Creating a Winning E-Business

Second Edition

Getting Your E-Business

Off The Ground
Chapter 4
 Learning Objectives

 Describe the financing issues associated with an

e-business startup
 Discuss the role of informal investors in an
e-business startup
 Identify issues important to venture capital
investors

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Second Edition, Chapter 4
 Learning Objectives
(continued)
 Pitch your e-business idea to investors
 Discuss the advantages and disadvantages of
business incubators

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Second Edition, Chapter 4
 Startup Financing
 Bootstrapping
– Self-funding
– Finding unique and inventive ways to acquire
resources without borrowing money
 Informal investors
– Friends
– Family members
– Angel investors

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Second Edition, Chapter 4
 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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Second Edition, Chapter 4
 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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Second Edition, Chapter 4
 Startup Financing (continued)

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Second Edition, Chapter 4
 Startup Financing (continued)

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Second Edition, Chapter 4
 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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Second Edition, Chapter 4
 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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Second Edition, Chapter 4
 Startup Financing (continued)

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Second Edition, Chapter 4
 Startup Financing (continued)

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Second Edition, Chapter 4
 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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Second Edition, Chapter 4
 Pitching Your E-Business
To Investors
 First meeting with investors is a sales meeting
 Bring a pitch document
– Short marketing document based on Executive
Summary portion of business plan
• Highlights market need
• Shows how startup meets that need
• Indicates potential profits
• Shows how management team can make it
happen

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Second Edition, Chapter 4
 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 don’t know, simply
say so and move on
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Second Edition, Chapter 4
 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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Second Edition, Chapter 4
 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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Second Edition, Chapter 4
 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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Second Edition, Chapter 4
 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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Second Edition, Chapter 4
 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)
• Women’s Technology Cluster (WTC)

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Second Edition, Chapter 4
 Business Incubators
(continued)

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Second Edition, Chapter 4
 Business Incubators
(continued)

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Second Edition, Chapter 4
 Business Incubators
(continued)

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Second Edition, Chapter 4
 Business Incubators
(continued)

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Second Edition, Chapter 4
 Business Incubators
(continued)

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Second Edition, Chapter 4
 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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Second Edition, Chapter 4
 Business Incubators
(continued)

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Second Edition, Chapter 4
 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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Second Edition, Chapter 4
 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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Second Edition, Chapter 4
 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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Second Edition, Chapter 4
 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

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Second Edition, Chapter 4