandmother.

10-8BootstrappingFinding ways to avoid the need for external financing or funding through creativity, innovation, economical, cost-cutting, or any means necessary.Difficult for new companies to get financing or funding early on - bootstrap out of necessity.10-9Examples of Bootstrapping Methods10-10Buying used instead ofnew equipmentLeasing equipmentinstead of buyingMinimizing personalexpensesSharing office spacewith other businesses Coordinating purchaseswith other businesses*Obtaining payments inadvance from customersAvoiding unnecessary expenses*Applying for andobtaining grants10-11Matching a New Ventures Characteristics with the Appropriate Form of Financing or Funding

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Preparing an Elevator SpeechA brief, carefully constructed statement - outlines merits of a business opportunity

Why is it called an elevator speech?If an entrepreneur stepped into an elevator on 25th floor of a building - found that by a stroke of luck a potential investor was in the same elevator - would have the time it takes to get from the 25th floor to the ground floor to try to get the investor interested in his or her opportunity. 10-14This quick pitch has taken on the name elevator speech.Most elevator speeches - 45 seconds to two minutes long.10-1510-16Guidelines for Preparing an Elevator Speech

b. Equity Funding10-17Venture CapitalBusiness AngelsInitial Public Offerings (IPO)Business AngelsIndividuals - invest their personal capital directly in start-ups. Typical business angelabout 50 years oldhas high income and wealthwell educatedhas succeeded as an entrepreneurinterested in the start-up process. Number of angel investors - has increased dramatically over the past decade.10-18Valuable - willingness to make relatively small investments. Needs just RM 50,000 rather than the RM 1 million minimum investment - most venture capitalists require.Difficult to findMost angels remain fairly anonymous - matched up with entrepreneurs through referrals. 10-19

Venture CapitalVC companies interested in investing instart ups and small businesses withexceptional growth potential. 10-20limited partnerships of money managers who raise money in funds to invest in start-ups and growing companies.

Funds or pool of money - raised from successful companies, wealthy individuals, pension plans, university endowments, foreign investors, and similar sources. 10-21Venture-capital companies fund very few entrepreneurial companies in comparison to business angels. Many entrepreneurs get discouraged - repeatedly rejected for funding, even though they have an excellent business plan. Still, for the companies that qualify - a viable alternative.

10-22An important part of obtaining venture-capital funding - due diligence process.VCs invest money in start-ups in stages, meaning - not all the money invested - disbursed at the same time. Some venture capitalists also specialize in certain stages of funding. 10-23Cradle Investment ProgrammePre-seed funding programme for viable ideasEnables innovators and innovative entrepreneurs to make the jump from - having an innovative technology idea to become a successful start-up.

Grant up to RM150,000 for innovative technology ideas with commercialisation potential.

10-24Track RecordAs of May 2008, about 270 technopreneurs have benefited from the Cradle Investment Programme (CIP).

Received RM 50,000 per idea, a total of RM15.7 million for commercialising their ideas.

42% of the ideas completed have reached commercialisation stage - the highest rate of commercialization amongst grants in the nation.

10-25Looking for ideas that fall under the areas of ICT and high growth, including:Software and information servicesInternet: e-services, e-commerce and e-contentCommunication and networking mobile dataHigh tech consumer and business productsElectronic and semi-conductorsMedical devices and advance materialsBiotechnology and life sciencesEnvironmental resources management and renewable energyTechnology innovation for any industry

10-26Malaysia Venture Capital Berhad(MAVCAP)Incorporated in 2001 by the Malaysian GovernmentThe nations largest venture capital (VC) company which focuses on investments in the local ICT sectors Its mission:serve as an ideal training ground to groom venture capitalists, empower entrepreneurs to create wealth generate attractive returns for its investmentsFocuses on the ICT sector and high-growth industries10-27In evaluating an investment opportunity, VCs factor prospective rate of return of business within a set time period. Having studied in detail - key factors related to the potential of the investee company such as:composition and competency of the founders and management team market opportunity and scalabilityproduct strengthpotential exit strategy within the funding cycle Evaluate business proposition rigorously prior to any investment commitment made.

10-28Initial Public OfferingSale of stock to the public - traded on one of the major stock exchanges.Most entrepreneurial companies go public trade on the KLSE - weighted heavily toward technology, biotech, and small-company stocks. An important milestone for a company. Not able to go public until it has demonstrated - viable and has a bright future.10-2910-30Four reasons that motivate companies go publicReason 1Reason 4Reason 3Reason 2a way to raise equity capital to fund current and future operations.raises a companys public profile, making it easier to attract high-quality customers, partners, and employees.a liquidity event to cash out their investments. By going public, a company creates another form of currency to grow the company.Many advantages to go public - complicated and expensive process. The first step in initiating a public offering is to hire an institution - acts as an advocate and adviser and walks a company through the process of going public. 10-31c. Debt Financing10-32Commercial BanksCommercial BanksHave not been viewed as practical sources of financing for start-up companies.

This sentiment is not a knock against banks - they are risk adverse and financing start-ups is a risky business.

BETTER NOT for a new venture BANCRUPT!!!

10-33Interested in companies - strong cash flow, low leverage, audited financials, good management and a healthy balance sheet.

Although many new ventures have good management, only few have these strong characteristics (financial track record).

10-34SME BankDesigned to function - one-stop financing and business development centre, SME Bank is dedicated to accelerate growth of SMEs.

Principal activities - to provide financing as well as business advisory services to Malaysian SMEs10-35d. Creative Sources of Financing or Funding10-36Government GrantsLeasingStrategic PartnersLeasingA written agreement in which the owner of a piece of property allows an individual orbusiness to use the property for aspecified period of time in exchange forpayments.10-37Most - a modest down payment and monthly payments during the duration of the lease.At the end, new venture has the option to stop, purchase it for fair market value, or renew. Leasing more expensive than paying cash for an item.An alternative to equity or debt financing.10-38Government GrantsEarly-stage funding for technology companies. (MTDC, MOSTI, MARDI)

These programs provide cash grants to entrepreneurs who are working on projects in specific areas. 10-39Strategic PartnersMyCreative Ventures Sdn Bhd, a government investment arm, was launched by Prime Minister Datuk Seri Najib Razak today to spur Malaysia's creative industry via strategic and innovative funding.

The initiative was initally announced by Najib during 2012 budget proceedings, where RM200 million was allocated for this purpose. 10-40Revision10-41